Investing your cash in the Year of the Rat? STASH OR SPLASH?

By Susan Tam
February 13, 2008

ABOUT $36 billion in the value of Singapore shares was wiped off the stock market in mid-January.



The Singapore market, along with others worldwide (global loss for the same week was $3.4 trillion), was buffeted by the US sub-prime crisis, the severity of which led to the US Federal Reserve cutting interest rates twice last month in a bid to stem the panic.

Did it work? Are markets calmer as we take the first tentative steps into the Year of the Rat?

It appears not.

As some of Asia's stock markets open for trading after the long Chinese New Year holidays, Reuters reported that markets were not on the mend.

Asian shares closed lower, still troubled by concerns of the US crisis, reported Reuters.

The agency added that Hong Kong and South Korea closed more than three per cent lower, while Australia and Singapore fell over two per cent and the Indian stock market dipped by nearly 5 per cent.

Does this mean you should hoard your money and wait for the markets to stabilise? Is cash king now?

Mr Song Seng Wun, a regional economist with CIMB-GK Research thinks that some people, especially those who can't handle risks, should just keep their money in the banks in the face of such uncertainty.

But more sophisticated investors may want to access the bond or currency markets as alternatives.

Those who still want to continue investing in stocks could select from the construction and infrastructure sectors, he advises. This is because of the activity in the two sectors and Singapore's economy.

For more stability, Mr James Sim, the honorary secretary of the National Financial Planning Association of Singapore, suggested opting for defensive stocks in food industries.

He said: 'Whether the economy is in good or bad shape, the prices (of these stocks) do not change much.'

They can also give the investor stable dividends.

Online investment guide Investopedia said defensive stocks are stocks that tend to remain stable under difficult economic conditions. Such stocks are from companies where their businesses, usually dealing in food and basic necessities, are less sensitive to economic volatility.

For extra security, blue chips or dividend-driven stocks are better options, Mr Sim said.

But it would depend on whether the investor has the capital to acquire a substantial portfolio to generate enough yield. A good understanding of how these (blue chip) companies are managed is important.

Blue chips are those of well-established companies with stable earnings and no extensive liabilities.

Another suggestion: Take advantage of the rising oil prices, one investor, who requested anonymity, said.

'Oil futures are one way to go, but you must be a high-roller to gain from this sector,' this investor said.

Futures are contracts or agreements to buy or sell a commodity in the future at an agreed price.

RISKY
However, one financial analyst said this type of trading is for the more sophisticated investor and is risky due to volatile price changes.

For instance, he said, the demand and supply for oil and crude palm oil could fluctuate, affecting the prices of these futures. Precious metals like gold are also another investment choice, but are speculative in nature.

Those with weak nerves should avoid them.

Not all investors are savvy about the ups and downs of futures trading. They can opt for funds run by professional managers, Mr Sim said.

'There are several safety nets to this. One is that these fund managers are regulated,' he said.

Mr Sim also said funds are diversified, making them less risky.

Investors do not have to park all their money in funds, as there are costs involved.

'If they are even more worried, they can apportion, say, 20 per cent of their cash into a fund that they are comfortable using,' he said.