The current events in Greece has had side-effects on the world’s equity markets. The FTSE and many European markets are about 10% below the highs they had previous hit earlier in the year. The Chinese market is also down more than 30%, although one suspects that has more to do with the bubble that was happening than anything to do with Greece. Developing markets in general have seen capital flight, as have their currencies, and `safe haven` trades such as US, German and other government bonds are back in fashion, after previously taking a hit. The US is also up for some of the same reasons. The question is, is this a buying opportunity?
The first thing to remember is that one can’t time markets. For the average investor, it makes sense to invest when they can, either monthly, or in lump sums depending on their financial circumstances, and wait it out for the long haul. Equity markets should rise over time. It is very easy for investors to keep to much money in cash waiting for the `perfect` opportunity to invest, when in reality, nobody has a crystal ball. Very few people could have predicted what has happened in the world in the last 5-10 years and there are always some known unknowns and unknown unknowns.
What this crisis is once again showing, however, is the importance of being diversified and invested in numerous asset classes. If the crisis gets worse, government bonds will go up in value, and equities down. Therefore, it is possible to reallocate away from the bonds and into the equities. Using the Warren Buffett rule of being optimistic when others are fearful and vice versa, investors can take a rational, pragmatic and long-term approach to their portfolios and reap the dividends.
Having said all that, it is important to look towards markets that are cheap historically and in terms of price-to-earnings ratios and only measures of value. Even before this last sell-off, emerging markets looked cheap. They didn’t see the types of consistent double digit growth that the US markets saw after 2008. With the Greece situation being as it is, it makes some sense to re-allocate 5% of funds towards emerging markets. Re-allocating every 3-6 months, away from performing funds into under-performing ones is painful, but necessary.