How bad can the STI be?

In December 2007, before United States of America was hit by her sub-prime mortgage problem that plunged the world into the financial crisis of 2008/09, the Straits Times Index (STI) was at its peak at 3,589 points on 11 December 2007. Fast forward to 19 August 2011, STI was at 2,733 points. This was 23 per cent lower from the peak. It will take a long time before Singapore can see the level of 3,500 points again.

Will the current level of STI declined further to the depth of 1,456 points seen on 9 March 2009? That will be a 46 per cent collapse to that level recorded at the height of economic gloom. Is the current global economic situation as bad as the financial crisis of 2008/09? One certainly hopes that this will not happen.

Considering my fear guage this time round against the financial crisis of 2008/09, I was less anxious. The reason is that I have learned from the earlier crisis and was less invested in riskier assets. We have diversified our investments and pared down high risk investments over two years.

My current allocation was 33 per cent cash, 18 per cent equity, 12 per cent currency-linked investment, 16 per cent credit-linked investment, and rest 21 per cent in structured deposits, insurance products and fixed income stocks.

This diversified portfolio moderated the loss as seen in the equity markets (about 15 per cent) to 3 per cent from cost on total portfolio basis. At this time of uncertainty, holding substantial cash in Singapore dollar is the right thing to do and not to jump into risky investments. Wait until global economic growth is firmly in place before venturing into riskier assets such as equity.

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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