By
Philip Shapiro
One of the biggest issues facing investors at the moment is to decide both where and when to invest.
While the stock market has shown signs of life during March, bear market rallies are not uncommon during downturns.
Although price earnings multiples for the FTSE 100 are below long-term averages, they are still well above previous bear market troughs. Currencies are expected to devalue further as governments begin the process of “quantitative easing”.
Bond returns and commodity pricing are also under pressure in the short term, and the commercial and property markets clearly have further to fall.
I would say that the answer is probably to take a medium- to long-term view. It is almost impossible to call the bottom of the market but what is clear is that we are much closer to the bottom than to the top.
At Synova Capital, we are focusing on sectors where we believe there are strong, long term macro- and micro-economic drivers. Healthcare remains attractive due to the ageing population, and increasing demands for better standards of patient care is driving long-term growth.
We expect the trend towards outsourcing of services to continue to grow as both companies and the government seek to reduce costs by involving third parties in the provision of services. In particular, we believe that businesses providing services to the waste and nuclear industries will outperform as the government looks to meet its emission and landfill targets.
Global population growth and increased urbanisation will put long-term upward pressure on raw materials needed for construction and transport. With commodity prices near recent lows, producers of raw materials such as copper, oil and iron-ore are beginning to look attractive.
With valuations where they are, whether it is buying private companies as we do, or investing in listed shares, you should see some significant upside if you invest in the right sectors.
However, with falling valuations across a range of asset classes, it is important to keep your nerve and take a long-term view. As the great US investor Warren Buffet said: “Time is the friend of the wonderful company, the enemy of the mediocre.”
Philip Shapiro is a Managing Partner at Synova Capital, the private equity fund chaired by Poju Zabludowicz
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