“This reflects the fact that growth is slowing which is an expected equation as the rate of growth cannot be sustained at 10% a year, every year as the base line has to have a slowing effect,” he adds.
“So accepting we are not bullish on China, we are also not as bearish as many and believe that the consumer segment will continue to grow as individuals continue to become wealthier and spend the capital they have.
“The fact that US interest rates are expected to rise later and slower will cause the dollar to decline and that will only help a recovery in earnings in the short term.”
Another investor suspicious of recent market activity is Argonaut’s investment analyst Oisin O’Leary, who identifies a case of mean reversion in markets rather than fundamental change.
Of the 30 worst performing stocks in Europe during the period of 28 September to 13 October, with the exception of three companies they have all been winners on a year-to-date basis, prior to recent market events.
“Without a fundamental catalyst this short period of mean reversion should not endure,” he says.
“We also remain committed to our current ideas, as no fundamental catalyst means no material changes to earnings stories – companies which we have concluded from our research will post earnings surprises on the upside will continue to do so, and the same on the downside, with prices readjusting in the future.
“Whilst short term periods of stock market performance where there is mean reversion based on no change in fundamentals are frustrating, these can often be the best entry points for new money into strategies based on fundamental earnings surprise investment analysis.”
