Opportunities for savy investors

Malaysians who have gone through the financial crisis in 1998 know there are investment nuggets out there. The question is: Are we brave enough to grab them?

It’s time to wave goodbye to 2008 and hunker down for 2009. Just as you thought 2008 was as bad a year in living memory – looking at how much the stock market has fallen and reading how industrialised countries are seeing their economies skidding – it probably will get worse for Malaysia and economies in this part of the world that have only recently started to feel the effects of the subprime crisis which sparked the global turmoil.

But that does not mean there are no opportunities in bad times. Malaysians who have gone through the financial crisis in 1998 know there are investment nuggets out there. The question is: Are we brave enough to grab them?

The implosion that we saw in 2008 was somewhat unprecendented. All major asset classes – from equities to real estate to commodities – saw major declines. The only major asset class that has made investors huge amounts of money throughout 2008 was US Treasuries, but that bubble bears watching out for in 2009.

Considering that backdrop, it’s no surprise that fear and apprehension have taken hold in the psyche of investors. People are afraid to lose money and capital preservation has catapulted in terms of priorities.

Even so, activities in all major markets still continue and people are buying stocks and bonds as prices, yields and returns may be a little more palatable for them to make such an investment.

Singular Asset Management Sdn Bhd managing director Teoh Kok Lin believes that diversity, with a lot of emphasis on Asia, is the way to beat a volatile year.

For equities, he sees value in stocks in Hong Kong and China, given their likelihood for good economic growth and for bonds, he likes certain convertible bonds.

“The convertible bonds of top-rated Asian companies are trading at good yields,’’ he says.

Similarly, Teoh sees more potential for Asian currencies, especially China’s yuan, and the way to participate in that currency is through China-listed stocks in Hong Kong.

Teoh feels that commodities are in the bottoming out phase and he has a preferance for soft commodities, such as palm oil, over hard commodities, like steel.

“Next year, economies are going to be very volatile. It’s still very fluid and the key is to preserve capital,’’ he says.

Rajen Devadason, a licensed financial planner with MAAKL Mutual Bhd, and CEO of corporate mentoring consultancy RD WealthCreation Sdn Bhd says that if conditions deteriorate further this year, there is a good chance that some sectors of the economy would go into a deflationary spiral.

“Remember, when inflation is an issue, the problem with holding too much cash is that money tomorrow will be worth less than money today. However, in the case of deflation, the exact opposite is true, money tomorrow will be worth more – at least in terms of the stuff it can buy – than it is worth today. That’s why in these times cash is king.’’

Rajen says that taming the business cycle by the incessant expansion of credit had meant people had swept their growing debt problems under the carpet.

“Now that the financial system and the economic system of our inter-linked world are being forced to clean themselves out, more and more garbage is going to be expelled. In the long run, this is great news,’’ he says.

“Unfortunately, in the short term, things are rough and going to get much rougher. So it is imperative that cash be stockpiled aggressively to be used in the coming months, very tentatively, to nibble at only the highest quality cash-flow generating assets such as prime rental properties, the finest dividend-yielding stocks, and unit trust funds that invest in such assets.’’

Rajen notes that two categories of such funds would be dividend funds and real estate investment trusts. “My personal preference is for my best clients to carry out courageous dollar-cost averaging programmes utilising cash-based money market funds as large repositories of valuable liquidity and equity funds focused on dividend and value stocks.”

Although the beating that stocks on Bursa Malaysia have taken might scare a lot of investors, the flip side of it is that it has created an opportunity for others who feel there is long-term value right now.

“It’s for people who are willing to take some risks now,’’ says Jupiter Securities Sdn Bhd research head Pong Teng Siew. “There is a lot of money waiting on the sidelines and there are a lot of people waiting to buy distressed assets.’’

Pong also says that keeping an eye out on commodities might be wise as that investment class should rise at the next hint of a recovery in the global economy.

“Oil exploration is grinding to a halt and that will only help keep prices up later,’’ he says.

Pong’s view of stocks having a lot of value now is shared by Meridien Asset Management chief investment officer Tan Beng Ling. But she has a caveat.

“I will be putting my money into stocks of companies that have strong management,’’ she says, adding that cyclical stocks such as British American Tobacco (M) Bhd and Guinness Anchor Bhd should be considered.

Tan says investors should also look to buy shares in some of of the better known companies on Bursa Malaysia. Names that have been around for a long time have proven their resilience and she remembers how well investors who bought blue-chip stocks were rewarded after the market recovered from the Asian financial crisis in 1998.

“As a personal investor, it is better to look at bombed out stocks,’’ she says.

It’s no surprise that stocks still figure highly among the recommendations from experts, as Total Financial Planning Advisory Sdn Bhd managing director Ben Ng says Malaysians have a heavy reliance on the prime markets, which are the stock market and properties.

He says the one market that investors can bank on in 2009 is currencies. “It’s a bit more secure than stocks now,’’ he says.

“The normal man-in-the-street will go for unit trusts and other familiar investments. For systematic investors with a five to 10-year investment horizon, they can look at unit trusts,’’ he said.

But the big players don’t need to rely on just a few markets. They look for new markets and their investments can be determined by the urgency of such funds.

He also expects the crude oil market to rebound this year and following it will be the price of gold.

-Jagdec Singh Sidhu