With a rebound slated for Tuesday morning, experts are speculating that we’ve hit rock bottom.
“It’s not a matter of if, but when,” said Bell Direct market analyst Jessica Amir.
But barely two weeks ago the ASX had hit an all-time high, closing the day of 20 February this year at 7,162.5.
Yet after a dramatic fall on Monday morning, the ASX200 closed the day at 6,391.5.
Related story: Domino effect: How coronavirus will hit Australia
With the stock markets so volatile, where should savvy investors put their money?
Take advantage of the dip
If all the red is scaring you away from the stock market, don’t be too put off: a bounceback already seems imminent.
“When a solution is found to coronavirus, it is likely the economies and markets will snap back sharply,” independent economist Stephen Koukoulas told Yahoo Finance.
“The question we are all grappling with is when is that going to happen? Next week? Next month? And in a disaster scenario, next year?”
There is a common saying during market slumps: ‘buy when there is blood on the streets,’ said Koukoulas.
“The falls are sharp and could well continue but from where I sit, there is a bit of blood starting to flow. It is better to buy the ASX at 6,300 than 7,200 where it was 11 days ago!”
Even Scott Pape, better known as the Barefoot Investor is buying the lower-priced shares.
“Here’s the truth: short-term uncertainty is the price you pay for higher long-term returns,” Scott Pape wrote in an email.
“When you look back at the last 30 years of the stock market on a chart, it’s a beautiful picture: A $10,000 investment into Aussie shares in 1990 would be worth $136,000 today ‒ an annual return of 9.1 per cent.
“And that’s why I've been taking advantage of the pouty prices, and buying up stocks.”
Gold and bonds also tend to perform better when investors are spooked, and when stock markets are plummeting, you can invest in inverse ETFs which is effectively betting that the market will go down.
But now isn’t necessarily the time to rally behind gold, investment experts said.
“Bonds and Gold have rallied very hard on the back of uncertainties. Whilst every portfolio should have some gold exposure to create a diversified portfolio, we do like to now bottom pick cheaper companies that will generate growth and return for longer term,” said Liu.
Fidelity Australia’s cross-asset investment specialist Anthony Doyle agrees. “Gold can have a place in a diversified portfolio, though could the gold price has also sold off in recent days, perhaps in response to margin calls.”
Resources, education and healthcare are a safe bet
Tribeca Investment Partners portfolio manager Jun Bei Liu said sectors with the least exposure to the virus were good options to snap up while they were cheap.
“We are looking at the resources sector, many of those stocks are generating enormous free cash flows. China is going to unveil significant stimulus soon, we are expecting the recovery in those sectors to be v-shaped,” Liu said.
“We also like education – whilst short term earnings might be disrupted, we should simply see earnings shift to future years.”
Liu also flagged a preference for ‘defensive’ sectors such as healthcare, resources and US cyclical stocks, which are stocks that tend to do well when business is good and consumers are spending.
Motley Fool chief investment officer Scott Phillips said investors with a greater appetite for risk should look at “the most bombed-out sectors hoping for a big bounceback over time”.
“If those companies aren't structurally damaged, that's where the largest gains will come,” said Phillips. “Think discretionary retail, tourism and travel, in particular. But again, be careful to check the balance sheets!”
“The risk is that they are structurally damaged or, worse, loaded up with debt and go broke.”
Meanwhile, risk-averse investors should look for companies that have suffered from the general dip, but are generally unrelated to the health scare.
“If those businesses were fairly priced before, and are cheaper now, that's a good option, because it's sentiment, rather than fundamentals, that are pushing prices down. In this area you’re looking at consumer staples, infrastructure (not the airports, though) and the like.”
Diversify, if you haven’t already
For JP Morgan Asset Management global market strategist Kerry Craig, the stock market dip is a reason not to have all your eggs in one basket.
“Trying to time the market is really a fool’s errand. What this correction in the market does illustrate is the importance of why we advocate so strongly for diversified portfolios,” he said.
“When government bond yields were very low and bonds looked expensive many investors were adverse to holding them. However, the reason to do so has been made very clear in the last few days as bonds have rallied as yields have fallen, creating ballast to the decline in the equity market.
“This diversification should extend beyond just stocks and bonds and into alternative assets as well,” he said.
“Investors should be looking at their portfolios and ensuring that they are adequately protected against future risks and have the right mix of assets to achieve their growth and income goals.”
When in doubt, invest in property
In such volatile conditions, the property market represents a much more stable investment, according to Metropole Property Strategists CEO Michael Yardney.
“As an investor, you should not make 30 year decisions (and your investments should be long-term focused) based on the last 30 minutes of news,” he told Yahoo Finance.
“This is in part because 70 per cent of property owners are home owners who do not make knee jerk reactions to buy and sell. And for property investors the high entry and exit costs create a level of stability.”
According to CoreLogic’s most recent figures, home values in nearly every capital city are at record highs, with property prices growing a further 1.1 per cent in February.
“Bricks and mortar have always stood the test of time,” Yardney said.
“In other words the sharemarket volatility will make some investors look to real estate as an alternative secure investment vehicle underpinned by 7 million homeowners in Australia.”
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