Market Wrap - Week Ending Friday 7th March 2008

ABC Learning, MFS, Allco and now Hedley’s; A very disturbing pattern forming in the market at present. All good companies with real income and real business but they have borrowed too much. We have seen all of these companies and a few more fall from grace as investors sell down stocks which have even a hint of high gearing levels. We’ve also seen major falls in the big four banks, and insurance companies such as QBE and IAG even after good solid earning reports.

Again all on the back of concerns about exposure to bad loans and the credit squeeze caused by the Sub Prime. The property sector hasn’t escaped from major falls, again they still own good properties paying good rent but investors are concerned about their lending.

The question is “Has the market got it wrong?  Or are we in a bear market?”

We can see in the below chart the our market moved below the lower end of our trading range this week as we have had a number of big selling days with Friday closing down 3%. This could indeed be the bottom.

Answer: Unless you think all of these big blue chip stocks are going broke the market is cheap right now, that said it could get cheaper. But picking the bottom is not what it is all about, right now it’s all about income. At the current price Suncorp is paying a 9% fully franked dividend, NAB is paying 6.7% fully franked dividend, at these prices the dividend itself is enough to warrant holding the stock.

So if you have a long term view and stomach to ride the ups and downs of the coming months then now is a good time to start picking up blue chip shares. If not, wait for a positive move north, you will miss some of the upside but you will save yourself a lot of heart ache.
Until next week.