Fund management groups have a wealth of resources at their fingertips. However, even they can be regularly stunned by global stock markets. We quizzed them on what has surprised them the most during their careers.
The Enron scandal
The collapse of energy giant Enron almost 16 years ago stunned David Coombs, Citywire AAA-rated head of multi-asset investments at Rathbone Investment Management.
‘It would be like Amazon going down today,’ he said. ‘That was the scale of the shock. The stock was in practically everyone’s portfolio.’
The fall from grace, due to dodgy accounting practices, also brought down the company’s auditors, Arthur Andersen. ‘You had one of the big five accountancy firms asleep at the wheel,’ said Coombs. ‘It undermined the fundamental analysis of companies, because you no longer knew what to believe.’
The growth of China
When Hugh Young, managing director of Aberdeen Asset Management Asia, was investing three decades ago, the focus was on the ASEAN countries of Hong Kong, South Korea and Singapore. ‘China was practically closed to investors and there was little to suggest it would grow to become the world’s second largest economy,’ he said.
However, Young said China remained an emerging economy and suggested ASEAN markets had performed better. ‘Whether that remains the case is the question,’ he said. ‘The weight of money going into China suggests not, but my money’s still on India.’
In the dock of the bay
Quoted port companies were lowly rated 15 years ago, until a shift took investors by surprise, according to Trevor Green, head of UK equities at Aviva Investors. He said the huge £3.9 billion takeover by Dubai Ports World of P&O back in 2005 was the first taste of change in this area.
‘Investors were shocked by the scale of the premium,’ he said. ‘Little did we know this was the start of the whole quoted sector being taken over.’ Mersey Docks, Associated British Ports and Forth Ports followed a similar path.
‘They were seen by outside parties as materially undervalued property plays, with ports attached,’ said Green. ‘Residential developments and warehouse conversions around old docks are now some of the most desirable places to live.’
The e-commerce boom
Chinese e-commerce giant Alibaba hit the headlines last November. Its annual Singles’ Day festival generated a record 121 billion yuan (£14 billion).
The 24-hour promotion is closely watched by observers for clues about the health of the Chinese economy and the strength of the company. Leon Eidelman, Citywire + rated manager of the JP Morgan Emerging Markets fund, said the revenue was nearly three times that of US online retailers combined over Black Friday and Cyber Monday.
‘The pace of adoption is faster than in the developed markets,’ he said. ‘China’s internet retailers are evolved and their growth is outpacing Western peers.’
Low bond yields
Steve Clayton, head of equity funds at Hargreaves Lansdown, did not expect bond yields to fall as low as they had in recent years. ‘Governments around the world seem flakier than they used to be, yet markets are prepared to fund them at wafer-thin yields,’ he said.
The situation has wider ramifications. ‘The impact on asset prices globally has been profound, leading to new challenges for investors everywhere, not least the search for yield,’ said Clayton.
David Hutchins, portfolio manager on multi-asset solutions at AllianceBernstein, has been surprised by market resilience in the face of global uncertainty. ‘There has been no shortage of events that have caused markets to fall but increasingly they have been short-lived,’ he said.
He cites Britain’s decision to leave the EU as a prime example. ‘The aftermath of Brexit saw sterling initially fall, but the UK economy, and local bond and equity markets remained strong,’ said Hutchins. ‘Markets are now more global and better able to absorb local shocks.’