Now not the time for index investing: Gosling
At a time when the “worst recession since the 1970s is likely unavoidable” it is not a time for investors to be in index funds, according to MLC Investment Management’s Capital Markets researcher Susan Gosling.
In a research paper entitled ‘Thinking the Unthinkable’, Gosling said “being in the right companies is more critical for investors now than at any time any of us can remember”.
She said some companies are “certainly attractive” right now even if the global economy has a period of stagnation, but that other companies will fail.
“Winners will include companies with strong management and low or no debt; those with income and price inelastic demand, such as those producing staples not luxuries, or with strong franchises.”
Meanwhile, Global Value Investors head of investments Roy Chen does not expect stocks to “bottom-out” until the extent and duration of the profit downgrade cycles are better understood and discounted into stock prices.
“To what extent the market has already priced in this scenario is difficult to determine, but we are seeing compelling value in certain areas.
“In our view, after a severe recession the markets tend to reward — at the initial stages of recovery — those companies with competitive strengths within sector or industry groups, strong balance sheets and cash flows that are attractively valued and dividend-paying,” he said.
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