Aviva, Columbia Threadneedle use crisis to add equities

Aviva Investors has used the market volatility of the past few days to add to European equity exposure, as well as buying more Japan and US stocks.

Peter Fitzgerald, head of multi-asset at Aviva Investors, said that despite concerns over Chinese growth, his view was that these had been priced in to asset valuations “for some time.”

And he added: “We do not believe that tighter US policy will derail the recovery.”

“As a result, we have added to equity positions in continental Europe, Japan and the US in recent days, and view any further bouts of extreme volatility as an opportunity to add exposure to these regions. We continue to prefer prospects for developed markets over emerging markets and have no commodity exposure in our AIMS funds.”

“Whilst volatile markets can present opportunities, holding risk-reducing positions designed to perform well during market crises are important. For instance, as the outlook for emerging markets and commodity prices deteriorated, we profited from an Australian rates strategy. The position aims to benefit from a slowing Chinese economy that prompts weaker Australian output and a worsening outlook for Australian bond yields. Additionally, a risk-reducing ‘long’ position in the dollar against the Mexican peso performed well as demand for ‘safe-haven’ assets such as the US currency rose.”

Also noting the buying opportunity was Mark Burgess, CIO EMEA and global head of Equities at Columbia Threadneedle Investments.

He said: “If the recent stock market falls are merely a correction, there will be good opportunities for long-term investors, and my equity colleagues from the across the floor have been adding to their favoured holdings at attractive valuation levels.”

He warned that some of the buying decisions had to be done with care because of the relative size of the intra-day moves by certain asset prices.

However, on balance, Burgess’ view is that this remains a good opportunity for active investors.

“Taking everything together, our initial assessment is that this is a correction rather than the beginning of something bigger, although a great deal depends on what happens in China over the remainder of this year and into 2016.”

“For that reason, we are doing a lot of work on what the global impact of different rates of Chinese economic growth would be. If authorities there can achieve a ‘muddle through’ scenario, then there is a good chance that the developed world will be able to do the same, and in that event the current slump could turn out to be a buying opportunity. However, if the Chinese authorities cannot steady the ship, the outlook for global growth is lacklustre.”

“Delayed interest rate rises would be positive for equities – and emerging markets – in the short term and would help to support bond markets. However, in the longer term, the inability of central banks to raise rates modestly would be indicative of a very weak growth environment, which ultimately would be bad for stocks. A world in which China exports deflation would be very challenging for corporate profits globally as pricing power is likely to be eroded. In that scenario, we would have to focus on secular growth – where it can be found – industries with high barriers to entry, and self-help stories.”


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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