Investment climate – The new normal

We are in the middle of September and having seen the volatility of the stock markets since August, I am nervous of what tomorrow will bring. When we read the news daily, investors and investment analysts will try to make sense of economic news from countries such as US, European Union, Japan and China. The sentiments, whether positive or negative, impact how the stock markets will move.

The major concern right now is the contagion effect of Europe banking system weakness and it weighs heavily on the global financial system. If European banks with exposure to troubled government debts were to book losses on these assets, they may not have enough capitals to cover the losses. The global repercussion will be a repeat of the global financial crisis of 2008/09 where global banks were suspicious of each other and credit flow dried up.

The question is whether worldwide governments will come out as a unified force to address this credit crunch. Economically powerful nations such as US, China, Japan, Germany will have to bail out and unfreeze the credit seize-up. Is this going to be easy this time round?

Comparing with 2008/09, US has weakened economically with high unemployment rate and high government debt. Eurozone countries such as Greece, Italy and Spain are now paying higher interest rates for their sovereign debts. Japan is facing weaker growth starting with the triple disasters of the March earthquake. China’s economic growth has slowed in order to fight high inflation.

Will confidence come to investors such that they will not pull the plug and liquidate their investments in huge wave? I do not think so and investors were more jittery than ever and bad news will not be taken well.

I am not so sanguine. However, I am still looking at companies to invest that can withstand the current economic climate in the longer term. The stock prices will gyrate and this is to be expected. New investment in equity must be on the basis that you have set aside money, which you can afford to lose. If not, it is better to sit out during this period because we do not know how low the stock market can drop.

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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