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Don’t fear a global sell-off, Fidelity says

The firm favours attractively valued markets, such as emerging markets and China -- and the UK.
Paras Anand, Fidelity

Global equity markets have been rattled as investors panic over the global spread of the Covid-19 virus.

When markets started to fall on 21 February, the S&P 500 had one of the largest declines among global indices, dipping up to nearly 20%, according to data from FE Fund info. Globally, the MSCI AC World Index was down by 16.96%.

Despite the plunge, Paras Anand, Singapore-based chief investment officer for Asia-Pacific at Fidelity, said during a conference call organised by the firm that he does not believe the situation will turn into a prolonged global sell-off.

He explained that global equity markets, with the exception of the US, continue to have attractive valuations that should support asset prices.

“Many other markets are not necessarily extended from a valuation perspective or from the performance perspective over recent years. While we have seen asset prices globally doing quite well, we have not witnessed excessive returns [that the US had],” he said.

Cumulative performance (%)

Three years (ending 2019) Five years (ending 2019)
S&P 500 53.17 73.86
MSCI All Country World 44.48 53.85
MSCI Emerging Markets 40.45 33.86
MSCI Asia 38.07 43.45
Source: FE Fundinfo

Before the Covid-19 outbreak, the US led global markets on a three-year cumulative basis ending 2019, according to data from FE Fundinfo. The performance is even more pronounced on a five-year basis, where the returns of the S&P 500 is more than double the MSCI Emerging Markets Index.

However, the nearly 20% decline in the US market beginning February 21 is steeper than other markets. For example, the MSCI Asia Index returned -9.45%, while the MSCI China Index faired better at -7.86%.

Source: FE Fundinfo

A preference in value

Given the extended valuations of US equities, Anand prefers markets where valuations are cheaper.

“I think both emerging markets and China represent sound long-term allocations whatever the backdrop and circumstances are [affecting the economy near-term] because markets are attractively valued,” he said.

Anand acknowledged that emerging markets can be very volatile. However, he believes that longer-term, investors will be rewarded for that risk.

“The fundamental corporate earnings growth [of emerging markets and China] when we look at it over medium-term is going to be higher than the global average,” he added.

Another market that Anand favours is the UK, where both its equity market and currency have been negatively impacted by Brexit.

“Because of the twin value of the [sterling] and the equity market, this is an area where people should [consider investing in]. I feel that the level of unpopularity of the UK in the context of Brexit is very high.”

While US equities appear to be expensive, Anand noted that its performance over the past few years was driven by high-quality growth stocks.

Anand believes that there are opportunities in value stocks or the “more economically sensitive” names, such as those that operate in the consumer discretionary and industrial sectors.

“In some parts of those markets, we are starting to find really attractive risk-reward opportunities,” he said.

Part of the Mark Allen Group.