InvestNow News – 27th Mar – AMP Capital – Value rapidly building in markets, but investors need more to be sure

24th March – Greg Fleming, Head of Investment Strategy

“ … Probability is the only mathematical tool available to help map the unknown and the uncontrollable. It is fortunate that this tool, while tricky, is extraordinarily powerful and convenient for those who are able to deploy it. (Benoit Mandelbrot, the founder of fractal theory) … “

The substantial, and in many markets unprecedently-fast, falls in growth asset values in the month since the CoVid-19 crisis began unfolding has been disorienting for many investors. The event is a textbook “black swan occurrence” – a shock so uncommon that price mechanisms tend to ignore it rather than capture its probability, and thus markets over-react massively when it in fact transpires. This degree of market shock is exacerbated, because prior to the outbreak, investors were largely focussed on an improving growth and profit outlook for 2020 after the trade-war affected uncertainties of 2019. 

Cautiously optimistic assumptions have however been de-railed as the bull market reversed into a bear market and commentators have been outdoing themselves in predictions about how deep the global contraction triggered by CoVid-19 will prove to be. For instance, there have been widespread statements about a multi-year recession and potential for economic depression which we consider at this point to be exaggerated. Similarly, predictions that the current shocks to the global system will be “worse than the GFC” need to be put in context for NZ investors. It is true that if no progress is made on virus containment, resumed business operations and re-activation of international activity, the hit to GDP growth is likely to exceed that in 2008-2009. All the same, it is important to remember what the GFC was …

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