The mood for risk assets palpably deteriorated over the December quarter. Investors experienced a painful repricing in global equities and compression in bond yields, a process that accelerated in the final weeks of the December quarter.
This is in remarkable contrast to financial conditions in previous periods, where a trilogy of accelerating economic growth, low inflation and accommodative monetary policy, underpinned a buoyant environment for equities. Whereas, 2018 has turned into an annus horribilis for investors, with asset prices falling precipitously against a backdrop of rising geo-political tensions and slowing economic activity.
At this juncture the mood of equity markets remains fixated on the prospect of tightening liquidity conditions and geo-political concerns, rather than ever cheaper valuations. Indeed, the compression in valuations over the last 2 months has pushed the price earnings ratio on the ASX back to its long -term average of c.14 times. As such, with valuations at more appealing levels and the prospect that interest rates will remain at historically low levels, the Australian equity market is providing a solid foundation to deliver long-term capital growth and an attractive level of dividend income for investors.
Central to our investment process is that we remain, unequivocally, focused on investing for the medium to long term. Blackmore Capital’s attention to earnings quality, industry position, and balance sheet strength underpin the structural integrity of our investment portfolios’. Furthermore, our portfolios retain an elevated level of cash c. 13%, providing optionality to invest counter-cyclically as value emerges.
See the full Quarterly Investor Update here