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The improvement in world share markets since March is an encouraging sign for investors. Perhaps at last the bear market is over and we can return to more promising and less volatile times. Only a few months ago, organisations such as the IMF were predicting a dismal outlook for the major economies and markets were factoring in dire economic conditions. The view was that economies would struggle to record even modest growth for some time as the failures on Wall Street flowed through to Main Street businesses. Calm is slowly returning and markets are slowly recovering from extremely oversold levels. This is probably due to two factors. The first is that the financial system is no longer in peril and that money is once again flowing through the system. The second is that the pace of decline of the US economy is slowing with the prospect there will be a return to growth in the coming quarters. It is foolish to predict that the next few years will be plain sailing for investment markets. This is rarely the case. The promising thing is that financial crises generally precede longer sustained recoveries. It seems that the more nail biting the severity of the downturn, the greater the likelihood that the next few years will prosperous for investors.
With the scramble on to raise money and reduce debt many companies are coming to the market with well priced share purchase plans (SPPs). Second line companies in particular are offering shares at good discounts to the current market price. In the past SPPs were fairly tame affairs with the maximum value of shares available limited to $5,000 or less. Since the credit crunch many companies have applied for dispensation to increase the maximum to $10,000 or $15,000. The higher amount of shares on offer has made some of the offers very attractive. With some of the offers up 10% to 30% below current market price they are providing good opportunities for investors. There are a number of worthwhile strategies depending on each investor’s circumstances. These include the opportunity to “average down” the cost base of a share, crystallize capital losses, or just simply make a quick profit. At the end of the day it is important that investors appreciate that there are always some risks in any share strategy, with the risks generally reflecting the potential profit. Investors are well advised to only apply for shares that they are comfortable holding for the medium term just in case markets take a turn for the worst.