The large falls in US and Australian stock markets yesterday were caused by computerised selling based on momentum and volatility, according to Nikko Asset Management head of Australian equity Brad Potter.
Australian stocks had their worst day in two years yesterday, with the ASX 200 down 3.3 per cent at the close of trading. Coupled with losses on Monday, the ASX 200 has fallen over 5 per cent in two trading days.
US equities continued their falls on Friday, with the Dow Jones Industrial Average down 4.6 per cent on Monday – with futures markets predicting further falls on Tuesday.
But according to Mr Potter, the falls are a "technical correction" with little relation to fundamental valuations.
The US stock market was not helped on Monday by regulatory action against Wells Fargo, which saw the bank's share price down almost 10 per cent – dragging the rest of the financial sector with it.
"It has just fed on itself. ETFs volumes up much greater than normal, with a lot of people exiting," Mr Potter said.
"It all appears very technical. Fundamentals look very good globally, so I just think it's a good opportunity for [fundamental fund managers]."
In fact, Nikko AM believes Australia is on the cusp of an economic profit cycle that will benefit economically cyclical stocks like materials, energy, industrial cyclicals and financials, Mr Potter said.
John Sevior of Australian equities boutique Airlie Funds Management, whose business was acquired by Magellan yesterday, said he is also looking for an opportunity to buy up attractive Australian companies.
"We've been cautious [in recent months] and we'd love to see a decent shake-out. The businesses fundamentally don't change much – the prices change a lot more," Mr Sevior said.
"We know the businesses we like. We've been frustrated for the past six months at being unable to buy the businesses we like at attractive prices so I'll be cheering [stock market falls] hopefully for a little bit longer so we can put some of our money [to] work."
