There is a risk we could see another financial crisis post the US election, according to Montgomery Investment Management.
Montgomery Investment Management’s chief investment officer, Roger Montgomery, said “the issue with this US election is whether economic growth slows and trade and current account deficits expand. These two occurrences when combined raise the risk of another financial crisis”.
Montgomery said the International Monetary Fund (IMF) downgraded their global growth forecast to 3.1 per cent, while it also expected that US growth would slip to 1.6 per cent in 2016, and then rise to 2.2 per cent in 2017.
“Should Trump win the election on November 8, [there are] fears of the impact, should he close US borders to trade, [it] would make the 2017 jump in GDP growth to 2.2 per cent fanciful and his own claims of boosting growth to four to five per cent preposterous,” he said.
However, the US election would create an investment opportunity in markets, as sharp share price declines in businesses with bright long-term prospects would be an opportunity.
“Because eventually the US will recover and Trump will be replaced,” he said.
“There’s an election every four years in the US and we are always investing over much longer periods. It’s the same with federal budget, they happen annually so noise surrounding their imminent release is usually an [investment] opportunity.”
For local investors, there was already a raft of high quality companies that had fallen by over 30 per cent in the last month or two.
For example, Healthscope and Vitagroup had experienced short-term natured issues, while the market treated them like permanent problems. That was a value investor’s dream, he said. Other companies like Carsales, REA Group and Altium were simply being repriced as bond rates climbed.
“If you believe that long bond rates will stabilise at current levels or even fall again, or that the future growth rate of earnings more than offsets the decline in the profit of the price earnings (P/E) ratio, then the sharp sell-offs offer an opportunity,” Montgomery said.
