Libya and Middle East Unrest

The February 2008 factsheet of Schroder ISF Middle East SGD Fund gave reasons for why investors should tap into the Magic of Middle East. Middle East is rich, increasing infrastructure demands, strong consumption power and growth opportunities were the reasons stated. The US Dollar version of the fund showed a total return of +7.0% since its inception beating its benchmark.

The Singapore Dollar (SGD) Middle East Fund started on 31 January 2008 and we invested S$50,000 in this fund on 4 April 2008. We did not expect that the world was to witness the Great Recession with its fury rising after the collapse of Lehman Brothers Inc in September 2008. Over the course of the recession from 2008 to 2009, the Middle East SGD Fund (the Fund) lost 40% of its value to S$29,700.

We kept faith with the Middle East region and held on to the Fund. It climbed to touch S$37,700 but it was still a loss of 24.6% from initial investment. On hindsight, we could have cut loss and sell off that Fund.

Then, Tunisia political uprising started in January followed on by Egypt. Libya followed suit and this turns out to be worst since oil prices began to rise. World leaders were watching this unfolding event and nervous investors were divesting their equity portfolio. The Fund again started to slide and it is now valued at S$28,929, which was a drop of 42% of initial investment.

How can we do better? One, we should bite the bullet and sell the Fund earlier and cut loss in the process. Being sentimental or emotional and the unwillingness to accept losses is the biggest problem faced by investors. There is this feeling that it will be better and holding on is an option. But there is this concept called permanent dimunition in value which we tend to forget and recovery to initial investment value is not going to happen. Second, investing in a region carries risk much the same as single country risk and we are exposed to regional problems surfacing there.

Luckily, we spread out our investments in other instruments and this has cushioned the loss somewhat.

Copyright © 2011, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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