Market Comment 02/03/2016
How worried should investors be about the health of financials?
In response to Investment Week's latest Big Question, 'How worried should investors be about the health of financials?' David Appleton, Investment Director at Cornelian Asset Managers responds to explain why the reform process has been uneven.
The recent loss of investor confidence in global financials sends a very clear signal to us that the process of reforming the banking system following the financial crisis has been uneven and the healing process is incomplete.
It is clear that some European banks, unlike those in the UK and US, have not been sufficiently ambitious in their efforts to deleverage and restructure, and are consequently seen as inadequately robust to deal with the current, more challenging environment.
The financial system is, by its nature, heavily interlinked and when confidence in the weakest actors falters, this fragility can spread like a virus to all participants during a period of investor panic as we have recently experienced.
In the recent sell-off, investors appeared to adopt a 'sell-now ask-questions later' approach, with the prices of shares and bonds issued by robustly capitalised, well run institutions suffering sharp falls despite no detectable deterioration in fundamentals. This should create opportunities for disciplined investors willing to look through the current volatility. However, stock selection will be key.