Fund managers typically greetthe New Year with public displays of optimism, beguiling investors with talk ofthe money-making opportunities that lie within their grasp. This year is different. Even the professional optimists are sounding pessimistic, warning of a bumpy, violate and uncertain road ahead. So why the suddenoutbreak of mass honesty? Do they know something we dont?
New Year, new danger
Actually, they know exactly what we allknow. They know China is slowing, the US Federal Reserve is hiking, and Europe and Japan are growing (but only due torampant stimulus). They know, as we do, that emerging markets are plunging (especially commodity-dependent countries likeRussia and Brazil) and theMiddle East is tearing itself apart.
Theyalso know that the FTSE 100 fell 2.7% in2015 and this makes the fabledstock market wall of worry look particularly daunting today. The pessimism is contagious and the first trading day of2016 dulyvindicatedthe pessimists withthe worst stock market start in 16 years. The FTSE100 fell2.39% to 6,093, driven bymore bad news from China and poorglobal manufacturing figures.
Down, down, down
There were some big losers on the FTSE 100 withAnglo American, last years biggest disaster, down another 7.26%, andOldMutual,Glencore, Shire, Antofagasta, Tesco, Burberry Group and Prudential all fallingaround 5% or more. Given such a dismal start, some investors may decide to give2016 a miss altogether and makeplans to emerge from their bunker this time next year.
That would, of course, be daft. Whenever the FTSE 100 falls towards 6,000, I sense its time to buy. In volatile times, buying on the dips makes far more sense than buying on the upswings. It isnt easy to do. Too many investors only pluck up the courage to buy AFTER share prices have risenand the future looks brighter. Theres comfort infollowing the herd, but littleprofit.
What to buy
Buyers have to choose their stocks carefully, however. Personally, I would steer clear of the commodity sector as I feel the bad news isnt over yet. The oil majors could also be in for a tough few months as the price crash threatens dividends at behemoths BP and Royal Dutch Shell. The big supermarkets such as J Sainsbury and Tesco may also feel more pain as Aldi and Lidl gobble up further share.
There are betterprospects elsewhere. My tip for this year is LloydsBanking Group, which trades at just 8.8 times earnings despite a forecast yield of 5.1% by December. Barclays and HSBC Holdings may also be due a recovery. National Gridhas decent prospects and yields a solid 4.8%. Unilever keeps on delivering the goods year-after-year. BT Group, Hargreaves Lansdown, ITV and Skyare severalexciting growth prospects that spring to mind.
Investor pessimism is a blunt instrument that strikes down good companies along with the bad. That makes now a great opportunity, if you pickthe right stocks.
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Harvey Jones holds shares in Prudential. Hehas no position in any of the other shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.