Somasundaram expects rates will continue rising for another six months, if not longer, and hold at that level until mid, or even late, next year. That’s not the case now – which the market will accept over time,” he says.
“In this interest rate environment, the local market was betting on a rate cut at some point this year. What does that mean for investors? “When you have interest rates going up, the risk-return in the US is much more negative than in Australia,” Somasundaram says. That’s because of our economic slant toward materials and financials. Mathan Somasundaram, founder of research-driven model portfolio firm Deep Data Analytics, notes that Value stocks tend to be more prevalent in Australia than in the US, which is predominantly Growth. “Even results that were just in line with expectations saw stocks rising 30% in some cases – and here we are in supposedly efficient markets,” Conn says. He explains this as an overhang of excessive short-termism – which has also seen a lot of money going into long-short funds and hedge funds due to misguided efforts to be more active. “For example, we saw many good Quality stocks being oversold coming into the half-yearly reporting season.”Ĭonn notes that the propensity for what he regards as “highly irrational, short-term investor behaviour” led to equally strange share price reactions. And when everyone moves from one side to the other, it creates distortion where you get some stocks oversold and others over-bought,” says Conn, a small- and mid-cap senior portfolio manager at IML. “People tend to chase one thing after another. That’s according to Investors Mutual’s Simon Conn, who points to the building materials, online retailing, and tech sectors as prominent examples. It’s been happening more frequently in recent years – especially towards the small cap part of the market, and particularly before rates started lifting last May. Like panicked passengers on a stricken ship’s life raft, investors crowding one sector then another tilts the market – often alarmingly so.
Value will dominate Growth for at least the next couple of years, say Simon Conn and Mathan Somasundaram.
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