Let History Repeat Itself

So a lot of the bears were mistaken when they thought the 10 year recession cycle in Asia would repeat itself in 2007, but their prediction was close enough to say they were right. In 2008, history repeats itself but now not only Asia but the whole world is joining the party.

Recession has been a word associated with pessimists and bears and most people dread the word when it is mentioned. Even world leaders wouldn't want to say the word fearing it might cause an even greater negative effect on the already jittery market and the thread like confidence of the economy. Even in Malaysia, politicians and bankers and analyst continually put up a brave face saying Malaysia would not be severely affected by America's problem.

Then in October, Singapore announced that it was in a technical recession after suffering 2 consecutive quarters of negative growth. With their stock market battered worse than Malaysia, it is a wonder how a resilient economy like Singapore which is a favourite among investors to suddenly face an economic challenge before any other countries in the region are affected. It even raised some doubts about the transparency of other countries financial reporting. Is it really true that Singapore is affected that badly?

Well in the financial markets, their banks had some exposure to 'America's Problem' but not as bad as European banks. Then the fact the global liquidity crisis forced a lot of hedge-funds and investment firms to be very careful with the amount of cash they are holding, cause them to start to liquidate or sell off their investment for cash. So Singapore being a magnet to investments by foreigners in the first place, suddenly find itself being abandon to itself. It's not that Singapore is sinking, no no no. Their government is healthy financially, but the markets which reflects the confidence in it's economy is wavering.

As Singapore officially announced its in recession, people would generally start to be more conservative in their spending. Frugality is the word, cash is the king. So less spending means lesser domestic economy. Although it is not visible in the streets yet ( no one starving without a job), Singapore's workforce which has a very high percentage of foreign nationalities might see a halt in recruitment. If companies starts closing down, more foreigners would be sent back to their homes. And any effort by the government to secure jobs is definitely not done for the foreigners but rather their own citizens. So although un-employment rates don't show a rise, doesn't mean Singapore is not retrenching. And bear in mind, the foreigners in the country are also consumers/spenders as well.

Singapore has no natural resources which is actively being exploited. Their strength is currently their workforce which is supplemented by a large group of expats and cheaper foreign labour from neighbouring countries and their strategic geography which allows them to be one of the busiest ports in the world. But if global recession were to hit, what would happen to global trade and more importantly their port business? If massive retrenchments happen, what would happen to all the 300,000 Malaysians working there suddenly find themselves without work? Will Malaysia be ready to absorb that amount of people coming back for employment?

Let's just let history repeat itself and then after a while when the dusts have settled, it will go up again as usual. Might take some years but will go up again and down and up and down. That's how it goes.

Actually for investors waiting for this kind of market turmoil, this is the best chance. Re-living 1997 again, buying at the lowest, sowing the humble seeds and reaping it 5-10 years later. For me, I'm still a little bit vested in YTLPOWER. Seems to be my favourite counter and can't get enough of it. Will wait for more weakness of it and try to find an opening to enter.

I have lost all confidence in Maybulk when the BDI decided to free-fall after the Olympics.

Plantations like IOI and Asiatic also looks good now. But still expensive in terms of PER. Still can be lower looking at the CPO price. At the very least, we know it is food and everyone needs cooking oil.

O&G have lost their shine as the black gold have lost value and back to previous evaluations. With slowing global demand due to recession and demand destruction due to the previous high, OPEC which will cut output and try to maintain at the very least USD60 if possible. If not, a lot of oil platforms with high costs will shut down. Service providers will also lose their business.

Overall, utilities still seems like a good business especially if you are YTLPOWER with a lopsided PPA.