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Falling markets don’t necessarily mean falling earnings: portfolio manager

Falling markets, volatility

Rising interest rates have brought back volatility, and opportunities to buy good companies at better prices with it, a portfolio manager has said.

While February’s dip hasn’t been repeated in recent months, the return of volatility presents opportunities to make like Warren Buffett, portfolio manager of Perpetual’s Global Share Fund Garry Laurence has said.

Speaking to Nest Egg, he said investors have opportunities through emerging markets’ consumer growth but face headwinds of rising interest rates and ensuing volatility.

The strength of online retailers and advertising portals, coupled with the technological themes present in emerging countries, could be tempered by rising interest rates, beginning in the US.

Naming this the “biggest headwind”, Mr Laurence said, “That's starting to suck liquidity out of capital markets. Companies that have higher levels of debt might see higher costs and interest rates and that affects their earnings.

“Also, there just might not be as much money going into markets so people need to be wary that it might not be as easy then, there might be more volatility in markets than we've seen over the past few years. “

However, he said the best thing to do when faced with higher volatility is to “take advantage of the fear” and look for buying opportunities in potential corrections.

“As an investor, we just like to continue to invest and take more of an averaging approach to investing,” Mr Laurence said

“If you do see markets falling, that might not necessarily be because earnings are falling, it's more of a valuation adjustment in markets potentially.”

For investors, this means there are opportunities to buy “good businesses” at better valuations.

Nevertheless, he predicts global growth will continue to be healthy thanks to reduced unemployment rates in many countries, including the US.

All things considered, Mr Laurence said good companies should continue to do well.

“The advice is always to, as Buffett would say, be greedy when others are fearful and be fearful when others are being greedy, and if you do get more volatility as interest rates rise and liquidity comes out of the market, that's often a good time to be investing,” he said.

Falling markets don’t necessarily mean falling earnings: portfolio manager
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