AMP Henderson chief hints the time to buy is nigh

By Rob Hosking

Friday 9th August 2002

ROGER YATES: The speed of this bear market has been breathtaking

It might be time for investors in world equities to start buying again.

"It is far, far too late to be selling stock now," AMP Henderson Global Investors managing director Roger Yates told The National Business Review.

There is a view among some market analysts that the bottom of the slide that began several months ago has been reached.

Mr Yates was too cautious to wholeheartedly endorse that view. Three things needed to take place before world equities began to rise in value again, he said.

"We need more good news on the economic and profits front.

"There has been some well-disguised good news over recent weeks - industrial production is up, business confidence is rising among most of the major economists, and some of the quarter-on- quarter profits are moving into the positive."

The second factor has a clear date on it - August 14. On that day the heads of the major US firms have to state that their financial accounts represent an accurate view of their companies. The move is part of the post-Enron, post-WorldCom crackdown and is a bid to reassure jittery investors that they can believe what they read in company reports.

"That date is going to become something of a landmark," Mr Yates said.

The third factor is an end to some of the forced selling that major investors have had to engage in over recent months.

"Certain [other] European markets, some of the insurance companies have found their solvency ratios under pressure and they've been sellers of equities."

Meanwhile, individual investors have taken fright and put their money in the bank or in bonds.

To give an idea of the scale of the selldown, he pointed out that in the US in June alone $14 billion had been pulled out of mutual funds.

But when investors looked beyond the headlines there were some good prospects available in world equities, he said.

"You can now find large, stable companies with dividend yields and an excess of cash - and even modest dividend growth."

What had characterised the downturn of recent months has been its speed, he said.

"It's been a compression in time of what would have happened in the past. Bear markets used to run over years and years, but the speed of this one, since the start of the year, has been breathtaking."

In retrospect, the correction was inevitable, he said - with some US stocks selling at 25 times their earnings it should have been clear a major bubble was developing.

The current correction has been attributed not only to that but also to other external factors, such as the al Qaeda-administered jolt of last year.

"I think we sometimes try to complicate market corrections - we've said this one was partly an overall slowing in the economy, partly September 11 and partly the Enron-WorldCom fallout."

However, at times the markets could take external shocks like these - a good example was the Gulf War of 1991, which led to only a brief dip, and then the market carried on as if nothing had happened.

"You can have events like that and the sharemarket will be immune. What that's telling us is that the external event is the trigger, the catalyst, and not the cause.

"The fundamental reason for the decline is no more than they were overvalued in the first place.

"When you look back over the past few years, there's no doubt that big chunks of the market were overvalued.

"That's not true today and that's what makes us enthusiastic."

Comments from our readers

No comments yet