A $645 Billion Manager Says Calling the Market Bottom Is ‘A Mug’s Game’
The coronavirus market sell-off is probably past its worst, strategists at Morgan Stanley have said. Jeffrey Gundlach sees bigger losses ahead, while Howard Marks went from bearish to more optimistic in a week.
For another veteran investor, calls on whether equities have reached a bottom are nothing short of futile.
“I think it’s a mug’s game,” said Hugh Young, head of Asia Pacific at the $644.5 billion manager Aberdeen Standard Investments. “Nobody has the answer.”
Shares across the world have recovered some of their losses from the rout spurred by the virus. An index of global equities has risen more than 20% from its low in March, technically entering a bull market, though it’s still down more than 18% this year.
For Young, it’s possible markets have reached a bottom, but it’s far too early to say with certainty.
“It feels as though this is going to go on for a fair old time,” he said. “And to an extent that must be in prices. But then we’re seeing some quite sharp government action, whether it’s bank dividends or changing rules on loans, foreclosures and all sorts of things. So it’s very hard to be precise.”
Young argues that global lenders’ moves to halt dividend payments after pressure from regulators came “slightly out of the blue.” More knock-on effects of the coronavirus crisis are likely, he says, and it’s impossible for them to be fully incorporated in prices.
Aberdeen’s flagship Asia Pacific Equity Fund has fallen about 18% this year, according to data compiled by Bloomberg. Over a three-year period, it’s beaten 66% of peers.
Young said his cynicism about confident market calls is born out of more than 30 years’ investment experience. Even if someone correctly times the market once, they’re unlikely to repeat the feat, he said. And bottoms, he said, are only easy to identify after the fact.
“I’m sure the market bottom, as it always is, will be obvious with hindsight,” he said. “People identify it with one particular thing that it happened to coincide with. Again, in my experience, that’s often not quite right. But it’s an easy explanation for people with hindsight. I’m afraid you never know.”
What, then, can an investor such as Young say with confidence? For one, the crisis will last for at least several more months, and many businesses worldwide will come under severe stress. There’s still a lot of pain to come through, Young said.
“Our best guess is that this year’s a write-off and then things will normalize at the beginning of next year,” Young said.
At current depressed price levels, people should be investing, he said. But there’s a big caveat: only if they have “secure cash flows,” which are much more elusive in the current crisis.
Another veteran money manager echoed Young’s view about attempting to call the low, while saying statistically there could be more pain ahead.
“No one can know if we are at the bottom in index terms,” said Mark Mobius, who set up Mobius Capital Partners last year after three decades at Franklin Templeton Investments. “We do know that historically for all markets the average bear market decline has been about 50% with a range of 23% to 70%. So if history is our guide, then we could have more to go.”
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