‘Historic’ opportunities ahead

Mark Dutton

A sudden and dramatic expansion into risk premiums coupled with more and more investors divesting from equities as the market downturn worsens has created a number of “historically” unprecedented opportunities in corporate bonds and financials stocks, according to AXA Australia.

AXA Australia and New Zealand chief investment officer Mark Dutton said the best opportunities and discounts were available in value stocks, corporate bonds, debt and financials.

“The sheer number of opportunities available is almost historic — it just looks so gloomy that people aren’t touching it,” he said.

“In other words, it’s the everywhere people hate, is where the best opportunities are.”

According to Dutton, in June 2007 global investment grade corporates sat at around 75 basis points; by March 2008 just before the rally, those same securities were offered at around 300 basis points in additional returns.

Similarly, last year global high yield corporates rewarded investors with around 300 basis points over the risk free rate and by mid-2008 this rose to 800 basis points.

Dutton said despite the controversy surrounding financials stocks, the downtrodden sector offers significant value.

“The opportunities are really opening up, with the most controversial being financials. The pricing of financials as a relative price to book history is now showing a result in this particular downturn, we are now in the cheapest time in more than a quarter century,” Dutton said.