When we talk about the devastating effects the US terrorist attacks have had in the equity markets, we have to remember that this has been the last chapter of very long market underperformance. Concerns among institutional investors about returns in their equity portfolios did not start after last month’s dramatic events, but it’s true that during the last weeks that concern has been translated into actual panic.
All those sectors linked to consumer spending have been seriously affected. On top of the list are airlines, insurance companies and the tourism and travel industry. And at this stage no one knows how long will it take for them to recover.
A London-based equity analyst comments: “During the last few days we have seen a panic sale of stocks in all those sectors most directly affected by the terrorist attacks in New York and Washington. It is true than some sectors like airlines and insurance companies will need a lot of time to see a recovery and investors wanted to get rid off those stocks as soon as possible, but on the other hand this could be a good moment for buying.”
Asked about those sectors that could see, or are already seeing, a significant growth, analysts mention the defence industry and IT companies dealing with backup and security systems among others.
“At this point I don’t want to say which sector is going to outperform or make any recommendations to investors about the way they should approach their equity investments from now on,” says a fund manager in Frankfurt. “It is still early days and my only recommendation for institutional investors concerned about the current equity markets is that the only way to effectively approach the equity culture is by setting up a worldwide diversified equity portfolio, across different sectors and countries, and also including a proportion of fixed income and other asset classes.”
He adds: “I think in general we all have learnt a lesson from the terrible events in New York, and we have to review our strategies in terms of risk control and diversification. We all have been affected by this and investors want to know they can carry on trusting their managers and the security of their assets. So at the moment that I would recommend to investors is to review their asset allocation strategies and really concentrate all their efforts on building up a portfolio which is diversified and consistent and can respond to circumstances like this,” he says. “This is a long-term business and entering and exiting the equity market every time the market is up or down is definitely not a good strategy.”