Volatility generates long-term value

Andrew Pease

If investors are prepared to take a long-term view then they are likely to discern some real value in the current market turmoil, according to the latest analysis issued by Russell Investments.

The analysis, attaching to the Russell Investment Markets Barometer, suggests that investors are being offered the opportunity to buy future growth and profits at significantly discounted prices.

Russell senior investment strategist, Andrew Pease said investors needed to ask two fundamental questions: ‘what is the long-term outlook for profits’ and ‘what price am I paying for these profits?’

“Investors with a long-term investment outlook beyond the next six months should take note of the low price earnings ratios on offer for global equities combined with resilient profit expectations,” he said. “In the long run, local equities should also move higher by the end of the year but are likely to lag global share market returns.”

Pease suggested that global stagflation fears were misguided and that energy price rises would ultimately be deflationary rather than inflationary, albeit that headline inflation rates had soared around the globe.

“Australia’s inflation problems are more widespread than the rest of the world,” he said.

“Australia’s economy has hit capacity limits producing ‘demand pull’ in addition to ‘cost push’ inflation pressures and the Reserve Bank faces a difficult balancing act over the remainder of 2008.”