While investors keep staring out for the light to emerge at the end of the tunnel, we anticipate that the unfavorable economic condition will continue to pose challenges at least till the second half of 2009. Investors would need to be aware that there could yet be further downside if news flow over the coming quarters is worse than expectations. However, the sharp corrections in stock markets worldwide have already priced in some extent of the bad news which have resulted in panic and fear in them.
Having said that, we urge investors to keep in mind these key points of unit trust investing to ensure they make sound investment decisions:
1.No one could predict where and when the market bottoms.
2.Investors should have a mid to long term view, as it will be necessary especially, in times like this, to ride out the current volatility.
3.Dollar-cost averaging method of investing is the better approach compared to lump sum investment as it takes much of the emotional aspect out of investing, especially in the equity markets. Additionally, it is oftentimes best to start investing when one feels most uncomfortable with the outlook of the economy. We are not advocating investors to pull all their savings in, but rather, to set levels and employ this method to capitalize on the current opportunity.
Moreover, one of the key benefits of unit trust investments is the nature of its diversified composition which may provide investors with a peace of mind as it is indeed comforting to know that our hard earned money is being managed by the experts. As the economic condition declines, there would be many bargained opportunities to venture into different investment instruments and unique asset classes which may only be made available to the retail investors through unit trust investments.
2.What type of unit trust is the best?
During volatile times, the general investors will gravitate towards lower risk products with steady income flow such as income funds or structured funds with capital protection attributes. Under the Public Mutual Investment Management stable of funds, investors are given the option to choose a low risk mixed asset fund ,an evergreen product which should provide returns above fixed deposit rates while offering the prospects of potential capital gains through regular income payout from dividend yielding stocks.
Additionally, at some point in 2009, we would suggest that investors could consider taking some equity risks. We foresee that economy will eventually recover from the current recession, given the encouraging economic stimulus packages orchestrated by the central bank governments globally. These includes rapid interest rate cuts (close to zero levels), massive fiscal stimulus package US$590 billion by the Chinese government and AUD10 billion by the Australian government, and significant liquidity injection by the world central banks as the “printing press” continue to work overnight. All in the efforts focused at encouraging spending and supporting the economy.
3. What is the best investment strategy at this point of time? What kind of portfolio should an investor have at this point of time?
Please refer to question No.2
4.What are the stocks that have fallen in value? What type of stocks will unit trust pick up at this point of time?
In the local front, our picks remain defensive, focusing on blue chips stocks with strong cash flow and consistent dividend payout such as YTL Power, Tanjong Plc, Allianz and Hong Leong Bank. In fact, our main focus is in the regional markets such as Singapore, Hong Kong and China, where their markets and stocks have been lately decimated, as we believe that when the global economy starts “healing”, these markets will be among the first to recover. We are keeping an eye in the consumer discretionary and financial sectors in these regions.
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