After chaos, buyers dig deep for BHP

WHATEVER panic gripped the market recently, the sensible view is that strong Chinese demand for commodities means now is a good time to buy into resources companies.

After chaos, buyers dig deep for BHP

WHATEVER panic possessed the market two days ago, the sensible view is that Chinese demand for our commodities is not going away and now is a good time to buy into resources companies such as BHP Billiton.

HLB Mann Judd Financial Planners got calls from concerned clients amid the mayhem of Tuesday, wanting to know how much they had in their cash accounts to buy cheap shares.

The most popular buy for its clients was BHP, which fell to as low as $31 from highs of about $47.

A Commsec spokesperson confirmed the most popular buy there yesterday was also BHP, followed by NAB, Oxiana, Lend Lease, Woolworths and Wesfarmers.

Woolies had dropped to about $29, having reached $33, while NAB is trading at about $32.

Unlike in the US, the Australian economy is not at risk of recession. Quite the opposite, with 17 years of economic growth having awakened an inflation genie and risks of interest rate rises.

On days like Tuesday, fear and greed rule and the uneducated follow the mob out the door.

This is different from a market where fundamentals such as company profits prevail. Inevitably, the market reverts to fundamentals, and that's the time to buy.

Picking the moment is, of course, difficult.

Some decided it was yesterday as, after the market opened, the key S&P/ASX 200 index was up 6.5 per cent, thereby making up most of its 7.1 per cent loss on Tuesday. Then the market fell after inflation figures hinted at a rate rise next month.

HLB Mann Judd head of financial planning Michael Hutton said the biggest mistake investors could make was to sell shares in a panic when they were down, go into cash and then wait for "the right time'' to buy back.

The problem with undertaking a drastic realignment of your portfolio in a  "crisis'' is you can miss out. While you are out of the market, substantial movements, such as a recovery, can occur.

Selling could involve capital gains tax and transaction costs (brokerage) to re-enter. Far better to have a considered portfolio.

"If you have a portfolio of quality assets, which is well diversified, then you just sit tight and wait for the inevitable turnaround,'' Mr Hutton said.

Financial planner Jonathan Philpot said retirement capital-conscious clients had called him to slim down their allocated pension payments to the minimum.

"We work on a rule of thumb that says clients need to make 8per cent a year returns on their portfolios so they don't have to draw on capital,'' Mr Philpot said.

"If someone is on a higher payment for their age, they may ask to pare this back.''

Geoff Lloyd, chief executive of St George's Asgard, warned that the first half of this year will show weakness but the second half was likely to show "strong upward market momentum''.