Investment Strategies

Look Beyond Short-Term Volatility To Find Value In Equities - Martin Currie

Wendy Spires Group Deputy Editor London 15 August 2011

Look Beyond Short-Term Volatility To Find Value In Equities - Martin Currie

Investors who are far-sighted enough to look beyond short-term volatility can find value in global equities, argues Tom Walker, the manager of Martin Currie Portfolio Investment Trust.

Last Thursday, global equity markets closed 10 per cent in sterling terms, notes Walker, adding that markets are still fluctuating wildly from day-to-day and are likely to remain volatile for a while.

However, Walker says that once the markets have settled down that strong corporate cashflows, continued dividend growth and an uplift in M&A activity will drive values to trend upwards. Economic uncertainty will prevail for some time however, he predicts, off the back of the eurozone’s sovereign debt problems and the US fiscal deficit.

“We expect interest rates to remain low in developed economies for several years, and they may soon start falling in developing countries once speculation and inflation slow down there. The economic recovery will be a long drawn out affair."

Like many other commentators, Walker does not set much store by Standard & Poor’s downgrade of US credit last week; like others, he has no concerns over the dollar’s status as the world’s reserve currency and the ongoing status of US Treasuries as a “safe haven” asset.

In Walker’s view lack of decisive political leadership in Europe to solve the eurozone’s debt crisis has thrown into stark relief the fact that many global companies are in considerably better shape financially than the countries in which they are listed. As such, despite the difficult macroeconomic environment, company valuations will be supported by their strong balance sheets and positive cashflows, he says.

Walker believes that on any longer-term investment view, equities are a better bet than cash or bonds – although investment returns from all asset classes will probably be modest.

Again, like others, Walker is avoiding financials at present due to the fact that banks’ fortunes tend to be closely aligned with those of Western governments’ debt issues. Instead, he advocates long-term global leaders that can prosper in a generally low growth environment.

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