Over the last few weeks, markets have seen their worst days since the GFC and 1987 Black Monday crash as uncertainty reigns. That’s seen market participants lose sight of the long term, according to DNR Capital chief investment officer Jamie Nicol.
“While the impact on short-term company earnings has the potential to be material, the overall value of a company is not significantly impacted by the outlook for earnings over the next six months, but rather its future long-term earnings capacity,” said Mr Nicol.
“When the market is caught in the moment of uncertainty, the focus of market participants can shrink rapidly and we think it is a mistake to become too short term in your thinking at this point.”
The old saying “buy when there’s blood on the streets” still holds true, Mr Nicol says – and investors should be considering the opportunities presented by the market rout. For example, Ramsay Health Care which is now down 30 per cent from its highs, but which is well placed to come back due to its portfolio of high-performing hospitals and an ageing population.
The effects of COVID-19 are also likely to change long-term behaviour in ways that could impact valuations. Domino’s Pizza Enterprises is seeing an increase in downloads of their apps in Europe as lockdowns sweep the continent, something DNR Capital believes will drive continuing use.
“The market sell-off has been very sharp and indiscriminate and we see this as providing a range of opportunities to buy good businesses at very attractive long-term valuations,” Mr Nicol said.
And a recovery will come, supported by low interest rates and massive fiscal stimulus, while the peak fears surrounding COVID-19 could be in the rear view.
“Equity markets have survived world wars, terrorist attacks and a GFC – a global pandemic, while no doubt a serious issue, will also pass in time,” Mr Nicol said.
