With Greece heading towards default, Spain in the doldrums, and the US starting to slow, it is hard to pluck up the courage to buy shares now, but Fidelity’s equities guru Dominic Rossi has highlighted five reasons why things are not all that bad.
Rossi, global CIO of equities at Fidelity Worldwide Investment, said although equity markets – notably those in peripheral Europe – have sold off, there are a number of reasons why investors could be more positive about the outlook for markets.
Rossi said: “The uncertainty associated with the eurozone crisis has weighed heavily on stock markets. Yet, as time has progressed and doomsday scenarios have been avoided, equity markets have switched out of panic mode, and grown accustomed to the possibility of a Greek default and Spanish and Italian bailouts.”
Rossi said a Greek exit and the rescue of Spain and Italy are now priced into valuations, prompting him to be optimistic for equities.
“While myriad risks persist, we need to recognise many of these outstanding concerns are now reflected in equity market levels. We can see this in the defensive positions taken in equity markets by our clients, who have shown a clear preference for fixed income products for a considerable period of time,” he said.
“The humility being shown towards equities has been justified, but equity markets have a habit of moving back out of the shadows when they become most overlooked.”
Rossi highlighted five reasons why investors need to be more positive on equities from here.
• Across the world, interest rates have been declining for some time.
• Governments globally have pursued expansionary monetary polices and longer-dated bond yields have collapsed.
• As a result, a more compelling case exists for equities, which now offer virtually across the board higher dividend yields than their respective bond markets.
• Recent falls in equities have occurred with reduced levels of volatility and markets have stabilised at key support levels.
• The leadership of the equity markets when they do rally is encouraging; markets are not being led by high-beta stocks within commodities or banks. Recently, market leadership has shifted to companies in the consumer, healthcare and technology sectors. Unlike commodities, these stocks offer a store of value with a dividend stream, and this preference makes us more confident investors are buying equities for the right reasons.
