There is more to investing than tariffs and trade

The thing about being an equity investor is that sometimes macroeconomic forces work in your favour but when they do not, you still have bottom-up stock specifics to guide your investment decisions. This is how the current investment backdrop appears.

- Jun Bei Liu

For a long time, the macro has been a favourable tailwind for equities. A period of solid growth, falling inflation and modest declines in global policy rates supported elevated equity market valuations, strong equity inflows and momentum investing. But the cyclical backdrop has unravelled over the past two months with macro tailwinds no longer working in tandem with micro attraction.

In fact, the 10% correction across most major equity markets has been a brutal reminder that even the best companies and/or markets can become over-owned, overpriced and over-hyped. For instance, the Mag-7 stocks and the S&P500 are down 21% and 9% respectively from 52-week highs in comparison to the Eurozone which is down only 3%. But few would argue that the Mag-7 and US equities are not the quality / growth plays over Eurozone equities which are cyclical / value.

While Australia has fared better on a relative basis with the ASX200 down only 8%, this comes at the expense of the dramatic upside seen in more growth centric stocks and equity markets prior to the sell-off. Importantly, performance over the past two months is a pertinent reminder that while momentum, flows and hype can push companies away from fair-value for long periods of time, owning good companies at the right price should always be core to a successful, through the cycle, investment strategy.