Sydney, Australia (20 March 2020) – Alarming coronavirus headlines have scared investors, and with more difficult times ahead, fears are likely to keep rising. But any signs that the bad news is lessening could be the signal for investors to jump in and buy stocks, according to Research Affiliates’ founder and chairman, Rob Arnott.
As of 19 March 2020, the S&P 500 Index had fallen 29% since it peaked on 19 February at 3,386, while the ASX 200 had fallen 33% from its 20 February 2020 peak of 7,162. With further losses likely, Arnott said disciplined investors would be ready to buy equities when panic peaks and bargains make themselves obvious.
“For investors, the time to buy is when we’re at ‘peak fear’. It will be hard to be perfectly right on the turning point, but don’t wait for the good news, just wait until the pattern of bad news lets up. The window of opportunity as always will be short, but highly rewarding for investors over the longer term,” Arnott said.
“Stock markets will begin to recover long before the pandemic is on the wane. The strongest bull markets are not built on a foundation of good news, but on diminishing bad news.
“Many businesses will now go bust as the coronavirus takes its toll. Everyone is panicking. Even gold is getting crushed and that signals a panicked drawing of liquidity. In the US, like in Australia, you can’t find toilet paper anywhere. This is the capital markets’ equivalent of that. People are hoarding cash and government bonds.
“But fast forward the clock five years and the many surviving businesses will be faring well, some will be making record profits, and some will have the benefit of fewer competitors. On top of that, some industries will have fewer zombie or heavily indebted companies and that can only be a good thing,” said Arnott.
According to Research Affiliates, Australian equity prices have fallen to around, or even below, fair value, but US shares still need to fall further before valuations are attractive. At the market’s peak a few weeks ago, US equities were very overpriced. Both markets will inevitably recover from the rapidly evolving coronavirus crisis and reach higher levels over the longer term. This will reward investors who step in when fears are greatest.
“As for the Australian market, it’s where we see value. Like emerging markets, the absence of the highly inflated technology stocks and the greater representation of value equities place it in a better position than the US market.
“Over the next 10 years, we expect Australia to do much better and outperform US equities by around 6% a year in real terms. While the Australian market has underperformed the US over the past decade, with big miners and banks capping returns, compared to the US market’s heavy exposure to technology stocks, that situation will now likely reverse,” said Arnott.
“The sharp fall in the Australian dollar will also help to cushion the fall for big miners over the shorter term and therefore support the overall market. While a lower local dollar isn’t good for importers, the fact that Australians are being forced to stay at home and cancel travel plans and likely import a lot less, will mean that the lower currency could hurt less than usual.”
Australia: Nicki Bourlioufas, Spot On Content & PR, +61 411 786 933 firstname.lastname@example.org
Research Affiliates, LLC, is a global leader in factor investing and asset allocation. As of December 31, 2019, A$193 billion in assets are managed worldwide using investment strategies developed by Research Affiliates, of which Rob is the chairman and founder. Rob is also co-portfolio manager on the PIMCO All Asset and All Asset All Authority funds and the PIMCO RAE™ funds.
Founded in 2002 and based in Newport Beach, California, Research Affiliates is dedicated to creating value for investors and seeking to have a profound impact on the global investment community through its insights and products. The firm’s investment strategies are built on a strong research base and are led by Rob Arnott and Chris Brightman. Research Affiliates delivers solutions in partnership with some of the world’s leading financial institutions through their offerings of mutual funds, ETFs, separately managed accounts, and/or commingled accounts.
RAFI Indices, LLC is the global index company of Research Affiliates with over 50 live strategies worldwide. Officially formed in late 2016, the company constructs, publishes, and licenses indices based on Research Affiliates insights and strategies built from award-winning research. Since it launched the RAFI Fundamental Index in 2005, Research Affiliates has been a pioneer in the field of alternative and factor-based indexing. In the 15 years since, the firm has continued to innovate and expand its offering with new insights, tools and investment strategies including multi-factor and ESG indices. Visit RAFI.com for more information.
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