Market turmoil seen helping remove excesses

Published March 12, 2008

Market turmoil seen helping remove excesses

By SIOW LI SEN


THE unwinding of the global financial markets is actually a positive thing where excesses had been building up the past 5-6 years, said Swiss bank Julius Baer's managing director V Anantha Nageswaran.

While many investors are feeling the pain, Dr Nageswaran had a different perspective on the volatility in the global financial markets, as he said the unwinding will lead to more normal times.

Looking at the US financial sector over the past 70 years, Dr Nageswaran said it was not until 1999 that it overtook the real economy. 'The real economy became the sideshow,' he said at a client lunch yesterday..

The year 1999 was when the United States repealed all previous restrictions and deregulated the financial sector.

Coupled with ultra low interest rates, the financial sector grew and grew, bankers became more and more greedy and ultimately led to the derivatives bust-up which will eventually help return markets to more normal times.

In the meantime, during this difficult period of transition this region will not be spared, he said.

India is less vulnerable than China because its dependence on exports is lower at 23 per cent of gross domestic product (GDP). China's exports make up 34 per cent of GDP.

But there are some safe havens. Dr Nageswaran likes gold and certain currencies.

He thinks the attractiveness of the Australian and New Zealand dollars is passing. They have gained because of the demand for industrial metals and their prices have risen to an advanced stage of the bull cycle, he said.

'I would sell into strength, not buy into weakness,' he said.

He sees opportunities still in buying gold and currencies like the Thai baht, Swiss franc, yen and the Singapore dollar.

Precious metals and agriculture commodities should be a significant portion of one's portfolio, of more than one-fifth, he said.

As for equities, he would recommend Asian financials such as India's ICICI Bank and Malaysia's Maybank.

Asian telcos such as Singapore Telecommunications and StarHub will continue to perform.

Some Asian countries like Thailand, India and Indonesia will continue to do well, he said.

The current Thai government will reflate the economy, he said. He sees a strong baht and low interest rates which will help boost the Thai economy.

As for the impact of the Opposition showing in last Saturday's Malaysian election, a period of uncertainty will follow, he said.

And given the global backdrop, investors have time to wait for more developments before putting money into Malaysia, he said.