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Investors Diversify Away From the Dollar Into Cheap Value Stocks

Stock-Markets / European Stock Markets Oct 29, 2008 - 09:07 PM GMT

By: John_Henry

Stock-Markets Today's financial papers read like a history of economic turmoil. In no particular order we have warnings the bank recapitalisation will not be enough if assets continue to fall (shouldn't be a surprise), a surging yen hitting Japan (who largely avoided the bank credit issues), worries over the IMF being swamped with it's relatively small fund of $250bn, Hungary, Iceland and the Ukraine looking into the abyss, global property prices falling at ever faster rates, mass redemptions of hedge funds, $3 trillion of corporate debt needing refinancing in the next 24 months, a BOE report that is frankly as depressing as you're ever likely to read (I hope) and to cap it all worries about the confidence in government debt if any or all of the above continues. Now that has to challenge even the most optimistic of all contrarian investors.

It could be argued that it is somewhat surprising that the FTSE and Dow are only 40% off their highs. The flow and severity of bad news starts to be ever present in the thinking of many investors minds be they individuals, advisors or institutions.

This could explain the reason why so many defensive, solid companies have been hammered over the last two months. There is a global move to cash, driven by fear, fundamentals, redemptions and liquid assets are one of the first to go. The question is, does this present a buying opportunity or should you keep well away. You can always find a stock market adage for the moment, but some should be borne in mind, “in a bear market you can search for value but the wise seek cash'.

That said, there is perceivable value if you are looking to buy a good stock and hold it for the long term. This might be argued against, we've seen some huge, long standing institutions go bust, or as good as, over the last six months but this market needs to be approached with a rational mind and long term thinking.

Firstly we have the French group Areva.SA, one of the worlds largest nuclear services and technology companies, who's share price has fallen 57% since June this year to 337 EUR. It does have its down sides with a large state influence for instance but this is a monopolistic type business with high barriers to entry and a growing market.

The second company is also French, Veolia Environment, one of the worlds largest water treatment and processing companies. It has similar attributes to Areva, with high barriers to entry, long contracts and a growing market but it's also similar in that its share price has fallen from 65 EUR to 16 in just one year.

Both shares may have further to fall but at this price they would appear to offer value. If you wait they may be cheaper but they currently appear to meet long term value criteria.

Some would say a useful diversification away from the dollar if you suspect the dollars recent strength is down to technical reasons rather than fundamentals.

By John Henry

John is a private investor who manages his own investments. He has been interested and involved with the markets for 18 years. Over this time has developed an investment style based on the principals that the markets are not rational and by using a value approach you can take advantage of markets
ultimately driven by emotion.

© 2008 Copyright John Henry - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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