Individual investors have approached the share market with extreme caution so far in 2016, with those looking to sell their holdings heavily outweighing those looking to pick up a bargain or two.
Investors can tend to focus predominantly on the blue chips, which are often deemed to be the 'safest' or most defensive shares during times of uncertainty. However, those are the ones investors are avoiding today – and, in some cases, for good reason.
Take the nation's two biggest miners, as an example. Just when shareholders of BHP Billiton Limited (ASX: BHP) likely thought the situation couldn't have gotten any worse, their shares have plummeted another 16% so far in 2016. Rio Tinto Limited's (ASX: RIO) shares have also fallen more than 12% and are now trading below $40 a share.
Their sharp declines have come as a result of their close relationship with China, the country at the epicentre of the global economic scare. Iron ore prices are stuck in reverse and tipped to fall below US$40 a tonne while oil prices have also been crushed, with some economists suggesting that a fall below US$20 a barrel is feasible. It's little wonder why investors want nothing to do with either miner right now…
The banks have also been crushed, with shares of National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) both falling by more than 10% since the beginning of the year (remember, we're only seven sessions into 2016!).
Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have also lost 7.7% and 8.9% respectively, likely due to fears that any slowdown in the Chinese or global economies could spread to Australia. That could impact property prices and demand for loans, while it could also cause an increase in bad debt charges. Tougher regulations could also impact the banks' shareholder returns further as well.
Then there's Telstra Corporation Ltd (ASX: TLS), Australia's largest telecommunications business with a market value of $65.7 billion. Not even its lucrative 5.7% fully franked dividend yield has been able to fend off market pessimists, despite the nation's cash rate sitting at just 2%.
Of course, there are plenty of other blue chips that the market is avoiding right now – especially in the energy sector – but you get the picture. Investors are scared, and not turning to the usual suspects for support.
Foolish takeaway
While some economists and other 'experts' have cautioned investors to "sell everything", there are ways to profitably (at least in the long-term) invest through a lull in the market. Sure, it wouldn't be wise to throw all your money at those companies most exposed to the potential crisis – such as the banks and miners. But if shares of other companies that are not so vulnerable also fall, sometimes they can become fantastic long-term buying opportunities.
For instance, that could include companies that generate most of their earnings offshore (and are thus not so reliant on the Australian or Chinese economies), or those with defensive revenue streams which are less likely to be severely impacted if the economy does take a turn for the worse. One company that could fit the bill is ResMed Inc. (CHESS) (ASX: RMD).
Notably, at the same time as certain economists are predicting doom and gloom for the global economy and share markets around the world, others are suggesting we're probably near the point of seeing markets stabilise. With the ASX 200 hovering nearly 18% below its April 2015 high, now could be an excellent time to start capitalising on some of the market's most attractive opportunities.
