What now for stock selection?

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Long term SMSF investors probably knew instinctively the recent downdraught in world stock markets caused by the overdone reaction to news on the US Federal Reserve’s plans, was almost certainly a buying, not a selling, signal. This was accentuated by some market commentators’ doubts about China’s economy.

There were some subtle differences, however, in the market climate: the upward pressure on the US dollar and the downturn in the Australian currency. This may mean some changes in local investors’ strategy if, as many suspect, the exchange rate shift temporarily makes overseas investors sellers rather than buyers of Australian stocks. In addition, the China factor has cast a temporary pall over major resource stocks.

Focus on stock picking

For long-term investors, the new circumstances merely reinforce the need to concentrate on selecting local stocks, which provide safe, growing income. In short, this is a time to look again at selecting the right stocks, rather than an asset allocation decision to reduce exposure to the stock market.

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