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Catalyst will correct ‘expensive’ markets at some point: Atrium

A recalibration of dislocated markets is inevitable, according to Atrium's Glen Foster, and the landing may not be a soft one. This presents an opportunity for investment teams that are prepared for a range of outcomes.

A swirl of macros events has pushed sentiment around equity markets well into positive territory and floated prices above fair value, but a correction is inevitable according to Atrium Investments senior portfolio manager and head of risk Glen Foster.

What brings about that correction will be key for investment teams trying to decipher if a soft landing will eventuate, with pundits evolving their view of risk back to fair value as part of a natural re-ordering, or we get a more concentrated turnaround.

Foster believes the latter is more likely. The market is priced for “above trend growth”, he explained at The Inside Network’s recent Alternative Investments Symposium, but the outlook for growth in an already-expensive market is not promising. There is a dislocation between the outlook and the reality, and while a “soft landing where these two things coalesce” would be a relatively benign conclusion to this bifurcation, history shows the alternative will probably occur.

  • “That kind of never happens,” Foster told a room full of financial advisers, fund managers and economists. “If you look historically at how these things pan out, what normally happens is at some point there’s a realization that these assets are too expensive.”

    “Normally, just one of the data items that we talked about here is not going to be the catalyst. It’s normally when you have a bunch of those things come at the same time, or throw in a geopolitical risk at the same time or event,” he said. “When you have something like a geopolitical event, then people start focussing on the fundamentals.”

    There a quite a few “alarming” geopolitical events simmering that could develop into a serious market catalyst, he noted, including wars in The Ukraine and Gaza.

    For Atrium, the spectre of a serious market correction is something to be wary of, but not something to fear. “You’ve got to prepare for a range of outcomes, and you’ve got to make your portfolio resistant within that spectrum of outcomes,” he said.

    “As an investor, I want people to get concerned about the macro because that’s when opportunities come along. And that’s why you hold lots of cash at this point in the cycle, because there’s going to be an opportunity to buy cheap assets when people panic.”

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

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