5 good reasons to be positive
1. Swift, coordinated global response
Governments worldwide have responded to significant market volatility and economic weakness with unprecedented and decisive action. Coordinated global fiscal, monetary and trade policies and interventions have been swift and comprehensive. These actions will stabilize the economy and allow financial markets to gain a foothold, and build in a turnaround.
Further, by ensuring trade barriers stay low and protectionist policies are not employed, countries can continue to rely on established trade channels. This ensures that trading can continue to operate in a global and uninterrupted manner.
2. Significant levels of liquidity
Governments worldwide have ensured a significant level of liquidity has flowed to the markets, capital that will help stabilize the financial system.
Government efforts will go a long way to shore up financial markets and likely have the desired effect of stemming the selling and easing this prolonged bout of volatility.
3. Attractive valuations
Equities are at among the best values they’ve been in many years. World p/e ratios, just one of many and the most common valuation measure available, shows a decline in p/e levels that are now sitting at less than nine times earnings. These are levels that have not been seen in more than 20 years. Equities are at long last a bargain, and at levels where buying makes sense.
This is precisely when and where active investment management adds tremendous value. At Investors Group, fund managers employ key risk management strategies as part of their overall investment decision making process.
Further, a global presence complemented by tremendous depth and breadth of experience, create a prudent decision making process that is focused on quality in securities selection.
4. Lower prices and rates
Prices and rates are coming down, and interest rates are at 50 year lows, which should help spur the economy. This is good news for consumers, despite fading confidence and spending levels. As an example, the drop in the price of oil has translated into hundreds of dollars of savings every month for individual consumers and billions in savings for businesses, particularly those in manufacturing.
Finally, as individuals save on many discretionary items that have been significantly reduced in price, combined with lower prices at the pump – there is an important pocketbook break to consumers that can help refuel spending.
5. A healthier market
It’s easy to lose sight of the fact that the process of creative destruction, though not a pretty one, is necessary for the resumption of growth.
Businesses that are poorly run or badly managed are regularly assessed by the market as part of a cycle of growth and retrenchment. The markets continuously do the important work of identifying the issues, digesting the news, and accounting for it.
History has shown there is a distinct pattern of market activity; cycles of both advancement and retrenchment, and periods of low and high volatility.
It’s also important to remember at times like this that stock markets are a leading indicator, which means they look out past current events and price in the news. It also means that disruptive financial events are often a precursor to long-term market growth, with markets typically recovering and turning up well in advance of the economy.
Although today’s situation may feel unique, what is consistent is that throughout history, markets have regularly gone through tests of confidence, only to gather strength and gain new ground.
Daniel McClure, B.Sci., MBA
Vice-President, Portfolio Manager & Research Director
Dan is the director of research for our investment management team, and co-manages our technology and socially responsible investing mandates. He has 16 years of relevant experience.
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his huge advantage into a basic disadvantage.”
– Benjamin Graham, Author, Intelligent Investor
