Keep Your Cool: State Street to Amundi Still Believe in Stocks

(Bloomberg) -- Some of the world’s biggest asset managers were shocked by the stock market’s collapse on Monday, but warned against hasty defensive moves in the belief that monetary support will eventually assist a recovery.

“If the past has anything to guide us, try to keep your cool and keep your calm, and try not to overreact,” Ana Harris, global head of equity portfolio strategists at State Street Global Advisors, said in an interview on Bloomberg TV. “Some investors have the ability to tap into these market dips and they will rightly do so. These corrections tend to be quite sharp and then bounce back.”

Global equities tumbled and multiple European stock indexes approached bear markets after an all-out price war in oil added to coronavirus concerns. Anticipation is growing for policy makers to take more decisive and innovative steps to limit the fallout after the Federal Reserve’s recent emergency interest rate cut did little to restore confidence.

Didier Borowski, head of macroeconomic research at Amundi SA, Europe’s largest asset manager, said that markets have turned “overly pessimistic” and that an increase in hedging is a good strategy to navigate the current sell-off. But in the longer term, he believes that European stocks can get a boost from fiscal intervention and the European Central Bank’s “whatever it takes” support of liquidity.

“Despite the panic that has gripped the equity markets, we believe that we must remain calm as much as possible,” said Borowski. “We expect a U-shaped scenario with a significant rebound in gross domestic product growth in the second half of the year. This would open the door to a significant rebound in the equity markets.”

Here’s what other investors and strategists are recommending:

Lots of Support

“On a day like today, it’s definitely too early to buy back into stocks,” said Marija Veitmane, a multi-asset class research senior strategist at State Street Global Markets. “But coronavirus will unleash quite a lot of policy support, particularly from the fiscal side and that should be beneficial for markets. Then equity markets can recover.”

Sheer Fear

“At the moment, sheer fear is driving market developments,” said Esty Dwek, head of global market strategy at Natixis Investment Managers Solutions. “Prices could therefore continue to fall for the time being. However, we expect further monetary and fiscal stimulus in the U.S. and Europe. As soon as the extent of this support becomes visible, stabilization should begin. The economic impact of the virus should be less severe in Europe and the United States than in China. Nevertheless, we expect March to remain difficult. After that, the worst should be over.”

Not Whipsawed

“On one hand, the economic deterioration promotes a more cautious view, but the worse it gets the more likely a policy intervention could occur, which could stabilize financial markets very quickly,” said Georgina Taylor, a fund manager at Invesco Asset Management. “Given volatility will likely increase, it is important our strategies are not whipsawed with broad shifts in short-term sentiment.”

Maximum Pain

“What we expect to stabilize first is volatility, as the latest wave will have gone through and we operate at levels last seen during the great financial crisis,” said Sebastien Galy, a macro strategist at Nordea Investment Funds SA. “What many have learned from there is that you need to buy at the point of maximum pain. We expect much from the Fed and ECB ahead of us. Someone needs to hold the line and they do, as bitter a taste as it comes.”

Salutary Panic

“More than ever, it is crucial to apprehend the situation with our slow brain,” said Yves Bonzon, group chief investment officer at Julius Baer Investment & Wealth Management Solutions. “Uncertainty has rarely been so extreme. We can imagine that this is the time when panic is salutary, but most probably a calm approach is the most effective one to protect our wealth in the medium-term. So let’s use our slow brain and review what we know, what we don’t know, and what the markets discount at current prices.”

Stay Put

“The market is clearly in a panic mode, pricing in a full recession,” said Natalia Aguirre, head of research and strategy at Madrid-based Renta 4. “It’s a very complicated situation in which I would recommend to stay put, not succumb to the hysteria and sell. But I wouldn’t either say we are yet at the buy-the-dip moment as there are still lots of uncertainties.”

Opportunity

“The oil glut means additional complexity to the coronavirus-induced uncertainty,” said Frederik Hildner, a portfolio manager Salm-Salm & Partner. “But with interest rates virtually gone everywhere, risk assets’ yield gap to bonds looks like an opportunity for investors able to bear the volatility ahead.”

--With assistance from Jan-Patrick Barnert, Macarena Munoz, Anna Edwards, Matt Miller and Michael Msika.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Celeste Perri

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