Don’t panic: this isn’t GFC mark II
Despite the moments of panic in international markets this week, the global financial system isn’t facing GFC mark II, says Adelaide analyst Travis Adams.
Adams, senior equity analyst at Prescott Securities, says the issues at play in the rollercoaster market are very different to those that sparked the Global Financial Crisis in 2007-08.
There were some predictions of doom earlier in the week after Australia’s ASX 200 experienced its biggest fall since the GFC – a plummet which saw some $60 billion wiped off the value of stocks.
In China, the market which sparked the global concerns, the Shanghai Composite Index dropped 8.5 per cent – its biggest fall since before the GFC.
However, Adams argues that the dynamics this time around are very different.
The GFC, he points out, was caused by a market “contagion” – dodgy debt washing through the system and bringing down huge players, including banks.
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The past week’s action is more likely the result of a market correction, with US investors finally taking sharper notice of the slowdown in China.
China, like many other countries including Australia, is attempting to transition from a manufacturing and construction-driven economy to a consumer/services economy – and the transition is going to have some bumps.
“Both economies are growing, the US and Europe are still growing,” Adams says. “The question is really whether markets have over-priced that growth.”
His advice to investors is to stay calm, be consistent, and avoid the temptation to make emotional decisions in the face of market turmoil.
“The sun will come up tomorrow, and businesses will still go out and do business,” he says.
“I don’t think this is a GFC mark II – this has a very different feel.
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“Australian companies don’t have a lot of debt; US companies have a lot of cash.
“The biggest issue is for growth.
“We have already been saying you have to be selective about what you purchase, and what’s going to grow.”
As usual, companies that are able to make sustainable earnings are the best targets for investors.
It was unrealistic to believe the big oligopoly Australian companies could continue to grow at very high rates, Adams says. There are companies, however, in areas like online real estate and car sales, that were continuing to experience double-digit growth. Healthcare companies were also good options.
He also pointed out that confident investors can also make some gains during a period of market turmoil.
“If you’re confident in your view, you can make a bit of money in times like this,” he says.
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