Minggu, 06 Mei 2012

Should you follow the stock market trader adage

Should you follow the stock market trader adage

By Geoff Foster

PUBLISHED: 16:02 EST, 4 May 2012 | UPDATED: 10:10 EST, 6 May 2012

It’s that time of the year again when investors have to ask themselves, do they ‘sell in May to return on St Leger day’ â€" in September. Those who  followed the old adage last year certainly came up trumps.

The FTSE 100 index of leading shares fell from 6,082.88 on May 1 to 5,214.65 on  September 9, the day before the St Leger race, a decline of 14 per cent plus.

And if investors had followed the adage to the absolute letter and piled back in on September 12, 2011 they would now be  sitting on an excellent return of 13.3 per cent â€" as measured by the FTSE 100.

Magnifying glass over share prices

Many investors would now love to see a correction of 10 per cent so that they could get back into stocks again.

There are currently plenty of macro reasons for investors to sell and leave the City to enjoy the usual summer corporate sporting events such as the Lords Test Match, Wimbledon and the family holiday.

They include the deepening recession in the eurozone and uncertainties over the Chinese economy.

Neil Mackinnon, chief economist at VTB Capital, advocates saying cheerio to the market because of the ongoing Eurozone crisis.

He says: ‘We remain bearish on the economy and bearish on the debt and banking crisis which seems to be worsening. Spain, which is officially now in recession, is at centre stage and the economic situation there is poor, highlighted by a 25 per cent unemployment rate. Spanish banks are vulnerable and will require government support through recapitalisation and eventual restructuring.’

Spain has been, and still is, the main worry for investors. It is viewed as too big to fail, yet also too big to bail out.

Strategists don’t believe the situation in Spain necessitates an imminent bailout, but markets are nervous that the situation could deteriorate, leading to a bailout over the next couple of years.

However, the European Central Bank’s three-year bank loans,  also known as their long-term refinancing operations, reduced the threat of a global banking crisis.

Meanwhile, the UK market has shown considerable resilience.

Pressure has mounted on the Bank of England policy makers to restart the printing presses after it recently emerged that Britain suffered its first double-dip recession since the 1970s.

Official figures showed the economy shrank 0.2 per cent in the first quarter of 2012 following a 0.3 per cent contraction in the final quarter of 2011.

The slump â€" the first double-dip since 1975 â€" triggered a debate as to whether the Bank of England should extend its £325bn quantitative easing programme.

Peel Hunt’s Ian Williams says: ‘Since major equity indices hit their highs for the year in mid-March, the FTSE 100 has held up notably better in relative terms than the major eurozone equivalents.’

‘That has had more to do with the UK equity market’s globally diversified nature and a more defensive spread of sector weightings than is the case of Germany and France,’ he says.

There is therefore a growing belief that barring a complete eurozone disaster or Spain bailout, it would be wrong to sell in May this year. Fears of a replay of last year are overblown.

There is even a train of thought the FTSE 100 will want to fly the British flag over the summer as  the country celebrates the Queen’s Diamond Jubilee in June and the London 2012 Olympics.

The US economy looks to be gaining momentum, reflected by a 13th straight quarter of better-than-expected corporate earnings.

So if Wall Street can behave itself, so should the UK market. Investors should sit tight.

Amy Lazenby, fund manager at Wilson King, said: ‘The opportunities to make good money in the interim are quite exciting but it is a stock pickers’ market and the performance of the index is hiding the returns of those better performing companies and making investors wary.

‘We are concentrating our attention on companies which export overseas or generate the majority of their revenues from the emerging markets.’

But the truth is no one really sells in May â€" they simply stop buying.

As a result share prices drift for want of support. While there are some mega dividend yielding stocks out there â€" Man Group (15.9 per cent), Aviva (8.4 per cent), Vodafone  (7.5 per cent) and Tesco (4.8 per cent) â€" to name but a few among, there is no reason for investors to give the UK market up as a bad job this summer.

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