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Where’s my money?

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