Australian investors should diversify into Asian markets and buy growth stocks as the bargain phase of a multi-year bull market draws to a close, says global investment guru Anthony Bolton.
Fidelity International’s London-based president of investments remains optimistic about the outlook for equity markets but says they are at a turning point and will consolidate in 2010.
Stock picking will then become just as important for investors as macro-economic environment drivers.
“I think the market is going to be ready for stock picking,” he told reporters on Tuesday during his first visit to Australia in 20 years.
“Markets will need some consolidation in this bull market – I think that will probably come next year.
“Markets are going nowhere for a few months – there should be lots of rotation underneath that.”
Mr Bolton is considered one of the best investors of his time, having run one of the best performing UK retail funds for Fidelity.
The fund delivered an annualised return of 19.5 per cent over 28 years, beating the market index by six per cent.
Casting an eye across the global economy, Mr Bolton sees low growth rates and slow credit creation plaguing the world’s stgeloped economies after governments mortgaged their nations’ futures through stimulus spending in response to the financial crisis.
But he rejects the prospect of another recession, cautioning instead that rising government debt to gross domestic product levels in Japan and the US should be watched carefully.
Money market funds will continue to fuel the next phase of the market rally during which investors should shift from cyclical stocks toward growth stocks and be wary of investing in commodities and industrial cyclicals, he said.
“In the first phase of a bull market you want to buy value stocks and cyclical companies.
“Commodities and industrials were the stars of the last bull market.
“I don’t think from here they’re going to do so well.
“In this low growth environment … any stocks that can show high growth or very visible sustainable growth will be bid up by investors.”
He includes technology and financials stocks in this category even though last year’s banking crisis was the worst of six banking crises he’s seen.
“The best time to own financials including the banks is in the first two years coming out of the crisis.”
Australian investors should diversify into Asian markets with good domestic demand because the growth differential between those countries and the West will be higher than in the past.
“I’m less keen on the emerging markets that are very commodity dependent and export dependent.
“They’ve done well to date but I’m not sure from here.”
Mr Bolton puts his success in picking turning points in the market down to observing historical market cycles, company valuations and gauging investor sentiment.
“Sentiment is terribly important and when there are extremes of sentiment generally I want to bet against them.
“Investors got about as negative as I’ve seen them in my 38 years in this business earlier on this year.”
Sentiment has started to reverse from the March 2009 lows with hedge funds increasing their market exposure, but there is still a small number of large global professional investors who remain “resolutely bearish” about the environment, he added but declined to name them.