Much better prepared this time around
Although some investors may feel that there are some similarities between 2008 and 2012 (as banks are under stress, with European bonds having replaced residential mortgages at the epicentre), global central bank balance sheets are much larger nowdays and governments are aware of the need to inject equity into banks when they become stressed. There is also a familiarity about the path forward in an environment with bank stress, whereas in 2008 the GFC was a complete shock and a whole month was wasted (in September / October 2008) before solutions began to be formulated after the collapse of Lehman Brothers.
From an investment point of view, the global situation highlights the importance of investing in firms with strong balance sheets and that have lower earnings risk, in a capital constrained world. This is the easiest and by far the best forms of risk management in the current investment terrain. In any downturn centred on the availability of capital, the companies with the weakest balance sheets decline the farthest as investors de-risk portfolios. similarly, during these times investors increasingly want companies that can generate sustained cash flow from their operations. Perpetual's investment team continue to search for these stocks that have good yields, potential income growth and which have boards that reinvest capital wisely.
This information has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in this article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital.