Investors flock to safe stocks on eurozone and China fears

Business Correspondent/Personal Finance Editor

Saturday 19 May 2012

Online stockbrokers TD Direct this week reported a 50% increase in trading of its 10 most popular stocks as investors responded to the intensifying crisis in the eurozone.

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SIMON BAIN

However, as the FTSE-100 index crashed to its lowest since the slump of last August, advisers were reminding less active investors that bad times in the market may not make for good decisions.

"It's a hand-holding process to try to allay fear – one of the big drivers of the market," said Michael Garvey, financial planner at Edinburgh Wealth Management. "If you are going after miners and global high dividend paying corporates, what is going on in China is perhaps a bigger worry than what is happening nearer home."

However, he stressed: "Our message is that your funds won't become duff funds overnight and that decent corporates are generating cash."Brian Steeples, at Turris Wealth Management in Glasgow, said: "A lot of our portfolios are positioned quite defensively and are not getting the same sort of battering that the FTSE-100 would suggest. Where clients' objective is income production, the income will still be flowing even though capital values will have fallen."Mr Steeples said such clients who had sat tight a few years ago had seen capital values recover. "The last thing you want to do is pile out after there has been a 5%-10% drop in capital values."Steve Forbes, managing director at independent advisers Alan Steel Asset Management in Linlithgow, said: "We are entering a period of uncertainty and markets hate uncertainty. But there is as much of a chance that Greece defaulting or leaving the euro would be a trigger for markets to then rise. What I find terrifying is the flood of money into fixed interest gilts – the main buyer of gilts now is the Government, and anyone who thinks that is a safe haven just now is heading for a major shock."Mr Forbes said his firm had been reducing exposure to European equities over recent years, and would recommend "a 50-50 split between UK and the rest of the world excluding Europe".Tim Wood, director at investment managers McInroy & Wood at Haddington in East Lothian, said: "What is clear in people's minds at the moment is that there are not many alternatives to invest in – Government bond yields are so low, and not gold, unless you believe we are heading into really inflationary times."Mr Wood added: "The nervousness surrounding Europe is something that has been created by politicians failing to grasp the nettle and address the situation that everyone knows is there."As soon as there is some clarity within Europe, I am sure the equity markets will look very favourably upon that. Corporates are reasonably strong, with a lot of cash on their balance sheets – which can't necessarily be said for governments."Stephen Barber, who advises execution-only online stockbroker Selftrade on economics and markets, said: "Markets have the jitters at the dual concerns of the eurozone seemingly on the brink of collapse and a slowing of the Chinese economy. But while opinion seems to be expecting a big bang car crash, this situation has the potential to drag on for many more months – a reality investors should note."Sheridan Admans, investment research manager at broker The Share Centre, said if the next Greek election was brought forward it could restore some confidence.He added: "Those willing to accept a higher degree of risk may see times when fear is high as an opportunity to buy. For those wanting to invest we recommend looking for large caps with strong balance sheets and good overseas earnings. Income seekers should consider drip feeding into stocks in defensive sectors such as utilities, tobacco and telecoms."In these times of uncertainty, investors should probably avoid sectors such as financials, house builders, commodities, energy, technology and support services to the energy and mining sectors."Sandy Nairn, director at institutional fund managers Edinburgh Partners who has recently published a book on pioneering investor Sir John Templeton, said: "One of his sayings was if you want to look for value, don't look to where people are most optimistic but look at where they are most pessimistic."He said investing in Europe was still fraught with political danger, but it was "quite easy to think you would find under-valuation in areas where the greatest uncertainty is".Mr Nairn added: "Most people are not invested in these areas and that has been right until now but it can turn."

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Investors flock to safe stocks on eurozone and China fears

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