The experiences of 2008 and the immediate aftermath clearly showed history cannot be relied upon as a barometer for how markets will behave anymore, and there is plenty of unchartered water out there still for investors to try and navigate.
Today, the International Monetary Fund issued a notably gloomy outlook. Now the IMF is not exactly known for raising the spirits of the world’s people on regular basis with optimistic rhetoric, but even by its sombre standards the sentiments were downbeat.
The headlines were of course taken by its claim that a British European Union exit following the June referendum could cause “severe regional and global damage by disrupting established trading relationships”. A stark warning, but arguably of more concern was its cut to its global growth projection by 0.2% to 3.2%, and a claim that there is a risk of a return of financial turmoil itself, which impairs confidence and demand “in a self-confirming negative feedback loop.” It said in that scenario the world economy may reach stalling speed and fall into “widespread secular stagnation.”
In order for the value in even the best of the discounted stocks to be unlocked, people need to be looking for it. A major economic slowdown along the lines the IMF describes could mean investors run from the market and value funds are left with equities baskets of great potential but no actual returns to speak of in the near term.
It could therefore be argued that sticking with the high quality names and their ‘economic moats’ could be a better bet this year than loading up on value. It is better to stand still than go backwards.
As is often the case, the macro may be what matters most rather than investment style or stock picking skill.
