What experts are saying about the latest ASX share market meltdown

The fact that our market has given up strong early gains to trade in the red this afternoon should dispel any belief that the terrible Thursday trumping was just a very temporary blip.

The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index has tumbled 0.4% in the last hour of trade after the 0.6% morning rally faded despite a big bounce on Wall Street overnight.

Just about every sector lost ground except for healthcare with the RESMED/IDR UNRESTR (ASX: RMD) share price and CSL Limited (ASX: CSL) share price doing the heavy lifting.

The worst performers on the ASX 200 are childcare centre operator G8 Education Ltd (ASX: GEM), drug company Mayne Pharma Group Ltd (ASX: MXY) and gold miner Northern Star Resources Ltd (ASX: NST).

I was anticipating further weakness on our market as I think this sell-off has a few more weeks left to go before we rebound on an end-of-year Santa Rally. This means the ongoing weakness is a buying opportunity and several leading brokers have echoed a similar sentiment.

Macquarie Group Ltd (ASX: MQG) issued a note today saying it is buying the dip in Australian equities.

“We don’t think the sell-off has been accompanied by a commensurate deterioration in fundamentals and as a result, the market looks oversold,” said Macquarie.

“This remains a tactical call. We think the emergence of downside risks (in particular rising interest rates) will keep the market rangebound in the months ahead.”

What’s also interesting is that Macquarie is recommending global investors go “overweight” on Australian equities as it downgrades European stocks to “underweight”.

JP Morgan is also sticking with its target of 6,500 for the ASX 200 index, which implies a more than 15% upside.

The broker points out that the average price-earnings (P/E) multiple for our market currently stands at a three-year low of around 14.7 times.

The sell-off on the ASX was triggered by steep falls on US markets but there’s also a lack of new fundamental news that would justify the severity of the sell-off.

Citigroup noted that the market swing seems to stem more from sentiment than from other key drivers like valuation or earnings and that the number of US industrials that are complaining about a drop in business activity is too low to indicate that a slowdown is imminent.

Foolish Takeaway

While there may be a weakening in the US corporate growth outlook, it’s coming off a high base and I believe all economic indicators are still pointing to growth.

The stars are not yet aligned for the end of the bull market. This is the correction we needed to have to recharge the bulls.

Don’t let this October market meltdown go to waste.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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