Now is the time to accommodate the sellers
Thursday, 28 January 2016 12:52pm

One of the best paths to investment success is to accommodate the market; buy when others are desperate to sell and sell when investors are buying irrationally.

That's the investment mantra of Jonathan Bell Lovelace, the founder of Capital Group, one of the world's largest investment managers.

Current Capital Group portfolio manager Andy Budden reiterated the philosophy at a recent media briefing on the state of the global economy in Sydney.

The company is using the recent market sell-off to pick-up stocks which are being dragged down by the short-term noise but whose business models should be little effected by the chief concerns impacting the market today - namely, a slowing of the Chinese economy, a falling oil price and turmoil in the Middle East.

"We don't buy markets, we buy businesses. Right now we can buy businesses being offered to us at valuations that we think are low in the context of their long-term prospects," Budden said.

Patching in via the company's impressive new conferencing system from his Singapore base, he added that new technologies brought about by the second machine age are creating some of the most exciting areas for investment.

"Whilst there chunks of the market that look unattractive there are others which look really quite attractive. This could include pharmaceuticals, ecommerce, the expansion of services being offered in the cloud, environmental technology, online travel agents and sensors. One of the key forces in play is the displacement of labour by machines. Some of this is factory automation or services moving online."

Amid market turbulence, however, the journey to success could be fraught with challenges for investors.

"We're very clearly in a world where, even as economies recover, we're going to have to get used a slower rate of growth than we might want. As we move through 2016 we expect to see more market turbulence," Budden said.

While January has seen markets panic about China's prospects, Budden has looked closely at the data and remains relaxed in the view that the economy is simply transitioning from being investment-led to one which needs to be more consumer-led.

"Every time an economy goes through this transition it is a difficult experience," he said, adding that though official GDP of 6-7% growth is probably massaged by the authorities, there's enough to be optimistic about, even if investment growth in the economy is negative.

"Our view is that the Chinese economy is probably growing at something closer to 4% per annum. China is certainly in trouble right now but the consumer portion of the economy is quite strong. Overall we don't think China is going to sink the global economy," Budden said.

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