Why so much negativity!

The sharp drop in Nikkei, Hang Seng and European banks last week spooked investors all over the world. There have been whispers of 'Is this 2008 all over again?' Gold rocketed up to its peak in a year! Not only is everyone feeling 'risk off', it is 'fear on'!

As usual, we can always count on the good ol' financial journalists to tell us the possible reasons (CoCo bonds & Oil-producing countries' SWFs liquidating equities to raise funds). Thanks guys! Next time, why dun you be so kind to inform us BEFORE shit actually hit the fan? As if 'China hard landing' and 'Oil price plunge' are not sensational enough for headlines. *Roll eyes*......

In my opinion, we are no where near 2008 levels. It is business as usual for many industries, believe it or not. People are still getting on with their lives. There is a difference between being cautious and outright depressed.

For me, I am rather immune to all these headlines from wall street. I am still young, so I am more than happy to accumulate fundamentally-solid stocks at depressed prices for the long-term. The funny thing is, I see young investors (newbies) panicking when they should be the ones who could afford to chill as they have time on their side. Here's a tip to young beginner investors - you have lots of time to ride out the volatility.


Free yourself from negativity
DK

Is the world prepared for the next crisis?

In all the past global economic recessions, central banks would usually step in and stimulate/ prop up the economy with loose monetary policies. Governments would also implement certain fiscal policies and even extreme measures (bailout) to help businesses to survive a sharp downturn.

Ben Bernanke cut interest rates from more than 5% to 0% in the previous crisis and kept it that way over 7 years. The world also enjoyed 3 rounds of QE. Seeing the effectiveness of these 2 measures, major central banks in Europe and Asia follow suit. Everyone kept interest rates low and carried out their versions of QE since 2008. 

Unfortunately, since interest rates are already low, Janet Yellen has very little left to manoeuvre. The best she can do is to either postpone further hikes or maybe even cut it back down to 0%. Worst still, QE3 showed us that printing huge amounts of money loses its effectiveness the more times you do it. So, QE4 or QE5 would arguably harm the economy more than help it. As a result, central banks around the world have no more weapons left in their arsenal to fight a global recession.

But the all-powerful governments can surely save the day, I hear you say. Not really. Many governments have huge debts on their balance sheets. Some of their budget deficits are mind-boggling huge! They are already struggling to stay solvent (looking at you Greece!).  Many developed countries have their credit rating cut. Even USA had its 'AAA' rating cut in 2011! >___<

In conclusion, I think the world ill-equipped to handle the next crisis in a swift and effective manner. On the personal front, I hope everyone has been saving up that 'rainy day fund' because we might need it soon.


Always be prepared
DK

Is there really a need to invest in foreign companies in the name of geographical diversification?

This year, Singaporeans celebrate five decades of nation-building. Development, transformation and progress of this once fishing village into a modern city has been nothing short of an economic miracle. As we look forward to the next 50 years, how will SG100 be like? Will Singapore still prosper? Will Singapore still be relevant in the distant future? It is no secret that the Singapore market is lagging other major global indexes in recent years. The 2013 'penny stocks debacle' has somewhat dealt a crippling blow to the confidence of local retail investors. So naturally, people are starting to shift their funds towards foreign stocks which offer potentially better returns and diversification as there is no guarantee that a tiny island Singapore will still be around 50 years from now.

Well, in my opinion, blue-chips such as DBS, UOB, OCBC, SingTel, ST Engineering, SingPost and CapitaLand have already spread their businesses deep into other countries for years. In fact, some of them are not as 'local' as they seem although they have the term 'Sing' in their names. For instance, SingTel gets the bulk of its annual revenue from overseas subsidiaries like Bharti in India and Optus in Australia. Some REITs offer exposure to other countries too. For example, Mapletree Logistics Trust has a massive portfolio of logistics real estate spanning across Asia.

So do not fret. You can still achieve geographical diversification by being vested in these 'local' companies.