Tuesday, March 4, 2008

Recession? What Should I Do?

Recession... a scary word? Not exactly unless you are in certain industries that are popular with retrenchment. In the United States, investment bankers are the first to be retrenched when it's recession. Simply because no one in the market would like to do any deals at all. Back in 1997 when Asia experienced a recession, increments and promotions were all frozen. Some got retrenched but generally Malaysian paymasters are humane enough to retain its employees. Senior management are able to retain their seats but pay cuts are inevitable in order to ensure survivability of the firm.

By technical definition, an economy is said to be in recession when it records two consecutive quarters of negative growth. Economists have split views on whether US is already in a recession mode, both by technical definition or common sense definition. Economic datas such as number of unmployment, sale of houses and interest rate are all closely watched in order for the economists to tell themselves or whoever listening to them that the US is or is not in a recession.

So, is Malaysia in a recession? By technical definition, no. For whole of 2007, the economy expanded by 6.3%, slightly up from 5.9% in 2006. Fourth quarter itself accelerated by 7.3% year on year from 6.6% in third quarter.

The KLCI fell 2.2% to a five-month low of 1,285 mid today (Wednesday), dragged down by losses in plantation stocks as crude palm oil (CPO) prices retreated, and also on some foreign selling of index-linked stocks and heavyweights. Why is KLCI taking the beating when the economy is growing, earnings are good and not forgetting that the local banks do not need to suffer any losses arising from the subprime morgage crisis? The answer is what the fundamental investors are patiently waiting for. Fear and greed, and in this current scenario is fear. Investors are fear now as they do not know how they are being affected by development worlwide. One selling leads to another. Cut loss limits or sell-down programmes in placed by mutual funds or asset management companies are not helping the situation (fear) either.

Bottom line, hang on to your cash and bargains will come. I am not timing the market but merely hunting for cheap stocks. When market is down, stocks can become real cheap. Let's wait.

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