As major indexes enter correction territory, it may be time to diversify and look for bargain-bin stocks
October’s punishing market movements have brought global stocks to their lowest valuations in two years, eroding the support for a continued global growth story — and bolstering the case for diversification and bargain-hunting.
“[M]ajor indexes in Europe, Japan, Shanghai, Hong Kong, Argentina and Canada are all languishing in correction territory—a decline of at least 10% from a recent high,” reported the Wall Street Journal. The US is close to joining the market-correction club following last week’s selloff that erased all the gains that the S&P 500 and the Dow Jones indexes had achieved for the year.
With the growing group of losing markets, the developing year-on-year picture is one of a reversal toward uncertainty. Investors have expressed growing anxiety over myriad issues including China’s decelerating economy; geopolitical mines in Italy, Saudi Arabia, and Turkey; and the still-brewing US-China trade dispute.
Other emerging wrinkles aren’t helping. There’s fresh data from the Eurozone, which showed the regional economy growing at its slowest in two years. Tech firms such as Amazon, Alphabet, and Netflix also tumbled in October, losing more than 10% apiece, said the Journal.
With the growing laundry list of issues, the forward price/earnings ratio of the MSCI All Country World Index was depressed to around 18. That’s its lowest since early 2016, when fears of a hard economic landing for China as well as a crash in oil prices pulled the rug out from under the markets.
“So far in 2018, the index is down about 7%, on course for its biggest decline since 2011,” the Journal report said.
Despite the turmoil, not all stock investors are ready to throw in the towel, especially as most don’t support a near-term outlook for recession in the US. But many are taking a harder look at formerly undisputed winners — including Tencent, Facebook, and Samsung, all of which have seen their 2018 gains wiped out.
“For a while, just a couple of sectors were holding the whole market together,” said Anwiti Bahuguna, senior portfolio manager and head of multi-asset strategy at Columbia Threadneedle Investments. “And now we’re finally seeing the beginnings of a rotation.”
The turbulence that’s capsized many indexes and companies hasn’t been enough to discourage equity investors, but choosing any market or sector is looking more and more like an exercise in brinksmanship. Noting that central bank policies around the world are “going in different directions,” UBS Global Wealth Management’s chief investment officer Mark Haefele is encouraging clients to put money in global equities rather than focusing portfolios on one region or another.
“You don’t want to bet on just one of these central banks getting it right—you want to diversify it,” Haefele said.
And while emerging markets have been hit particularly hard by the recent selloff in global equities, BlackRock sees attractive valuations in the group. The asset manager also issued positive ratings for stocks in the US and Asia excluding Japan.
