\u201cBuy the dips has worked for the last decade, if not longer, so this generation of investors has been conditioned to believe that that is the right strategy,\u201d Mark Lister, investment director at Craigs Investment Partners, says.<\/p>\n
The most obvious example of that was the Covid recession, when markets took a massive hit but then recovered quickly.<\/p>\n
\u201cNow a lot of that was because of government stimulus, which won\u2019t always be there to help, so there was an almighty rebound,\u201d Lister told Stock Takes.<\/p>\n
\u201cThen in 2022, we had another bear market in the United States, which was interest rate-driven, and the bounceback wasn\u2019t as quick or as sharp.\u201d<\/p>\n
Then there was the adverse market reaction to US President Donald Trump\u2019s arbitrary imposition of trade tariffs last year, but the market bounced back from that, too.<\/p>\n
Mark Lister is investment director at Craigs Investment Partners.<\/p>\n
\u201cThere have been smaller declines where the same thing has happened,\u201d Lister says.<\/p>\n
\u201cSo if your only experience of markets was just over the last decade, you would have built a view that \u2018buying the dip\u2019 works pretty much all the time.\u201d<\/p>\n
And if a strategy is working, why change it?<\/p>\n
\u201cI think that\u2019s exactly where we\u2019re at.<\/p>\n
\u201cWe\u2019ve got to cast our minds back pretty far to find a time when buying the dip didn\u2019t work.<\/p>\n
\u201cYou\u2019ve got to go back to the Global Financial Crisis to find a time when it didn\u2019t work and the recovery was not swift, or as fast and aggressive.<\/p>\n
\u201cIt was slow, challenging and really grinding, and that\u2019s a long time ago now.<\/p>\n
\u201cSo people are just doing what history has shown them.<\/p>\n
\u201cDoes it worry me? Yes, a little bit, because I think the difference with all of those recent examples is that they weren\u2019t real recessions.\u201d<\/p>\n
Lister doesn\u2019t count the Covid recession as a real downturn because it was orchestrated by governments as their countries went into lockdowns.<\/p>\n
\u201cIt was kind of artificial, and that\u2019s why things swung back so quickly.\u201d<\/p>\n
In 2022, the US market sell-off was not accompanied by an official recession.<\/p>\n
Likewise, last year\u2019s tariff-driven sell-off was not accompanied by a downturn.<\/p>\n
\u201cThe declines you\u2019ve had in sharemarkets over the last decade have not been accompanied by genuine economic weakness of the type that causes those more painful, slower recoveries like we saw around the time of the dotcom bubble [in 2000].<\/p>\n
\u201cThat\u2019s what worries me. What happens when you get a market sell-off that is accompanied by genuine recessionary conditions and economic weakness \u2013 the snapback might not be quite as quick.<\/p>\n
\u201cThat\u2019s something for investors to keep in mind.\u201d<\/p>\n
But Lister says Wall Street\u2019s current run looks to have been backed by improved corporate earnings, even from those companies outside the high-profile \u201cmagnificent seven\u201d tech stocks.<\/p>\n
\u201cMy take is that buying the dip will work if you don\u2019t get a genuine bout of economic weakness or recession. That\u2019s why I think it has worked for the last decade.<\/p>\n
\u201cBut there will come a time when there is another genuine period of economic weakness and, at that point, buy the dip might not work as well.<\/p>\n
\u201cInvestors may need to have more of an awareness of history going back further than these last 10 or 15 years.\u201d<\/p>\n
More data centres?<\/p>\n
The rush to artificial intelligence (AI) and the need for more data centres to drive it have been key drivers of Wall Street\u2019s bull run, while the local market has been largely devoid of such themes.<\/p>\n
That\u2019s apart from the dual-listed Infratil, which rallied sharply on the news<\/a> that its half-owned CDC had secured the largest data centre contract in Australia\u2019s history.<\/p>\n The 30-year contract is with an as-yet-unidentified high-end US investment-grade customer and is inclusive of renewal options of up to 20 years.<\/p>\n Harbour Asset Management portfolio manager Shane Solly said the vibe from the Infratil-CDC conference call was that there was more to come.<\/p>\n \u201cThere was certainly a degree of confidence that they [CDC] can execute and deliver.<\/p>\n \u201cThey were chosen by this counterparty based on their existing and proven ability to actually deliver capacity.<\/p>\n \u201cThe sustainability credentials of CDC were highlighted by the new client,\u201d Solly said.<\/p>\n \u201cAnd I think also there\u2019s more to come.<\/p>\n \u201cThe CDC team were of the view there were more contracts to come through.\u201d<\/p>\n CDC expects 2027 capital expenditure to be between A$3.8 billion ($4.6b) and A$4.2b, excluding land, as data centre construction lifts to meet market demand.<\/p>\n By way of context, that compares with Auckland International Airport\u2019s planned capex for the current year of around $1b.<\/p>\n Forsyth Barr said the contract was a step change for CDC and one that was well above its own expectations.<\/p>\n \u201cCurrent demand is incredibly strong for data centres,\u201d it said. <\/p>\n A2 Milk recall<\/p>\n Forsyth Barr has taken some comfort from the limited nature of a2 Milk\u2019s product recall in the United States.<\/p>\n