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ASX, Wall Street fears: Should you buy, sell or hold?

·5-min read
(Source: Getty)
(Source: Getty)

Investors alarmed by the significant drop in the share market on Monday have been cautioned by experts against tampering with their portfolios, and to view the volatility as an opportunity to snap up certain stocks for bargain prices.

Global share markets around the world have been a sea of red over the past few days as the Evergrande’s near-collapse sparked speculation that it might be the next Lehman Brothers.

But AMP Capital chief economist Shane Oliver said the ‘contagion’ fears were actually part of a “long worry list” of reasons contributing to what he described as share “wobbles”, which investors should simply take in their stride.

“While they all have different triggers and unfold differently, periodic corrections in share markets of the order of 5 per cent, 15 per cent and even 20 per cent are healthy and normal,” Oliver wrote in a note seen by Yahoo Finance.

In fact, we were due for a correction anyway, according to BetaShares chief economist David Bassanese.

“After strong gains in recent months, markets globally were due for a pullback and uncertainty with regard to US interest rates, COVID and Chinese real estate have provided handy catalysts,” he told Yahoo Finance.

But investment jitters – while understandable – shouldn’t necessarily be acted upon. Here’s what the experts say you should do.

Buy, sell or hold? It depends who you are

First things first; punters should know that stock market dips are part and parcel of the nature of investing. “Market volatility is the price of admission when investing in the equity market,” Bassanese said.

So what should you do with your money? That will depend on what your goals are as an investor.

“Short-term traders or investors will be inclined to sell some or all of their holdings if they have not already,” Wealth Within chief analyst Dale Gillham said.

But if you’re in it for the long haul, there’s no need to react. “Those with a long-term view will just treat the current move down as part of the ride and hold.”

It’s also an approach that Motley Fool chief investment officer Scott Phillips is taking to his very own investments.

“My portfolio got nailed today. So you know what I've decided to do about it? Nothing,” Phillips tweeted. “Business as usual. These things come and go. Keep your eyes on the (long term) prize!”

Meanwhile, if you haven’t dipped your toe in the investment market yet but you were thinking about it, now might be the time.

“They would be wise to sit back and wait for the low and then buy into the market as many great opportunities are setting up,” Gillham said.

WATCH BELOW: Evergrande potential default weighs on stock market – here's why

An Evergrande opportunity

Rather than being spooked, investors should actually be looking for ‘bargain’ buys created amid the stock market rout.

"The S&P 500 sell-off is an opportunity to buy stocks on the 'dip' as the economic recovery is poised to pick up momentum,” said eToro market analyst Josh Gilbert.

The share prices of some of Australia’s biggest giants such as BHP, Rio Tinto and Fortescue Metals have all dropped recently, making now a good time to “grab a bargain in the not-to-distant-future,” Gillham said.

“I also see banks as a good opportunity with Westpac, NAB and ANZ likely to do well into 2021,” he added.

Meanwhile, Bassanese believes ETFs heavy on US or tech stocks – such as the NASDAQ-100 ETF or ASIA ETF offer “good potential”.

“Those looking for global value plays, with still attractive income, might consider the UK market through the F100 ETF,” he said.

This aerial photo taken on September 17, 2021 shows a housing complex by Chinese property developer Evergrande in Huaian in China's eastern Jiangsu province. - China OUT (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)
A housing complex by Chinese property developer Evergrande in Huaian in China's eastern Jiangsu province. (Photo by STR/AFP via Getty Images)

Should investors brace for further big falls?

If you were hoping for good news, strap in; we may not have seen the worst of it yet, with Gillham believing we’re “around 50 per cent the way to the bottom”.

“I suspect we will see more downside in Financials and Materials stock,” he said.

China will continue to be a major source of uncertainty for investors over the next few months, according to Bassanese, with more downside risk to iron ore prices, resource stock prices and the Australian dollar.

“Markets are likely to see further volatility over the next few weeks,” Gilbert noted.

However, there are also reasons to be hopeful, too, amid fresh news that Evergrande has struck a deal that will allow it to avoid defaulting.

“In my opinion, the panic stemming from Evergrande is short-lived, and we are seeing investors take profits on assets after monumental gains from most asset classes like equities in the last 18 months,” Gilbert added.

“It should ideally all work itself out shortly.”

More broadly, the global economy will continue to recover from the COVID-19 pandemic as vaccination rates rise.

“The global earnings outlook remains strong and most central banks remain loath to raise interest rates for at least a year or so,” said Bassanese.

“On this basis, it's hard to see recent market volatility as anything but a temporary pause in an ongoing bull market.”

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