What to do as the ASX turns south

US markets lose more than 2% overnight, with the ASX set to follow

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Overnight US markets fell the most since November 2011, with the Dow Jones dropping 2.3% and the broader S&P 500 lost 2.5%. Commodities were sold off en masse, with gold sliding to US$1,275, its lowest level since September 2010 and silver falling below US$20 an ounce. The US dollar strengthened against most currencies, which saw the Aussie dollar dipping below 92 US cents.

European markets fared even worse, with the UK’s FTSE 100 sliding 3% and Germany’s DAX diving 3.3%.

The ASX SPI Futures indicate a fall of close to 2%, although yesterday’s 2% fall may limit some of the falls today.

For those investors that have recently been chasing yield, and jumping into the banks, Woolworths Limited (ASX:WOW), Wesfarmers Limited (ASX:WES), Telstra Corporation (ASX:TLS), falls in the share prices have all but wiped out any gains from dividend yields.

As we have repeatedly warned, we hope you avoided jumping on the bank/supermarket fully franked yield bandwagon. To say the wheels have fallen off is an understatement.

With the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) likely to fall today, now is not the time to be dumping good quality stocks. Instead, pullbacks offer the opportunity to pick up good quality companies at ‘sale’ prices. In these volatile times, you never know what silly price some (lower-case ‘f’) fool might panic and sell out of what are perfectly good and growing companies.

And by that I don’t mean risky mining services companies or tiny, dodgy minerals explorers, in the hope of hitting the jackpot. That’s more akin to gambling than investing.

Companies with exposure to the recovering US economy, and set to benefit from the falling Aussie dollar are at the top of my watchlist, as are a whole host of Australian companies providing indispensable goods and services in the retail, healthcare, utilities and telecommunications sectors.

Foolish takeaway

In times of increased volatility, Foolish investors are being offered opportunities galore. Now is not the time to panic and sell out, but look for opportunities amongst Australia’s quality stocks.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Telstra.

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