Investing in the stock market today require a different tack especially with recent events. Speculation abound on the the state of the market with some predicting a downturn or a correction occurring soon. But investing in the stock with a value strategy should help us go forward despite any initial feeling of uncertainty. The initial concerns are the asset prices of equity stock which have risen in most exchanges.
Similar to buying any product, the first thing to determine if these prices are reasonable or if prices have risen to an unrealistic level considering the stocks fundamentals. Lest we go into more technical detail, the idea is to keep things simple based on one’s understanding of the market. Of course, one assumes that one has gone beyond the basic foundation.
For 2007, a defensive strategy may seem reasonable faced with current conditions that may affect the market. Current circumstances in the macro level like the plummeting value of the dollar, the rise of Euro and other currencoes vis a vis the dollar, the US fiscal deficit, projected slowdown in the US economy and possible increase in interest notably in England and ECB in Europe.
Of course, these macro events may not play out adversely towards the stock market though being in a defensive mode may be the safe bet without experiencing undue anxiety. The best tack following this strategy is for a long term horizon as stock values may not increase significantly in the short term. Most attractive stocks which have increased, so-called stars, have already risen in value in the recent months and the stock prices of these stars may no longer be attainable for the common investor.
Faced with this environment a prudent approach maybe to invest in the emerging markets especially in rising region of Asia. The value in emerging markets have not reached their asset levels with most Asian stocks still way below their true value. Maintaining a portfolio of emerging market stocks from countries with good fundamentals or good development plans is the best defensive strategy in the coming months. These would mean countries like Malaysia, Indonesia, China, Philippines and including mature economies like Taiwan, Korea, Hong Kong and Singapore.
The next strategy is to invest in large cap blue chip stocks with high dividend yields. A study of these stocks would reveal a large number of undervalued stock from Asian companies with strong fundamentals. The strong sectors with good potentials are telecommunication, real estate and property, consumer goods, infrastructure and shipping. Large cap stocks of blue chip companies with huge market capitalization of at least USD 300 Million would make anyone’s investment a safe bet.
Starting in the stock market especially in emerging markets with a focus on high capitalization blue chip stocks may seem to require a level of sophistication not existing in the average investor. But there are a lot of mutual funds or unit trusts being sold by well known fund managers that are easily available. The idea is to look for fund managers that have a track record and have performed well for the past number of years in emerging markets. Well-known in this field are established managers like Templeton, Shroeder and Aberdeen.
In conclusion, investing nowadays in the stock market require a basic understanding of the macro-economic factors that affect the market and define an investing strategy to respond to the prevailing conditions. Once an investing strategy has been defined, the global arena should be surveyed to view the best geographic areas that promise the best returns with minimum risk. This global outlook is the most reasonable entry strategy for investors in the today’s information age.