Despite recent sharp falls in global equity markets, investors have nothing to fear from buying stocks. In addition, media coverage of recent losses by the National Pensions Reserve Fund (NPRF) should be seen as "unnecessary panic", according to one of the Republic's leading fund managers.
Mr Gavin Caldwell, chief executive of KBC Asset Management, said that, while the NPRF has "lost €1 billion from investing pension funds in world markets of late, those losses are merely paper losses and it is likely the market will see several more big swings before the NPRF has to start paying out pensions".
He said sectors that lead the "euphoria" before world markets crashed in March 2000 are unlikely to lead the way when an inevitable upswing comes. Instead,companies with strong brand names, such as Nike, as well as Asian markets should post the strongest gains.
Speaking at the Canada Life International Investment Conference and Challenge Agenda at Belfield yesterday, Mr Caldwell said the lessons of history indicate global markets should bounce back strongly in the short to medium term, safeguarding pensions from any serious long-term damage.
"Historical data show that markets correct from sharp falls in the same way that they correct from sharp rises, so claims about losses [by the NPRF\] may grab headlines but are not sensible.
"Nobody can accurately predict when we will reach the bottom of the cycle. . . but each time we have had a major crash the rebound within two years has been very strong indeed," he said.
In the US after the crash of 1987, when markets fell by 24 per cent, shares climbed by 45 per cent within 24 months, he said. Similarly, in 1974 when US markets fell, they rebounded two years later by 55 per cent.
"In 1962 the jump was 44 per cent, in 1970, 43 per cent and, most recently, in 1990 the market rebounded by 33 per cent. The key issue is not whether there will be a recovery in markets but rather when it will occur."
He added that, while markets are currently weighed down by panic following a spate of corporate scandals in the United States, economic growth has returned to most countries and the only surprise recently is that many major US corporations have posted better-than-expected interim earnings.
Mr Dan O'Donovan, managing director of Setanta Asset Management, a subsidiary of Canada Life, echoed Mr Caldwell's view that a strong upswing is on the way. He said one factor that may delay a recovery is that so many investors lost so much money when the stock markets crashed just over two years ago.
But he insisted even investors who had been badly burned should not be afraid to re-enter the market. Many, he said, had bought stocks at the height of the IT-led bubble but to sell now would be foolish.
"Put everything in at the top and then take it all out at the bottom? That's real destruction," he said.
Investors should be looking to stocks, such as Vodafone, that have halted their slide and even begun to post modest gains, Mr O'Donovan added.
