Is it time to invest in shares or wait on the sidelines whilst the ASX share market keeps rising?
The S&P/ASX 200 Index (ASX: XJO) has risen by 20% since 23 March 2020 in what has been a surprisingly strong recovery so soon after the initial panic among investors and policymakers.
Investors may be wondering whether this recovery is permanent or just a temporary reprieve as people come to terms with the situation.
Option 1: Time to invest in shares
It could be time to invest in shares because we may not see another drop in the market. A couple of months ago the headlines were about countries closing up. Now the headlines are about restrictions lifting. I think that shift is helping investors see the positive side of things.
Governments and central banks have given enormous support to economies around the world, including here in Australia.
If you believe that Australia is going to have a strong recovery then you may think those financial shares that have been smashed are opportunities. Shares like Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Challenger Ltd (ASX: CGF) could be beaten-up opportunities at these low prices.
You may feel that discretionary businesses which have seen large sell-offs could be opportunities as well. Shares like Adairs Ltd (ASX: ADH), Nick Scali Limited (ASX: NCK) and Harvey Norman Holdings Limited (ASX: HVN) may be candidates for a strong recovery once all their stores open up.
I can't say that banks or Harvey Norman are particularly attractive to me. I think they face long-term challenges. If you're willing to take on higher risk and you think it's time to invest in shares then it could be stocks like Webjet Limited (ASX: WEB), Challenger and Charter Hall Long WALE REIT (ASX: CLW) that could be some of the better performers if we've already seen the worst of things.
Option 2: Wait on the sidelines
You may be thinking that the share market is being too positive about the situation. What happens if there's a second wave of coronavirus infections? Do today's share prices reflect the reasonable possibility that the economy isn't going to recover in a V-shape?
There is a lot of government support out there. But plenty of those same officials are saying that in some ways this could be as bad as the GFC. That doesn't mean share prices will also be as bad, but I think when businesses start telling us the true damage of the current ongoing climate we may some share prices drop back.
I'm not trying to guess how much the share market is going to fall. It would be silly to focus on GDP numbers too. Unemployment is a difficult one to correctly forecast as well. All we can do is look at the share prices of our investment targets. There are still a few shares I'd happily invest in at their current prices during the current conditions, but the list is shortening as the market goes up and up.
I'm still sticking to my regular monthly investing, choosing shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Magellan Global Trust (ASX: MGG) which are trading attractively cheaper than their pre-coronavirus prices.
But if I had $100,000 to invest in a lump sum I wouldn't choose today to do it.
Foolish takeaway
Some people may think it's time to invest in shares. That's why the share market keeps rising. But I think it's far too early to call it 'over'. I'm still regularly investing and confident about the long-term. But for the rest of 2020 I wouldn't bet against another fall, which is why I'm keeping some cash ready for that possibility.
