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Investing in Times of Financial Uncertainty

25 May, 2015



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The Lehman Brother bankruptcy sent shockwaves through the American financial markets, making it the worst day on Wall Street in 7 years!

Obama called it “the most serious financial crisis since the Great Depression.” (source)

The Dow Jones fell by 500 points which very quickly hit the European and Asian markets. All over the world, the stock markets have been falling and a world wide recession seems to be confirmed.

“We are in the middle of a deep, dark recession, and it won’t end soon. Here it is, and it is pretty nasty,” said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ. (source)

Our KLSE hasn’t been spared either as we fight the pending recession together with our own political demons. So what should you do as an investor?

If possible, do not panic sell if you are still holding on to stocks. Panic selling of stocks now may likely result in you having to take real losses on your stocks instead of paper losses if you continue to hold on to them. Our KLSE is nearing the psychological levels of 1,000 points as at this morning due to heavy selling and some analysts are expecting it to drop below the 1,000 benchmark (source).

If you are looking for bargains, there are plenty in the market now. Blue chip stocks such as BAT have fallen below RM40 a share, Bursa plunged to RM6.10 and top plantation stocks such as IOI have fallen close to RM4 a share. Is this the bottom though? Some analysts are saying plantation stocks still have not hit their bottom so it might be a good time to monitor the situation for a while until the markets stabilise a little.

Commodities too have taken a tumble together with oil prices which have dropped below US$100 a barrel. The price of gold today is trading at RM88.4 for a gram at Public Bank which has dropped from its high of over RM100 a gram. With inflation at an all time high, holding commodities such as gold would be a good hedge against inflation.

The fall of the financial giants on Wall Street have only tightened the credit crunch further, making it more difficult for borrowers to mortgage their homes. While it may not be the same here yet, it might just be a matter of time before housing loan interest rates are raised.

The financial markets are really quite volatile at the moment. Wall Street has seen the fall of two major investment banks, Bear Stearns and Lehman Brothers together with the bail out of Fannie Mae and Freddie Mac. How far or how long these financial ripples will continue to be felt still remains to be seen.

As an investor, do watch and monitor the markets and economy before you make your decision to ensure you make a well-informed investment decision.

Tags:

Economy

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Fannie Mae

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Lehman Brothers

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