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Equities challenged but opportunities are there

While near term market volatility is expected to continue in Australia and overseas, it is not all doom and gloom, according to GSFM and Munro Partners.

At a recent briefing, GSFM investment strategist Stephen Miller said that all developed country central banks were late in recognising just how great a challenge inflation would prove for monetary policy.

"By allowing inflation and inflation expectations to escape the realm of being within their ability to comfortably manage without a serious risk of a substantial growth dislocation, all central banks find themselves in the realm of 'least bad' approaches," he said.

Miller added that while many central banks, including the Reserve Bank of Australia, have to learn the lessons from '70s style inflation, that any delay in a coherent and firm response to an inflation threat only heightens the risks of more substantial macroeconomic dislocation down the track.

It's not an easy task, charting a course between vanquishing inflation without tipping the economy into recession, he said.

During a tightening cycle when the world is confronting inflation -which is at its highest level in 40 odd years - Miller said there is reason for scepticism that inflation can peak at such low levels.

Miller said that reason for that scepticism relates to an under-appreciation of just how stubborn broad-based measures of inflation have been.

"History is not replete with central banks executing that task successfully," he said.

"Given the attendant jolt to current market expectations regarding interest rates, a recession remains a key risk and volatility in markets takes on a more enduring character."

Munro Partners chief investment officer of global equities manager Nick Griffin said that while there is likely to be more equity market volatility, growth earnings resilience remains stronger than in cyclicals.

"The opportunities for growth managers are looking increasingly attractive," Griffin said.

"But although there are some great company valuations at the moment and it is very tempting to put cash back to work, it is important to be patient before buying back in."

As a growth investor, Griffin said that he looks out for a few things before starting to deploy cash back into the market.

"Rising interest rates are why the market has been de-rating, and this process looks largely done now," Griffin said.

"Secondly, we are looking for earnings estimates to come down. It is clear this will happen this quarter, and also next quarter.  We believe it will be hard for the market to look through the challenging earnings estimates without having some comfort that inflation is under control.

"Thirdly, we need time. We know that being patient is important in investing."

Griffin added: "We are in the middle of a bear market and, looking at the lessons of previous bear markets, history suggests we could potentially be only half-way through this one, so it's important to remain prudent in how put capital back to work."

Read more: GSFMMunro PartnersNick GriffinStephen MillerReserve Bank of Australia