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Expert prediction: 3 signs the market has bottomed

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Investors who have cash on the side should look to 3 signs markets are bottoming.

Growth equities have been falling for almost a year but there are signs inflation is peaking, setting up new opportunities for investors, an industry expert reveals.

During a GSFM presentation, Munro Partners chief investment officer Nick Griffin points out that growth assets have felt the brunt of the recent sell-offs.

"As a growth equity manager we've already had our bear market, it's been going for a year. We have multiple companies that we like that are 70% below their highs," he said.

"From that point of view, the growth sell-off we think is largely done."

Instead, he says that rate rises will continue to put pressure on "real economy" assets.

"Walmart basically told you what Target told you a month ago".

"Every retailer we look at has to discount all of their inventory, not a little bit, a lot. They're talking about 30 to 40 per cent discounts," he said.

This comes as the US Federal Reserve (the Fed) makes history with its second 75 basis points rate hike in as many months, as it looks to tackle inflation.

At the same time, fresh figures from the ABS shows Australia's inflation rate is rising and now sits at 6.1%.

When to buy growth stocks again?

Despite the pain investors are currently experiencing, Griffin points out that these sell offs are actually important to investors.

"These financial cleansings are really important to how you set up asset markets. They are very important to how the Fed regains credibility and they are very important to cleanse all the excessive risk taking," he explains.

And while he can't say the exact moment to buy, he urges investors to watch out for:

1. Long-term interest rates to peak

"The first thing is for long-term interest rates to peak. We think this has happened," Griffin predicts.

"There is a risk it might not, inflation hangs around and we have to hike longer, but long-term interest rates should peak, even if the Fed has to go through neutral, the curve will just invert and we will stay around 2.5 to 3%."

2. Earning estimates to come down

"The second problem is earnings estimates have to come down," Griffin believes.

"You're gonna see that with retail and cyclicals. For the growth stocks they are less likely. A good example is Microsoft, their earnings are not going to shrink next year. The same thing could be said for Nvidia and Apple."

3. Time

"The last thing we are waiting for is time. Bear markets on average go for just over 300 days and [equites] fall 37%.

"This one has been going for just over 100 days and has fallen at its peak 25%. If you respect history, you could only be halfway through this," Griffin said.

Buying monopolies for less

The fund manager goes on to predict that you can now buy monopolies in their sector for less and that investors might not go back to high growth stocks they were previously flooding into.

"The reality is you can buy monopolies at incredibly good value.

"You can buy Visa at 23 times earnings, you can buy Microsoft for 23 times earnings, Nvidia for nearly 30 times earnings, Amazon is very cheap at the moment."

"All of these companies are going to grow even through a downturn, all of them are producing phenomenal free cash and they are set up as wonderful opportunities," he concludes.

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