Magellan Financial Group portfolio manager Hamish Douglass said an “Armageddon” situation has passed for financial markets, but the long-term outlook for global growth and risky stocks is subdued.
He warned financial planners that companies further down the equity curve may fail or be poor investments if there was a prolonged recession or slow long-term growth.
“If you buy high quality stocks at very attractive pricing, you will do very well,” he said.
Due to their consumers’ high debt levels, major developed economies including the US and UK are likely to grow very slowly over the next 10 to 15 years.
Therefore, Douglass likes multinational, large-cap conglomerates with strong balance sheets that have significant exposure to fast-growing emerging markets.
Yum! Brands, Procter & Gamble, Nestle and Coca-Cola are among his favourite picks.
“We’re owning franchises that we think are pretty impregnable, and almost irrespective of your view of economic growth over the next 10 or 15 years, we think these companies are going to grow at very satisfactory rates,” Douglass said.
Magellan’s Global Fund declined 2.58 per cent for the year to 31 May 2009, making it the third-best performer among its 145-member Morningstar peer group.
The fact investors are now buying long-dated bank paper without a government guarantee and participating in capital raisings, especially after the US bank stress tests, are positive signs, Douglass said.
“I don’t think a lot of people realise that on two occasions in 2008, we went right to the edge of a cliff in terms of the world’s financial system melting down,” he said.
Had Bear Stearns not been rescued by the US Federal Reserve and JPMorgan, the US$50 trillion credit default swap market would have unwound and there was a 95 per cent chance that two other major investment banks would have failed, Douglass said.
“My view is that situation would have made 1987 look like an absolute teddy bear’s picnic.”
