Stock markets are likely to remain volatile for some time dogged by persistent worries about a U.S. recession and the credit crunch, fund managers said on Wednesday, with Fidelity advising investors to keep their cool.
Fear of slower growth in the world’s largest economy has been a key driver behind the recent slide in global stock markets. The MSCI World index has lost 13 percent this year to reach its lowest level since November 2006.
“So what should investors do in this situation? My advice is ... wait and see,” Michael Gordon, head of investment strategy at leading mutual funds group Fidelity International said in a note.
“History teaches us that it’s best to do nothing in a situation like this.” All too often, private investors enter a market at too high a level and exit at the bottom, after a crash, he said.
Dominic Rossi, head of equities at Threadneedle said her company’s equity portfolio became more defensive -- health care, energy, telecommunications -- in the second half of 2007.
“Investors must count on volatility remaining high in the immediate future,” Rossi warned in a note.
Max King, strategist at Investec Asset Management, said stock prices had fallen so much that investors expected a significant fall in corporate earnings this year.
“While the consensus of analysts’ forecasts shows global earnings growth of 13 percent in 2008, the consensus ... (elsewhere) ... is that these numbers are worthless,” he said in a note.
That was echoed by Matthias Schellenberg, managing director at ING Investment Management, who said earnings growth estimates from analysts were still too high.
“The uncertainty about corporate earnings growth in 2008 has risen, not only in the financial sector but ... elsewhere. The markets are expecting a flood of profit warnings in the next few months,” Schellenberg said.
Profit warnings could stem from weak business prospects in the United States, where investor pessimism holds sway.
“Worries about the U.S. economy remain the most important theme in the market,” said Virginie Maisonneuve, head of international equities at Schroder Investment Management, citing an in-house survey of U.S. investors which found 72 percent expected a U.S. recession in 2008.
Klaus Wiener, head of research and tactical allocation at the German arm of Generali Investments, said the 0.75 percentage point cut in key interest rates, announced by the Federal Reserve on Tuesday, did not represent a turning point for financial markets.
Europe’s FTSEurofirst 300 index finished down 3.2 percent on Wednesday with the benchmark S&P 500 index losing 2.7 percent by 12:50 p.m. EST.
Some fund managers, however, see the sell-off as a buying opportunity, even in the financial sector battered since mid-2007 by massive writedowns on debt instruments linked to risky U.S. housing loans, at the root of the malaise.
Gordon at Fidelity said some financial stocks looked attractive at current price levels.
Rossi said Threadneedle funds were underweight financials, especially banks, but added: “Even among the ostensibly worst performers, like the bank sector, there are pearls worth including in a portfolio.”