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Get ready: There’s a massive buying opportunity coming

The reflation trade is looking shaky, so growth shares are preparing to grab the spotlight back off value stocks. And this expert says there will be a huge chance to pounce soon.
The post Get ready: There’s a massive buying opportunity coming appeared first on The Motley Fool Australia. –

As the COVID-19 resurgence refused to wane in Sydney, the S&P/ASX 200 Index (ASX: XJO) tumbled 1.4% from early Thursday morning to Friday’s close.

The strong post-pandemic ‘reopening’ trade since the start of the year seemed to have halted abruptly as strict social restrictions were applied on Friday to Australia’s largest city.

“The bottom line is equities appear to [be] rattled by the worsening COVID picture both locally and overseas,” said Shaw and Partners portfolio manager James Gerrish on Friday morning.

The problem is that the ‘reflation’ rally this year has run too far, Gerrish wrote in his Market Matters newsletter.

“We believe equities are being priced for a strong local and global economic recovery — and history tells us stocks generally don’t like surprises.”

Markets get wobbly when too many investors go the same way

Gerrish explained that when a particular theme becomes excessively popular, markets can become violent.

“Both the reflation & recovery trade has soared in 2021 but when too many investors are pointing in the same direction, volatility can spike aggressively (e.g. the US VIX kicked up over +20% last night).”

There is now a hint that growth shares are ready to take back the spotlight from value stocks.

“Bond yields are rapidly surrendering their strong early year gains providing a strong outperformance tailwind from growth stocks over value.”

But don’t go mad for those growth shares just yet. Gerrish reckons a tempting buying opportunity is on the horizon.

ASX 200 is due for a correction

While he was cautious in not advising investors to sell off and build up their cash reserves, Gerrish suspected a correction was coming.

The ASX 200 was at 7,273.3 points after close of trade on Friday. The index has gained 8.8% since the start of the year, and more than 22.8% in the past 12 months.

“A ~5% pullback towards the 7000 area would only represent a test of the lower side of the markets’ well-established uptrend,” said Gerrish.

“While an 8% pullback to test the medium-term trend line would be even more appetising.”

So be patient, keen investors.

“Our ‘gut feel’ is we will get the opportunity to accumulate stocks in at least one of these areas in the coming weeks/months.”

The post Get ready: There’s a massive buying opportunity coming appeared first on The Motley Fool Australia.

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More reading

ASX 200 Weekly Wrap: COVID wobbles ASX as shares retreat

5 things to watch on the ASX 200 on Monday

These were the worst performing ASX 200 shares last week

It has been a big past year for the ANZ (ASX:ANZ) share price
These were the best performing ASX 200 shares last week

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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