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Time to sell and buy!

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by Peter Switzer

May looks like it will end as it started with sell-offs bound to outweigh any good days. And there are good reasons to sell for short-term traders but there are also good reasons for long-term players to get in for some attractive buying opportunities.

One thing history has taught me is that there are always good motivations to buy or sell over any one week. The majority ultimately will have their say via the dollars put on the line or taken off the table.

Right now, stocks have been spooked by Euro-debt worries, a possible slowdown in Asia and the US showing some economic softness.

The Dow lost 130.78 points, or 1.05 per cent, and is now off just over three per cent for the month.

Let’s a get a few things straight before we focus on the important issue for stock markets.

China’s economy

Talk of an Asian slowdown is overdone. China’s factory output growth fell to a 10-month low but it’s still expanding and is simply showing a response to its tightening of monetary policy. If China slows from 10 per cent plus growth to eight to nine per cent growth, that won’t be a challenge for related stocks.

To the US

In the US, the economy is softening but I have no fears that it will go into a worrying reverse. It can drop a pace and that can hurt stocks in the short-term but there’s no reason to expect a double-dip recession.

The big issue and unknown is European sovereign debt. Cameron Clyne, the CEO of NAB, says he has the issue under close watch and he thinks Spain is the critical economy. He argues Portugal, Ireland and Greece and their debt predicaments are well-known but Spain is a big economy that could unsettle global banks if a debt hiccup turns up.

And that’s why markets are a little spooked right now.

A great analogy I came across runs like this: “The pilot has warned us to put on our seatbelts because turbulence is ahead. It’s not like he told us to put on the parachutes and line up at the exit doors.”

European concerns

On Europe, S&P’s downgrade of Italy from stable to negative unnerved investors but that was despite the fact that the Italian economy is doing OK.

Then, Spain’s ruling Socialist party copped a kick in the pants at weekend elections. And then the latest European purchasing managers index came in weaker than expected.

All of this should work against the strength of the Aussie dollar, which should help many local companies and could set us up for a rally later in the year.

Gain for Aussie stocks ahead

Last night I interviewed Brad Partridge from Macquarie Private Portfolio Management and our little chat resulted in the following conclusions:

China’s slowing is not a worry
The US is on track for a better second half economically and market-wise
Euro-debt is the big concern because it is an unknown
Locally he sees a 10 per cent gain from stocks over the next 12 months including dividends and capital gain. You could throw franking credits on top of this.

And this is why I’m comfortable with the current market choppiness and my only worry is will I time my buy into the low points of the market to perfection? Of course, I will stagger it and dollar cost average it so I can reduce the potential losses of going in too early.

Considering what we went through during the GFC, this is a pretty small problem to worry about.

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.

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Published on: Tuesday, May 24, 2011