UN warning

UN warns Asian economies face new threats BANGKOK : Asian economies face new threats that could destabilise the region, despite the current boom that resulted from success in overcoming the 1997 financial crisis, a top UN official said Monday. Some of the risks now facing the region are similar to those that preceded the 1997 crisis, which began in Thailand and spread around Southeast and East Asia, said Kim Hak-Su, the head of the UN Economic and Social Commission for Asia and the Pacific. A global liquidity bonanza, inflated asset values, and tremendous speculative pressures on regional currencies could again destabilize regional economies, Kim said. "Globalization, along with its many benefits, exposes economies to quick and harsh risks from the constantly shifting international environment," he said in a speech opening a conference on the 10 years since the 1997 meltdown. Kim urged governments around the region to ensure flexibility in exchange rates, adding that central banks should also be clear about their exchange rate policies. "Greater flexibility would help take away the 'one-way bet' that encourages even more capital inflows than would otherwise take place, since markets would quickly realize that the currency could move in either direction," he said. Kim said countries around the region could weather future shocks by ensuring solid macroeconomic fundamentals, developing healthy financial sectors, having robust microeconomic foundations, and improving regional cooperation. Thailand was the epicenter of the 1997 meltdown when excessive borrowings in US dollars coupled with high interest rates forced the Thai government to float the currency, which then promptly collapsed along with the economy. The baht nose-dived to 56 to the dollar from 25, took the Thai economy with it and then sent a tidal wave of debt and default sweeping across the region, which cost billions of dollars to put right. Over late 1997, the contagion spread unchecked, hitting Southeast Asia first, with Malaysia and Indonesia the worst affected as their currencies and then economies crumpled before the onslaught. Then it was the turn of South Korea -- an apparently strong economy whose Achilles heel of massive debt forced the government to go to the International Monetary Fund for a huge and humiliating bailout. All the while, the shockwaves reverberated around the region, sparking a concerted attack on the Hong Kong government's cherished dollar-peg currency system in mid-1998.
My advice for today's meltdown is simple and straightforward. Please see points below:-
1) Market ups and downs occur for all sorts of reasons. We can safely ignore the market if the company we invest in is fundamentally sound, and if we entered at a fair price which is below the intrinsic value of the company (I had mentioned how to compute this in a previous post).
2) If the counter you hold is purely for contra and you cannot pick it up, then a lesson has been learnt that to speculate, you will have to be prepared to take losses. Thus, I always advocate an investment approach.
3) If the company you have invested in is sound, is growing and has good prospects, but the price has dipped below your buy price, there is no reason to cut loss at all. You should be able to take a loss of up to 50% and not feel uncomfortable; if you truly believe in the potential of the company. I personally was not worried about my companies as I know the underlying business was not affected. So, I chose to ignore the market altogether.
4) "Bargain hunting" - this term does not really apply to stocks which are selling much cheaper today than yesterday. Remember that all companies have an intrinsic value based on their prospects and growth. You should buy based on that, rather than the fact that the price is much lower now. If the basis for buying cannot be determined objectively, my advice would be to refrain from buying altogether.
5) A quote from Oscar Wilde - "People know the price of everything, but the value of nothing". I believe this statement applies to people who study charts and choose to ignore that a share actually means part-ownership of a company.


As for me, I am in my early 30's and am working in the accounting line, though I do keep track of the stock market as part of my job as well. My approach to investing is to take a long-term approach using value investing techniques as espoused by Warren Buffett. Basically, investing to me consists of 2 components: valuation and emotion.
Valuation is the ability to properly assign an intrinsic value to a company based on its competitive advantage, future revenue and earnings stream, potential synergies with business partners, customers, suppliers and stakeholders. This perspective does not take into account the market, but rather causes one to focus on the company. By understanding the industry in which the company is operating; as well as the unique characteristics of the company and its Management, we can project a future value for the company based on current publicly available information.
As for emotion, this means the control of fear and greed. Fear when markets dive and your company's share price plummets; and greed when markets are on bull mode. As mentioned by Warren Buffett, the most successful investor is one who is rational and not swayed by market forces. The search for a good company trading below its intrinsic value should discount the state of the market. This means that I believe all historical prices (i.e. charts) cannot accurately predict the future of the company. Only the company's earnings growth, track record an competitive advantage play a part in determining a "value" for the company. I do not have any enviable track record to speak of as I have been investing for only 2+ years. My current holdings include Ezra Holdings purchased in Oct 2005 at about $1.30, Boustead purchased last October at about $1.295, Pacific Andes purchased some time in 2005 at 81 cents, UTAC purchased at 77 cents, Suntec REIT purchased at IPO of about $1.11 (since Dec 2004) and more recently Swiber Limited entered into last week at $1.01. My holdings are all long-term and I do not set price targets for my companies. For me, I monitor the businesses and the industries in which they operate in order to ascertain if their growth is higher than inflation rate.
In time, the market will act as a weighing machine to properly value good companies. Short-term price fluctuations are immaterial to me, and if one of my companies falls below my purchase price, I will buy up more of its shares.
This one is massive. Do not underestimate. Tsunami comes in waves. Just imagine the following: In April 2007, nine practical consequences of the unfolding crisis will converge: 1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April 2. Spectacular rise of US home foreclosures: 10 million Americans out on the street 3. Accelerating collapse of housing prices in the US: - 25% 4. Entry into recession of the US economy in April 2007 5. Precipitous rate cut by the US Federal Reserve 6. Growing importance of China-USA trade conflicts 7. China's shift out of US dollars / Yen carry trade reversal 8. Sudden drop of US dollar value against Euro, Yuan and Yen 9. Tumble of Sterling Pound