Testing the water

Published in the Herald Sun, June 2010 by Karina Barrymore

A plunge in Australian share prices within the past six weeks has put the frighteners on investors. But could this be a window of opportunity?

Some of the country’s highest profile shares are at heavily discounted prices as a continued loss of confidence, fears of a second global financial crisis and international volatility keep prices depressed.

But low share prices are good news for incoming investors. Not only does it give them a deep discount when they buy in but it also boosts their percentage return from dividend income.

Even for those already with shares and facing losses, buying more at a cheaper price produces a lower average price.

So is it time to dip the toe and buy back in?

Financial Planner

Yes, now is a good time to buy but so is almost any other time, according to financial planner Sharon Walker.

Ms Walker, senior financial planning manager with NAB Financial Planning, says that for long-term investors the ups and downs of our volatile markets are only short-term blips.

“It’s almost always a good time to get back into the market. Don’t try to time the markets but stay in the markets for the long-term ups and downs.

“Ultimately you only make a loss or gain at the point of selling. The main reason you’re in there is for long-term capital growth and income,” Ms Walker says.

“You shouldn’t be afraid to buy in as long as you have a diversified portfolio based on your goals and time frame.

“There is always volatility in the markets. Nobody is going to ring the bell when it’s at the top and nobody is going to ring the bell when it’s at the bottom, so don’t try to time the markets.

”Also don’t take an emotional approach to the markets because normally that will result in errors.

“Typically for a lot of people when the market is going up and they see good returns, they want to get in and get some of those returns. But then when the markets fall people start to panic and pull out.

“In reality it should be the opposite, buying at the low points and taking profits at the high points. But overall you should not be trying to “time’ the markets. Instead, take a long-term diversified approach across many sectors.”

Stock broker

Stock broking firm Wise-owl is taking a neutral stand. There are some good buys but also some bad, it warns.

“It’s time for very selective buying in certain sectors but I’m not sure that the broader market is out of the woods just yet,” Wise-owl analyst Tim Morris says.

“Our official view is neutral. We are yet to see the market show signs of upside potential just yet.”

However, in terms of which sector to look at, gold is the shining light.

“It’s still trading near record highs even though other metal prices have been weak. Gold has held up strong, particularly in Australian dollar terms,” Mr Morris says.

“Turbulence in foreign currency markets are driving the weakness in share markets and really it’s a case of which currency has the least-worst issues.

“For example, last year people were bagging out the US dollar, proclaiming the euro the place to be. Now people are bagging out the euro.

“As far as we are concerned the only currency you want to be in is gold,” he says.

Debt-free and profitable gold producers are a good place to buy, according to the broker, such as Silver Lake Resources.

“At the larger end of town, the blue chips, we recommend sectors resilient to economic cycles such as consumer staples (through) Woolworths or funeral service company Invocare,” Morris says.

“These types of stocks get sold down along with everything else but you can be pretty confident the underlying demand for their services does not change that much.

“In mining, commodity prices are still falling, so it’s hard to forecast their future. The Chinese share market is down 25 per cent from last year’s high so there is no evidence to support investment in this less certain sector. Overall it’s a case of being very selective at the moment,” Mr Morris says.

Fund manager

Wealth Within analyst Dale Gillham also says yes, it’s time to buy back in. The market looks set to rise.

“We would expect the All Ords to rise up to a target level of around 5200 points in late July, making now a good time to get back in to the market and take advantage to the next bull run,” Mr Gillham says.

“A word of caution is that I expect our market will continue to be quite volatile with large swings in both directions.

“But anyone with a long-term view of, say, 10 years, need not be worried about this short-term volatility. It’s just that they may experience a rocky start,” Mr Gillham says.

Looking across the sectors for buying opportunities, the fund manager and analyst picks the energy sector as having room for growth.

“Given some of the stocks in this sector were negatively impacted by the emissions trading scheme not going ahead, prices are relatively attractive in some of the bigger shares,” Mr Gillham says.

“Media is definite favourite of mine that I believe is set to take advantage of the current upswing in the United States as it is proven that when unemployment bottoms and starts turning up, the media sector gains momentum.

“I can see this flowing in to the Australian media stocks which are looking attractive at the moment.

“Many shares in the materials sector have been hit hard the past few months, therefore we see some interesting buys emerging over the coming months.”