Is the “Bear run” over?

Date Posted:Wed, 15th Apr 2020

Is the “Bear run” over?

Justin Quan, Vice President of Berkeley Assets, gives us an insight of the current global markets.

 

Is the “Bear run” over?

Ever since the global markets have been in freefall, investment managers across the globe have been chanting the mantra of “buying at the bottom of the market, this is the largest buying opportunity in our lifetime…” But some leading global investment managers have begun to realise that there may be more downside to come and they are running to fixed income and alternatives as a result.

In a time like this, where we are preoccupied with our health, family and loved ones, we can forget that this market crash was well overdue. After a decade of stellar growth in the markets, in which intrinsic company valuations were far below their heady stock market valuations, can we really be that surprised that overvalued markets reacted like this?

Unfortunately, just as you can have a thumping bull run, you can also have a terrible bear run. A lot of people believed this was going to be a “V shape” recovery, which effectively means a sharp decline with a sharp bounce back. However, as COVID-19 begins to show its aftermath in areas where case numbers have begun to decline, that doesn’t seem like it’s going to be the case.

Mid-march, saw the US slash interest rates by 100 basis points before markets opened, and at the same time the markets had their largest decline since the late-80s. A lot of investment managers have had to curb their enthusiasm across the globe as capital markets didn’t respond so healthily to stimulus packages. This has been the major warning sign that there is still more to come.

At this point we ask ourselves, which way should we go at this T-Junction. Should we buy now as government stimulus packages are rolled out and steal assets at rock bottom prices, or do we see this as the beginning of a long and steady decline in asset pricing?
Following the mid-March declines, the US markets are now 25% higher, but this knee jerk increase is reminiscent of 1928, 2001 and 2008 market metrics and this “bear market trap” is symptomatic of market shocks like this.

For a profession that takes pride on being right, it will be very hard to predict the future and anticipate whether the government stimulus packages have done enough to ward off the systemic economic risks. Howard Marks, famed for his investment memos and Chairman of Oaktree Capital (125BN USD AUM) has recently said “no one knows what will happen, my self-included”.

Across the IM world for both private and institutional clients, we are seeing increased allocation to alternative asset classes. IMs are preferring to increase allocations in asset classes, such as private equity and real estate-based funds, to provide cornerstones to portfolios.
While many may not be saying it out loud, investment managers and advisors will probably be speaking amongst themselves discussing the lack of certainty on where the markets go from now. That can only be a fair assumption, given the unprecedented nature of the world right now.