‘Tricky’ time for equity markets, says Giselle Roux

The strong recovery in equity markets has Giselle Roux worried.

Giselle Roux says markets are in for a challenging year ahead.

The strong recovery in equity markets has Giselle Roux worried. Investors are ignoring the COVID-19 risks just as they did at the start of the year, but markets are in for a “tricky” six to 12 months ahead, the veteran investor warned.

“It reminds me a little bit of when COVID-19 became clearly problematic in February but the market sailed on (for a time).

“I remember saying to people back then, ‘this just feels so disjointed’. It was clearly going to be a bigger issue than everybody at that stage was trying to suggest. It feels like we’re a little bit in the same position now,” she told The Australian.

Ms Roux, the former chief investment officer at Escala Partners, is speaking from regional Victoria, where she’s getting used to wearing a mask outdoors as part of the state’s restrictions.

The Victorian shutdown, which includes more draconian stage four measures across metro Melbourne, will have a tremendous drag on the nation’s recovery, she cautioned.

“It’s quite dispiriting and stressful; it’s a massive issue. I don’t think it has yet dawned on people just what this shutdown is truly going to look like in three or four weeks’ time. The degree of cessation of business is just mind-blowing,” she said.

The shutdown was the right thing to do to halt the unacceptably high rates of transmission, but the government should have consulted more with business, she added.

“I wish governments would spend a lot more time talking to businesses and try to be a little bit more flexible, particularly with businesses where it’s just impractical to (fully) close down.

“And also with some of the smaller businesses that could be put in a COVID-safe operating environment, that they be ­allowed to maintain a degree of activity.”

Markets are too ambitious on the economic growth outlook, expecting a seamless recovery and a vaccine next year, she said.

“Markets have rallied very strongly; they’re reliant on central bank support and on the notion that low yields warrant high valuations.

“All of that is technically ­correct, but we need to be very careful. Economic growth is, I think, going to be very troublesome, and the structuring around it is going to be so difficult over the next 12 months that I think some equities have probably run ahead.”

The Victorian shutdown would likely be replicated in many other countries, she warned. “That’s why I think ­financial markets are being a ­little too ambitious that the problem will be cured either by a vaccine or by subduing the virus.

“I don’t think people really appreciate how hard it will be (to recover from) the repercussions of 10 per cent unemployment, a very high level of government debt and quite a lot of dislocation,” she said.

Technology stocks such as Afterpay, Facebook, Amazon, Apple, Netflix and Alphabet’s Google are among those ­favoured by investors in the post-COVID-19 world.

The demand has spurred a 60 per cent rise in the Nasdaq Composite Index since its March lows, while Afterpay’s share price has risen nearly sevenfold over the same period.

“They’re all great companies, terrific companies, but it always comes down to the question: How much do you pay for a terrific company?”

Since leaving Escala in late 2019, Ms Roux has been working with a number of independent wealth groups.

When she left the boutique wealth manager, Ms Roux hinted at a move towards the impact or sustainability investment space.

“It’s mainstream, people want it, and it’s enormously important. And even if you don’t agree with the principle, these are businesses that are going to grow because they have a commercial bent in it,” she said in November.

“They’re not charities; they have a commercial enterprise that is going to hopefully improve environmental and sustainability outcomes.”

Following months of conversations and meetings, Ms Roux recently joined the investment advisory committee of Conscious Investment Management, a boutique impact investment firm that invests in social housing and disability accommodation.

The investment team, led by former Goldman Sachs banker Matthew Tominc, chooses ­investments that are then vetted by the investment committee, ­including Ms Roux. “The investment committee’s role is really to look at what’s being done, and question any issues that arise. And then most importantly, whether it makes sense from an impact, (socially) conscious and ethos point of view, but also is structured in a way to meet investor expectations. Investors are there to do good but also to get a return.

“I think it’s an important area for people to be invested in. It’s different to ESG in that this is more investing in things that hopefully improve some of society’s outcomes. So it’s a different angle on the problem.”

Regarding the challenging outlook ahead, Ms Roux said investors should be wary of positioning too much of their portfolio towards high-growth stocks or asset classes.

“If everything in your portfolio is going up, it’s most likely that you’ve got a very high degree of similarity in the causal factors within your portfolio.

“It’s not such a bad thing if some parts of the portfolio lag a little bit, so long as they’re not terrible investments,” she said.