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Sunday 22 March 2009
Market Mood
Facing the most serious financial and economic crisis in more than 70 years, most investors believe that cash is king and are waiting for the best time to re-enter the market.
Facing the most serious financial and economic crisis in more than 70 years, most investors believe that cash is king and are waiting for the best time to re-enter the market.
Sometimes doing nothing is the best strategy in a volatile market. But investors should prepare for bargain hunting because, once the market recovers, the rebound will be significant and investors with only cash in their portfolio will regret the inaction.
Last week offered a glimpse of that scenario. Global stock markets rallied for seven straight days, thanks to the recovery of financial stocks. Many stock markets and funds were up by more than 10 per cent, and several financial stocks such as HSBC, Citigroup and Barclay rebounded dramatically.
Though we are still in a depressed economy, there are plenty of investment opportunities. Bear in mind, the more volatile the markets, the more opportunities. A good example would be the second-tier and third-tier mainland stocks. Some of these stocks have increased almost eightfold since November. I believe we can profit even in adversity if we adopt a good strategy. Investors should learn from farmers, who sow in winter and harvest in summer. The current market seems bleak - winter provides a good opportunity for investors to sow their seeds to reap a good harvest when the market turns around.
Last year, the global stock market was hit by the financial crisis. Both developed and emerging markets saw double-digit plunges. Some fell even more than 50 per cent. But we have seen that the year following a financial crisis turns out to be a good one for the stock markets, since price drops during the crisis result in more attractive valuations.
I think some fund managers - especially those with resilient track records - have already made moves to set up new funds and take advantage of low valuations.
Though there is an increasing trend of redemption and fund closing, the fund industry is growing in Hong Kong. The number of firms with asset management licences in the city rose 17 per cent last year, the number of authorised unit trusts and mutual funds increased 6.3 per cent year on year in January, and the trading volume of exchange traded funds expanded.
The problem with investors is they rush to invest in funds when the market peaks but are reluctant when the market is going downhill and stocks show attractive valuations. Investors generally tend to ignore the fact that investing in new funds in a booming market will have more downside risks.
The market sentiment was extremely bearish a few weeks ago. Yet the economic data out of the United States and the earnings performance of Chinese enterprises have not been as bad as was feared.
Experts who had been anxious about the economy have changed their views. Fed chairman Ben Bernanke believes the United States will recover by the end of the year, instead of three years as he said before. With the US stock market dropping more than 40 per cent in the past year, Warren Buffett is considering acquiring American companies with the US$25.5 billion held by Berkshire Hathaway - in an almost zero-competition environment where credit financing is hard to obtain.
Even as I say that now is a good time to invest, investors have to do their homework. Many funds have closed down since last year. But funds close for various reasons. There are unscrupulous fund managers who close their old funds to reopen new ones. Doing so at the market bottom, they gain substantial returns when the market rebounds, not to mention the handsome performance fees.
But most fund managers, I think, are professional and ethical. They set up funds because they are confident of their skills; otherwise they would not have dared to open new funds at a time like this, nor would they be able to gain investors’ trust. Investors need to pick the fund managers they can trust in this economic winter.
Here’s an example of a good fund manager: Zhao Danyang. In the beginning of last year, while the Shanghai Stock Index was at a record high, Mr. Zhao, the originator of Chinese private equity funds, surprisingly terminated his mainland funds. The reason he offered: stocks were too expensive for investment.
A year later, he says 2009 is a year of “hope”. I share the same view: the stock market will bottom this year and we can hope for a rebound and considerable returns.
But again, investors should be careful in choosing their fund managers. They should avoid those reopening similar funds to make more in performance fees. If investors can put their money in funds that are run by managers with good judgment, they will make profits both in the long and short term.
1 comment:
Market Mood
Investment analyst and head of Pegasus Fund
22 March 2009
Facing the most serious financial and economic crisis in more than 70 years, most investors believe that cash is king and are waiting for the best time to re-enter the market.
Sometimes doing nothing is the best strategy in a volatile market. But investors should prepare for bargain hunting because, once the market recovers, the rebound will be significant and investors with only cash in their portfolio will regret the inaction.
Last week offered a glimpse of that scenario. Global stock markets rallied for seven straight days, thanks to the recovery of financial stocks. Many stock markets and funds were up by more than 10 per cent, and several financial stocks such as HSBC, Citigroup and Barclay rebounded dramatically.
Though we are still in a depressed economy, there are plenty of investment opportunities. Bear in mind, the more volatile the markets, the more opportunities. A good example would be the second-tier and third-tier mainland stocks. Some of these stocks have increased almost eightfold since November. I believe we can profit even in adversity if we adopt a good strategy. Investors should learn from farmers, who sow in winter and harvest in summer. The current market seems bleak - winter provides a good opportunity for investors to sow their seeds to reap a good harvest when the market turns around.
Last year, the global stock market was hit by the financial crisis. Both developed and emerging markets saw double-digit plunges. Some fell even more than 50 per cent. But we have seen that the year following a financial crisis turns out to be a good one for the stock markets, since price drops during the crisis result in more attractive valuations.
I think some fund managers - especially those with resilient track records - have already made moves to set up new funds and take advantage of low valuations.
Though there is an increasing trend of redemption and fund closing, the fund industry is growing in Hong Kong. The number of firms with asset management licences in the city rose 17 per cent last year, the number of authorised unit trusts and mutual funds increased 6.3 per cent year on year in January, and the trading volume of exchange traded funds expanded.
The problem with investors is they rush to invest in funds when the market peaks but are reluctant when the market is going downhill and stocks show attractive valuations. Investors generally tend to ignore the fact that investing in new funds in a booming market will have more downside risks.
The market sentiment was extremely bearish a few weeks ago. Yet the economic data out of the United States and the earnings performance of Chinese enterprises have not been as bad as was feared.
Experts who had been anxious about the economy have changed their views. Fed chairman Ben Bernanke believes the United States will recover by the end of the year, instead of three years as he said before. With the US stock market dropping more than 40 per cent in the past year, Warren Buffett is considering acquiring American companies with the US$25.5 billion held by Berkshire Hathaway - in an almost zero-competition environment where credit financing is hard to obtain.
Even as I say that now is a good time to invest, investors have to do their homework. Many funds have closed down since last year. But funds close for various reasons. There are unscrupulous fund managers who close their old funds to reopen new ones. Doing so at the market bottom, they gain substantial returns when the market rebounds, not to mention the handsome performance fees.
But most fund managers, I think, are professional and ethical. They set up funds because they are confident of their skills; otherwise they would not have dared to open new funds at a time like this, nor would they be able to gain investors’ trust. Investors need to pick the fund managers they can trust in this economic winter.
Here’s an example of a good fund manager: Zhao Danyang. In the beginning of last year, while the Shanghai Stock Index was at a record high, Mr. Zhao, the originator of Chinese private equity funds, surprisingly terminated his mainland funds. The reason he offered: stocks were too expensive for investment.
A year later, he says 2009 is a year of “hope”. I share the same view: the stock market will bottom this year and we can hope for a rebound and considerable returns.
But again, investors should be careful in choosing their fund managers. They should avoid those reopening similar funds to make more in performance fees. If investors can put their money in funds that are run by managers with good judgment, they will make profits both in the long and short term.
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