Escala Partners’ Tracey McNaughton upbeat on recovery prospects

The chief investment officer of the Escala Partners has painted an optimistic medium-term outlook amid the market carnage.

Escala Partners chief investment officer Tracey McNaughton Picture: Aaron Francis

The chief investment officer of the $6bn wealth management firm Escala Partners has painted an optimistic medium-term outlook amid the market carnage, noting record levels of global central bank and government stimulus and low oil prices will set the stage for a significant rebound in shares.

In a briefing to the firm’s clients on Wednesday, former UBS executive Tracey McNaughton said the prospects of a recession in the US meant the world would now face a “U-shaped” rather than a “V-shaped recovery”.

But she said the lessons learned from the global financial crisis, the prospects of unprecedented government stimulus and improved anecdotal economic data from China would provide a strong impetus for equity markets once they had bottomed.

“This virus will fade and die out and we will be through this,’’ Ms McNaughton said.

“Whenever the market has been priced this badly, the next 12 months has delivered double-digit returns … there are going to be some huge opportunities here to consider.”

She said data out of China showing the number of virus cases was finally falling and traffic congestion, electricity levels and pollution levels were picking up in the major cities was cause for optimism. For example, traffic levels in Beijing were back to where they were this time last year.

Ms McNaughton said Escala — which is backed by Focus Fin­ancial Partners, a New York-based partnership of wealth management firms backed by KKR — had observed more “discerning” ­behaviour in the Australian market this week, which largely had been dominated by trading by hedge and quantitative funds.

“Perhaps we are past the peak panic stage of markets,” she said. “These types of dislocations don’t happen too often and when they do they bring opportunity. For the most part institutional investors have not been participating in this market. When they do come back in it will be the discerning ones and that will be the signal for us.”

To prepare clients for buying opportunities, Ms McNaughton said Escala was recommending they move out of fixed-income ­assets into cash.

She recommended they think about taking hedged offshore equities exposures given the likelihood of the Australian dollar increasing in value following further quantitative easing by the US Federal Reserve.

Analysts believe the market and economic turmoil could ­finally lead to the demise of many so-called zombie technology companies that have been kept alive by artificially low global interest rates.

But Ms McNaughton said there were a lot of good technology companies that would survive the downturn and drive the next bull market, as happened following the bursting of the tech bubble in 2000.

“There will be a number of new technology businesses that will thrive in the new environment,” she said. “That will set the stage for the next bull market. Companies like Xero and Zoom, a lot of their poorer competitors will go out of business.’’