Uncertainty in share markets has been a feature for at least the past year and investors should avoid reacting too quickly to the impact of the conflict between the United States, Israel and Iran, according to ECP Asset Management partner Andrew Dale.
Dale noted concerns about some sectors had led to a rotation out of growth stocks and into value, particularly for software-related companies facing pressure from the rise of artificial intelligence, but a longer-term view showed jumping too early may have been counterproductive.
“This past year, investors have been questioning the valuation of many growth companies,” he said.
“During the first part of reporting season, tech-heavy names were down 30 to 50 per cent, while higher-quality growth names were down around 20 per cent.
“By the second half of reporting season, we saw companies starting to deliver a reasonable result, providing a constructive outlook to re-enter some of those high-quality growth stories.”
Turning to events in Iran, he added that while markets and investors did not like uncertainty or events that create instability, there was no “crystal ball” investors could use to see the long-term implications of the conflict.
“It is times like these when investors are tempted to reposition portfolios quickly, sparking knee-jerk reactions and sell-offs. However, markets require time to process the ‘new information’,” he stated.
“Long-term investors should remain disciplined and focused on sticking by their investment process and philosophy, rather than making rash decisions and rushing to investing now in energy companies because of the rising oil price.”
Healthcare, industrials, banks and diversified resources still offered defensible growth despite recent geopolitical events, he pointed out.
“When economies are booming, investors look elsewhere, but when there is a slowdown, banks tend to be a relatively good safe haven for investors,” he said.
“This is especially true for the Australian market, where we are experiencing sticky inflation and a rate-hiking trajectory.
“Companies like CBA will continue to provide a defensible position, but investors should not expect these companies to go up in double digits.
“I think that once the market gets through this dislocation in the Middle East, companies like Rio and BHP will be the best way to play the resource rally.”