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The bottom may be close: Diversified

Diversified Investment Strategies is painting a cautiously optimistic view of financial markets and suggesting that “the bottom may be close”.

Wednesday, November 26th 2008, 6:52AM
In its latest monthly commentary Norman Stacey says the “ferocity, intensity and breadth” of the current financial meltdown has been far big than anticipated.

For investors it has been bad as all asset classes have taken hits.

However there are signs emerging of better times in markets.

Stacey says that leading financial indices have held above their share-price low points which were plumbed back in July. These indices have more recently begun to outperform broader market indices.

He says that the tapering of gold bullion’s price (in US$), could be a signal the immediate crisis is ebbing.

“Generally, Diversified’s macro-economic research finds the greater probability to be that aggregate global growth will persist – and at levels considerably above that suggested by deep market sell-offs. Pervasive pessimism may be excessive.”

There are a number of themes Diversified suggest investors and advisers adopt in the current environment.

  • Investors will need to look outside the traditional ‘developed world’ in pursuit of portfolio returns to fulfill the objectives in their financial plans.
  • Overly cautious investors too, need also be conscious that concentration in any asset class carries risk. Cash deposits in New Zealand are fully exposed to currency depreciation, and also to reinvestment risk as official cash rate rates tumble.
  • History suggests that sharemarket plunges of the recent magnitude are invariably followed by rallies; either an interim bounce or the start of a new up-trend.
  • Several of the official interventions to date – fiscal, monetary, crown guarantees or bans - have triggered renewed sell-offs, and added to uncertainty.
Stacey says that Diversified continues to counsel well-diversified portfolio investors to remain positioned to participate in the first - and lowest-risk - up-leg in financial markets.

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