Aberdeen optimistic despite global economic downturn

Thanks to its long-term investment horizon, Aberdeen Asset Managers' global equities team is taking a contrarian view in the short-term amid the current economic and stock market turmoil.

Having been concerned about debt-fuelled spending within developed economies - particularly the US and UK - in the years before the credit crunch, the team now sees much greater room for optimism, thanks to the value global equity markets have been offering over the last six months in contrast to the past five years.

Naturally, the team remains cautious about the short to medium term economic outlook, believing that global deleveraging will continue despite the efforts of governments and monetary authorities as rising savings rates and unemployment constrain consumption and growth. The best that can be hoped for is that policy measures can make the slope of decline a shallower one.

From a company perspective, newsflow will deteriorate throughout 2009 as falling demand feeds through to lower revenues. Profit warnings, capital raisings and bankruptcies will rise, and the recent rally in stockmarkets should not be seen as the beginning of sustained recovery.

Although recent lows may well be re-tested, around the world, high quality companies with strong competitive advantages and sound business models that were previously expensive are now trading at attractive valuations. Indeed, the team recently initiated and built up positions in Asia and emerging market-focused financial Standard Chartered and US oil services company Schlumberger.

While Standard Chartered benefits from a robust capital position compared with global peers and a focus on developing markets, Schlumberger offers niche international oilfield services in a background of rising global energy demand.

In the current environment, however, it is more important than ever to use a range of appropriate valuation and quality measures. For instance, price-earnings ratios are becoming less relevant given that earnings forecasts are only just beginning to be downgraded and the profit outlook is increasingly uncertain. Measures such as price-to-book, whereby a stock's market value is compared to its book value, are becoming all the more pertinent. Meanwhile, in terms of identifying company quality, there is no substitute for face-to-face contact with company management and meticulous comparative research, aimed at uncovering those companies with the management track record, competitive advantage, and financial strength to outperform in the long term, wherever they may be located.

Stephen Docherty, Head of Global Equities at Aberdeen, comments: "Despite the gloomy outlook for the world economy, the current environment offers rich pickings for equity investors with a global mandate and a long-term perspective. After years of struggling to find value within global equity markets, the past few months of panic and volatility have presented us with a plethora of opportunities to invest in companies with sustainable business models, healthy balance sheets and experienced, trustworthy management, at attractive valuations."