Jupiter Asset Management chief executive Edward Bonham Carter has called for investors to hold their nerve amid market volatility as a sharp decline could provide long-term buying opportunities in equities.
He believes that the fundamentals remain positive des-pite slower economic growth and tighter lending conditions at banks. Bonham Carter says: “Economic growth will slow but the global economy is unlikely to go into recession this year and the impact of higher food and oil prices will be limited as they are unlikely to result in higher wages due to strong competition in labour markets.
“We should expect the rate and severity of earnings’ downgrades to increase as the economy slows, particularly in those companies and sectors exposed to overstretched consumers. Nevertheless, corporate balance sheets are, on the whole, in sound condition and share prices are starting to reflect the slowing outlook for earnings.”
Bonham Carter says he would expect central banks to continue to cut interest rates when necessary despite rising oil and food prices. He says: “We have now seen that central banks are prepared to react to these concerns, with the Federal Reserve cutting rates by 0.75 per cent to 3.5 per cent. We would expect other central banks to reduce interest rates as necessary.
“Stockmarkets are likely to remain volatile for some time yet, as investors look for signs that these rate cuts are having the desired effect on economic growth. Sentiment is also likely to remain volatile until the banks’ reporting season closes at the end of February.
“These periods of heightened market volatility can be destablising but can also provide buying opportunities for long-term investors as markets tend to focus on bad rather than good news and potentially exaggerate the effects.”