Equity investment is facing a variety of environments creating different “games” for investors, said Pendal Group head of equities Crispin Murray.
“(Take) three different grounds – Brisbane’s, the Gabba, Birmingham’s Edgbaston and, in Delhi, the Arun Jaitley Stadium,’’ Murray says.
“It’s one sport; one set of rules but three very different games.
“In Brisbane it’s a hard, fast pitch where fast bowling rules. In Edgbaston you’ve got swing bowling that dominates and in Delhi it’s all about spin.
Murray says the post-Covid world offers very different investment environments which require different strategies, similar to the pre and post worlds of the Global Financial Crisis (GFC).
“The key agents were households – pre-GFC were cutting savings rates, leveraging up and boosting consumption; banks, pre-GFC, were able to lever up, lend in substantial credit growth but post-GFC had to recapitalise and that really constrained credit growth,’’ Murray said.
You also had central banks who moved from traditional policies to more unconventional policies in the post GFC world and overlaying that were substantial deflationary forces. The two most important ones were the role of China integrating into the global supply chain, really suppressing pricing and technology which added transparency and ability to deliver products in a cheaper way.’’
Speaking to the Investment Magazine’s Fiduciary Investors Symposium in April, Murray says the structural re-rating of growth companies in the past 10 years has translated to substantial outperformance of that sector.
“The key message today is that we’re now entering a different environment again … Households – they’ve actually fixed their balance sheet, particularly in the US, and they have a high savings rate and consumption will be better than expected,” Murray said.
“Banks are able to lend again and that is a support to growth and (there’s been a) dramatic shift in the policy environment and we’re now seeing the end of completely independent central banks and they’re coming together with governments and treasury departments and working in combination.
“And they’ve got very different policy goals – resolving inequality, building more resilient supply chains and leading the way for a clean energy future.’’
Murray says the consequences of this shifting environment for investors is a huge number of unknowns and a bracing for higher growth, higher bond yields, more investment spend, inflation and greater effect of sustainable business models on strategies.
“We’re moving away from a match which is really a fast bowlers’ dream to one which is more of a complex spinning environment,’’ Murray said.
“I think this is a more complicated world so it’s more of a – more a test match analogy.
“In hindsight, it’s always easy in hindsight, but prior to Covid you just bought growth as any fall back. It’s almost as though the pitch was true and sustainable bounce.
“What we need to do is plan for different outcomes. We have to have a very nuanced strategy thinking about contingencies and positioning your portfolios to protect you in different outcomes.”
