Euro Decline Bullish For US Stock Market Trading

June 24, 2010 · Filed Under Stocks Mutual Funds

The euro stays under violent attack and stock markets around the globe are volatile, so what possible reasons could there be for putting your money into stocks now?

There are 5 arguments in favour of investing for the long run in equitities.

The FTSE 100 dropped more than 2% to under the psychologically vital 5,000 level last Tuesday. However on Wednesday and Thursday, bottom hunters have been purchasing up cheap shares and pushing the FTSE back up to recover all of Tuesday’s slump.

Skilled buyers have additionally been making the most of lower prices.

Anthony Bolton, the celebrated Fidelity fund manager staking his reputation on a new China fund, is investing about 400m of British savers’ money there.

Last week he said market drops introduced ‘vital opportunities.’

With financial savings rates at record lows, firms that pay dividends to shareholders are attractive.

The lower their stock prices, the more interesting their hoped-for dividends become.

Numerous FTSE 100 giants, similar to drug maker Glaxo and telecoms giant Vodafone, pay handsome dividends.

Shopping for shares in such firms can secure a yield – that’s the worth of the historic dividend relative to share value – of 5%.

There’s also the hope of capital growth though, importantly, values may fall further. How dependable are these corporations’ dividends?

Many of our largest companies earn most of their income abroad.

Many also produce items and services – like healthcare or tobacco – for which there is sturdy demand even during recessions.

Dividends have hardly ever been more important to investors. If you do not wish to spend money on shares directly, you can choose an equity income fund where an expert manager does the job on your behalf.

The euro crisis has driven international capital towards the dollar, pushing it up versus weaker currencies, together with sterling.

That is excellent news for British investors in shares or funds where company earnings, and dividends, are denominated in US dollars as they get an uplift purely on currency.

The decoupling argument posed the theory that rising economies like China and India had enough momentum to grow, even if the established economies of the west faltered or shrank.

That theory proved incorrect in 2009 when the global recession triggered by the West’s monetary crisis brought on even China’s highly effective economy to cease growing.

But now economists say decoupling really is happening. Whereas the West languishes in fragile recovery, China and India thrive and supply buyers opportunities to profit.

James Dowey, economist at fund group Neptune, says: ‘Until now, these markets have been suppliers of products needing to be exported. Post-crisis, they’re demonstrating they have the size to grow internally.’

Traders have access to many funds that invest in China. Highly regarded ones include First State Greater China Growth and Jupiter China.

Whether British investors go for a China fund they are likely to benefit from the country’s development via their holdings in British firms, such as Burberry, which trade more and more in Asia.

Understand that China’s growth has always been in jumps and stops and will continue so.

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