Market Update

By Mark Dampier | 08 Oct, 2008 

Stock market moves have been extraordinary. The line ‘markets can go down as well as up’ seems somewhat of an understatement, but the news at last of a policy initiative from the government plus co-ordinated rate cuts across the world brought some relief. Unfortunately we still have a recession to navigate through. The $64m question is how much of this is discounted in the market?

I have no doubt that equity markets across the world are oversold by a massive amount.  The VIC index, often known as the fear index, is actually a measure of volatility and is at its highest level ever. This index is usually a good guide to market bottoms and its extreme fear setting suggests at least a short term strong market bounce is near.

This doesn’t get us out of the problems of a more normal recession which I am afraid will be with us for the whole of 2009. However at last we are seeing strong policy initiatives from governments who frankly up to now have been largely behind events rather than leading them. But the huge falls that we have seen in many areas are throwing up some incredible opportunities in my opinion which we will be able to talk about over the next few weeks.

Amongst them corporate bond funds (which have been hit hard) with yields of over 7%, continue in our view, to offer compelling value. Equity income funds yielding in excess of 5% net and Asia/Emerging markets funds which have been hammered. Valuations which have fallen to levels not been seen since the last Asian crisis, but ironically these areas have far stronger economies than in the west.

I continue to strongly believe that dripping cash in on these awful days is the correct thing to do, my rule of thumb for those with regular savings plans is even if it feels painful, but for goodness’s sake don’t stop them, indeed increase them if you can!