I don’t know about the
cheese but WHO HAS BEEN MOVING MY MONEY? As the global spectacle unveils,
entertainment seems to be coming in abundance without even the need for the
summer movie releases- and let us hope that no other politician’s private video
would debut anytime soon. Four words – Seen enough, not impressed!(For those
gasping at this… I would like to defend my stand that the videos were viewed
purely for research purposes and nothing more…)
As we flip through the
newspapers from around the world, we can see common stories taking frontlines -Uprising
of citizens against governments, political confusion, fall of governments, CEOs
/ Presidents resigning or kicked out and economic leaders making mole hills out
of mountains. To be honest, news has become entertainment. With the lack of
information that is circling the media, it is honestly hard to determine
exactly where we are when it comes to the economic scene. Or perhaps no one
really knows….
The Malaysian economy
is being man-handled. Not just by politicians but also the general public. We can
read from various valid and non-valid sources on the political spending but
what about the general public of Malaysia? Malaysians are becoming afraid.
Everyone is looking at keeping their money as close to them as possible rather
than investing it to make better gains. Investment spending is happening…. but not
happening… or rather not in the way to drive the economy.
One of Malaysia’s
popular choices of investment has been the purchase properties. Although
properties have generally been a good form of investment, it may have much of a
down side in the current economic platform. Properties, although having a
relatively good appreciative value, are very illiquid. Meaning, you may not be
able to dispose of them that easily. When the cost of servicing the investment
outdoes the income from the investment, caution has to be applied. It is here
that people have to realize that keeping their money in something that is
illiquid can cause financial constraints.
Let us say that Mark,
had purchased a property worth $1 million 5 years back and is currently worth
$2million. Clearly his investment has grown by 100%. However, if he is unable
to get a buyer or a person to rent it out to due to the current economic
climate as people are unable to afford that price due to the lack of money in
the system, stringent rules in the application of loans, etc, although his
investment grew, he is unable to reap the benefits. And this may go on for a
while.
Generally, when an
individual buys a property, it is either for personal use or to generate
income. So, for the individual, the question would be, “when is the best time
to invest into properties?” My bet is towards the mid of the fourth quarter or
if you’d like to wait (which may be a better option) towards the end of the
year. Why? Simply because people still have money now and the market is still
liquid at this point in time. But due to public fear and banks becoming very
stringent in giving out loans, new investors are going to be hard to find. And this
would be evident towards the end of the year.
Most properties are
going to be owned by people who already have permanent properties. But those
who are looking at getting new properties are going to be finding it quite
difficult to acquire loans as they would lack the needed credit score. And with
the increase in property prices, we might find that the “new working class”
would prefer to either stay with their parents or pool together in a residence.
Hence, the supply of vacant properties would exceed the demand for them. This
is when property owners who are looking at disposing or renting their
properties would find it difficult to do so. And when this happens, prices of
property in general would drop as bargain shopping on properties would start. This
is exactly what has let to most service apartments in China to be empty…
although being almost fully sold out.
So, what mechanism of
investment should people use at this point in time? I would personally suggest looking
into the capital market. Of course people would be worried to go into the
capital market due to its volatility at this point in time. However,
identifying the region (as I have been mentioning many times) is important. Buying
into big caps might be risky as the political scene is rather choppy in Malaysia.
With the small and medium industries having a better growth factor, one should
look into leveraging on such growth.
For those who would
like to test the waters of the capital market without a life jacket, you may do
so via buying into the counters yourself. However, if you’d like to test it
with a life jacket, I would definitely suggest looking into mutual funds as
you’d get the opportunity to venture into various counter without much cost to
you. If loses are to be made, they would certainly be in a smaller scale
compared to that of going into the capital market head on.
For those who are
already in mutual funds, I would suggest to keep your funds in the Islamic
bonds for the time being as there seems to be a little bit of false upward
pressures on the Malaysian stock market for the past 2 weeks. Not quite sure
why… But my theory is leaning towards political spending. Most would have
reached market highs at this point and there would not be much losses to incur
if switch is to be made soon. If my predictions are correct, there would be a
short spiral of the stock market right before it stabilizes and heads back up,
at which point, you’d want to get into the capital market.
Commodities such as
precious metals might not be rallying in prices anytime soon as a lot of
uncertainties still loom the horizon. So for those who have invested in Gold
and Silver, don’t look at liquidating it anytime soon. Keep it for as long as
you can.
By,
Ashveen Chakravarthy
Sekaran
July 17, 2012
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