Offshore investing: Markets change quickly, investments shouldn't

We often say that we play the hand we are dealt by the market. We can control our research efforts and our decisions, but we certainly can’t control the market’s behaviour. Stock prices move for lots of reasons – some common to many companies, others much more idiosyncratic – but they all create headwinds and tailwinds for performance. John Christy, from our offshore partner Orbis, explains using the Orbis Global Equity Fund to illustrate his points.

A few broad trends have dominated global markets in recent years. US stocks have beaten their ex-US counterparts, highly valued stocks have beaten cheaper ones, shares of big companies have beaten those of small companies, and businesses insulated from the economic cycle have crowded out their cyclical peers to represent an ever-growing portion of world stock markets. Most of these trends were headwinds for the out-of-favour shares that we found most attractive, and the arrival of the pandemic only made it more intense. Pfizer’s vaccine announcement in November was just the sort of catalyst needed to turn some of those headwinds into tailwinds, but this has lost some steam in recent months along with concerns about the delta variant.

China risk
While we are always mindful of these broader movements, our long-term results will ultimately be determined by the performance of individual businesses. Our exposure to a few technology companies in China has been painful for performance recently – in this case for very specific reasons. The severity of new regulations in the education sector and the abrupt way they were announced have led us to conclude that regulatory risks are now higher in China. While we have long been mindful of “China risk” in its various forms, the ever-present possibility of regulatory change has now become a certainty.

Read full article: https://www.allangray.co.za/latest-insights/offshore-investing/markets-change-quickly-investments-shouldnt/

September 03 2021 By John Christy - Allan Gray