Some Method Among the Market Madness

Insights and Market Perspectives

Author: The editor's desk

March 17, 2020

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Global stocks continue to sell off in record fashion, but new measures to stimulate the economy from central bankers and governments around the world may be the first step in stemming the current market tide. Here’s the latest from members of AGF’s Investment Management Team on the crisis and what investors can expect in the days ahead.      

Mike Archibald, Vice-President and Portfolio Manager, AGF Investments Inc.

The current economic uncertainties and confidence concerns surrounding COVID-19 have weighed dramatically on Canadian equities and, in particular, small and mid-cap stocks. Cyclical areas of the market have been hit particularly hard as the outlook for global demand continues to deteriorate which has pressured commodities, discretionary and industrial companies. Many companies have quickly adjusted CAPEX plans for 2020, which will weigh on earnings and cash flow expectations this year. As uncertainty persists and daily volatility remains elevated, investors should continue to focus on franchise names in Canada that have been disproportionately sold off, as well as continue to follow a disciplined asset allocation framework to ride out the volatility.

Regina Chi, Vice-President and Portfolio Manager, AGF Investments Inc.

China’s early and drastic response to the virus and subsequent fiscal stimulus measures provided confidence for investors to return to the equity market. As such, China has been one of the best-performing countries this year and also since the start of the downturn. China’s strong performance has led emerging market (EM) equities more broadly, which have outperformed developed market (DM) equities both year-to-date and more significantly during the current downturn. A slowdown in the number of global coronavirus cases combined with fiscal spending or outright quantitative easing should eventually provide investors the confidence to return to the markets as substantial liquidity is injected into the financial system.

John Christofilos, Senior Vice-President and Chief Trading Officer and Investment Management Operations, AGF Investments Inc.

The consistency and magnitude of volatility on equity markets throughout this selloff has been unprecedented, resulting in daily index moves (in terms of points and percentage) that most investors have never experienced before. While the trading environment has been relatively orderly during most parts of each session during the downturn, it has also been subject to headline-grabbing stretches marked by sudden and often vicious selling lasting no more than 30 minutes to one hour in length. In my opinion, markets have not yet established a bottom and investors should expect more extreme volatility for some time still to come.  

Andy Kochar, Portfolio Manager and Head of Credit, AGF Investments Inc.

The U.S. Federal Reserve has cut rates significantly and instituted a variety of other measures to help protect financial markets, including purchases of hundreds of billions in U.S. government bonds over the coming months. This package of new stimulus is designed in part to ensure credit channels remain open during this time of extreme market stress, but also to help fix overnight funding issues related to U.S. Treasury markets that have exhibited significant dislocation in recent weeks—perhaps more than any other market out there. Overall, this latest stimulus from the Fed is a mixed bag. The actions taken will offer some improvement, but if funding metrics don’t improve, more needs to come in order to fully reverse illiquidity and volatility.

Mark Stacey, Co-CIO AGFiQ Quantitative Investing and Head of AGFiQ Portfolio Management, AGF Investments Inc.

There has been almost no place to hide during the market selloff of the past few weeks, but investors who own companies with strong underlying fundamentals are likely weathering the storm better than those who do not. In fact, while less than 2% of global equities have posted positive returns, large-cap companies with high margins, strong return on equity and low leverage have been outperforming the market. It remains unclear whether this out performance will continue, but owning relative “winners” and stocks with low daily price volatility may give investors greater certainty in what is clearly an uncertain time.

The commentaries contained herein are provided as a general source of information based on information available as of March 16, 2020 and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

AGF Investments is a group of wholly owned subsidiaries of AGF and includes AGF Investments Inc., AGF Investments America Inc., AGF Investments LLC, AGF Asset Management (Asia) Limited and AGF International Advisors Company Limited. The term AGF Investments m ay refer to one or m ore of the direct or indirect subsidiaries of AGF or to all of them jointly. This term is used for convenience and does not precisely describe any of the separate companies, each of which manages its own affairs.

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