Monday, 9 March 2009
Handsome rewards could await for those with the stomach to buy
Meantime, thousands of stock investors will be nursing millions of their dollars in paper losses. But anyone with the foresight, savvy and stomach to buy into good companies over the coming months could potentially reap some handsome rewards somewhere down the road.
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Handsome rewards could await for those with the stomach to buy
By VEN SREENIVASAN
9 March 2009
By any measure, last week was a terrible one for equity markets. Wall Street’s main indices plumbed new 12-year lows as US unemployment hit 25-year highs and worries mounted over the financial sector.
Despite a positive close on Friday, the Dow Jones Industrial Average has fallen in 14 of the last 19 sessions.
Speaking in Hong Kong last week, famed economist Nouriel Roubini warned investors to stay away from equities, or at least be underweight. Prof Roubini sees a new danger of a potential sovereign debt crisis amongst emerging economies even as the US struggles to save its housing market, banks, carmakers and insurance companies.
Some will recall that Prof Roubini was amongst the first leading economists to warn, in March 2007, that the US housing market was going to collapse in 2007 and go into a meltdown in 2008.
Meanwhile, predicting the bottom for the Singapore market has become a hot pastime for analysts here as the Straits Times Index plumbs new recent lows.
DBS Vickers, which earlier projected the benchmark index hitting 1,300 by the second quarter, has just ‘stressed’ its downside target to 1,200 points, citing deteriorating economic conditions. OCBC Investment Research sees the first support at just above the 1,470 level, and then just above 1,200 points.
Citigroup, which projects the Singapore economy contracting 10 per cent during the first quarter and 8 per cent during the second quarter, sees a potential for the ST Index to fall to as low as 1,200 points, but thinks this is unlikely to happen yet.
The benchmark index has fallen 60 per cent from its recent highs and 14 per cent this year. After briefly falling below the key 1,500 level it clawed its way back up to close at 1,513 points.
Although the ST Index may not crumble another 300 points, there is very little to cheer markets to higher ground either.
While the problems in the US are well known, the contagion effect is now being felt all over the world.
Earlier optimism over China’s second stimulus package has fizzled out. And there seems no bottom in sight for Asia’s biggest economy, as Japan heads into its deepest recession since World War II. Europe is in danger of financially imploding.
So what should investors do? Some analysts think long-term investors should start ‘bottom-fishing’. But where is the bottom?
Still, there are many well-run Singapore companies with strong balance sheets and solid business models for any investor with a 12-18 month investment horizon. Many are trading at distressed levels with little relevance to their operating circumstances.
Prof Roubini reckons that the recovery - when it comes - will be U-shaped, with the first signs of stabilisation appearing in December this year, followed by weak growth in 2010. Markets normally lead an economic recovery by up to six months.
Merrill Lynch last week noted seven signs that ‘Asia is Stabilising’. These included rising PMIs in China, Singapore and HK, and improving inventory-shipment ratios in Korea. Meanwhile, unprecedented production cuts mean Japan is no longer building up ‘unwanted’ inventory; and Toyota is planning to increase production in May.
Meantime, thousands of stock investors will be nursing millions of their dollars in paper losses. But anyone with the foresight, savvy and stomach to buy into good companies over the coming months could potentially reap some handsome rewards somewhere down the road.
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