Blind markets ‘trade on hope without facts’: Douglass

Magellan chairman Hamish Douglass says financial markets are trading under “the greatest asymmetry I have ever seen”.

Magellan’s Hamish Douglass. Picture: Britta Campion

Magellan chairman Hamish Douglass says financial markets are trading under “the greatest asymmetry I have ever seen”, with the outlook still uncertain.

In an interview with The Weekend Australian, the Magellan founder said: “I can understand why the market is reacting, but that doesn’t mean it is either right or wrong.

“Those who know are scratching their heads wondering what is happening while the uneducated are grading on guesses.”

Amid anticipation of a vaccine for COVID-19, Mr Douglass said that in the recovery story globally markets were trading on hope.

“Most educated people are still scratching their heads and wondering whether a vaccination can happen in the time frame expected,” he said.

“Uneducated investors are getting excited.”

Meanwhile, trading is being boosted by “the largest fiscal and monetary policy support we have ever seen”.

The question no one knows the answer to is just how the global economy will look by year’s end when the stimulus is gone.

“The optimism is based on no fundamental facts,” Mr Douglass said.

Magellan has increased its cash levels from 6 per cent to 17 per cent because of the uncertainty.

The fund had received good support from institutions, Mr Douglass said, and Magellan now had $98bn under management, up from $370m when it started in 2006.

The fund comprises about $70bn in institutional money and $28bn in retail.

Mr Douglass normally spends about a third of the year travelling, which has not been possible since the lockdown.

But that has been replaced by video conferences, which he said were “much more of the moment and we can include more people in the meeting with chief executives”.

“Normally trips are planned months in advance but we can ask whether we can talk now and I can have 15 colleagues involved,” he said.

After spending 30 years of his life in an office he is enjoying the flexibility of life outside.

“Structured meetings are better by video conference but you can’t have the unstructured meeting where someone will pop in and talk and others join in,” Mr Douglass said.

Economies in the US and Europe are opening while the virus is still not being controlled and people are spending money but “no-one really knows what the employment level is because of the level of government subsidies”.

Australia, he said, had handled the virus well, “with the government listening to medical advice and acting decisively”.

But “it is too early to say what will happen” when September comes and the stimulus is gone.

“Maybe we can escape,” he said. “The stockmarket has raced ahead because it is a forward-looking indicator and interest rates are very low.

“I don’t think a V-shaped recovery is likely, or a depression, and we are likely just to muddle through.”

But he noted there was also every chance we could have a five-year recession.

In the US, “if the protest momentum is maintained and it encourages black people to vote, Trump is in deep trouble”.

Mr Douglass said if Joe Biden won the election he would push for an increase in corporate tax from 21 to 28 per cent, reversing the Trump cuts, and this would be negative for the markets.

He said at this stage he backed Mr Biden to win the election.