Business News

Time to buy and buy dividend stocks!

| More

by Peter Switzer

Wall Street didn’t want to go negative overnight and the chief global equities strategist at Bank of America Merrill Lynch Research, Michael Hartnett, can probably explain why. He maintains it’s now time to buy stocks or any asset that offers good yield.

He says there are bull markets developing in emerging markets because of their growth potential and with interest rates so low for savers in most countries — outside of Australia, I should add — investors will be rational in chasing quality companies that have good dividend histories.

He doesn’t think the current bond market is a bubble despite the unbelievably low yields they’re paying in the US and Europe. He points out that lots of central banks are buying these safe harbour assets in these uncertain times and scared investors are playing safe for the time being.

Asia watch

Underpinning his optimistic view is his belief that the Chinese economy is strengthening and that’s reflected in the appreciation of the renminbi.

He argues proof of his assertion is the rising Korean stock market, the rising Aussie dollar and material stocks.

“If there is one reason in September that you are seeing equity markets go up that is different from August or July is that people are realising there is no landing whatsoever for Chinese economy,” he told CNBC.

There have been bears out there such as Jim Chanos who have called China a bubble. Others argued it was in for a hard landing but Hartnett says it’s still a growth story. This has been a persistent argument for months of Herston Economics’ Clifford Bennett on my Sky News Business Channel program.

Levels to beat

This positive view comes as some technical types are becoming more positive such as Katie Stockton, who is chief market technician with MKM Partners in the US.

So what’s driving this optimism?

First is what the S&P 500 is up to and the correlative connection with assets such as copper.

She said the index has climbed above its resistance level, which “is a sign of strength”.

Another sign would be if it broke above the June high of 1131 and the beating of resistance levels now could set the market up for a big end-of-year finish.

She told CNBC that she looks at a momentum of something called the Moving Average Convergence Divergence indicator. This is used by ‘techies’ and it flicked to a buy signal yesterday and this was the first time since April!

After the S&P 500 beats 1131, Stockton says the index heads towards 1200 or 1220 — that’s about an eight per cent rise. By the way 1200 gets us back to around April highs, which is an important psychological level and 1220 is a Fibonacci number that chartists track.

She likes financial stocks arguing they have been oversold and this is something we saw here as well. She also likes cyclicals and commodities based on what her wriggly lines are telling her.

Good news ahead?

Unfortunately, the market could not beat the 1131 level overnight with the S&P 500 off a measly 0.07 per cent to 1121.1 despite better than expected retail sales numbers in the US.

Maybe the good news remains ahead but in case you are a nervous type — buy quality stocks that pay dividends as it gives you two chances of winning.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Wednesday, September 15, 2010