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Thread: When fear of downturn becomes a self-fulfilling prophecy

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    Default When fear of downturn becomes a self-fulfilling prophecy

    http://propertysoul.com/2015/09/06/fear-of-downturn/

    When fear of downturn becomes a self-fulfilling prophecy

    September 6, 2015



    In my earlier blog post “Why property prices won’t be recovering any time soon“, I talked about ‘regime uncertainty’ and how the recent China stock market crash further undermined market confidence.

    During the free fall between June 12 and July 7, in less than a month Chinese equity investors lost more than $3.4 trillion in equity value. By end of August, investors suffered a total of $4 trillion loss, not to mention China’s subsequent desperate move to devalue the currency.

    Although foreign investors own less than one percent of Chinese stocks, foreign hedge funds still have billions of dollars at stake through Exchange Traded Funds and other types of investments.

    The rest of the BRIC economies aren’t doing better. Last week Brazil officially announced that the country is now officially in recession, joining counterpart Russia which is in full-blown recession amid depressed oil prices and massive currency devaluation.


    The ripple effect of a bear market


    One might argue that only the privileged minority invest in stocks in China. For most people, life is just as usual in this world’s second largest economy. Look around and we don’t see many suffer from big losses in the recent global stock market slump.

    The reality is: It is not the money lost in real terms, but the loss of market confidence and the fear that the worse has yet to come that is sending ripples down the line.

    While everyone is blaming that “made in China” problem, companies are already taking necessary steps in anticipation of a possible downturn. The common measures include:

    1. Having cost cutting measures in place to cut down expenses;

    2. Calling a halt to ongoing business expansion plans;

    3. Holding back planned local or overseas investments; and

    4. Planning new rounds of company restructuring and laid-off.


    The fear of the unknown


    The article “Fearing slump, rattled Chinese long for advice” (The Sunday Times: August 30, 2015) is an interesting read.

    US have their fair share of painful memories riding through the dot com bust and subsequent market recession in 2001 and economic crisis in 2009. The Japanese have experienced three lost decades and still counting after their market crashed in the 1980s. Singaporeans have survived the Asian Financial Crisis in 1998 and the SARS-related depression in 2003.

    If the current hiccups continue, we know what is going to happen next. But not the Chinese.

    The new Chinese generation grew up during their country’s best years and experienced double-digit economic growth every year may not be prepared for the country’s first downturn since the economic reform in the 1980s. As the article clearly points out, “many young professionals have known only boom times and fear abyss of a downturn”.

    Although Chinese tourists are still the biggest spenders in many countries and Chinese investors are still buying properties overseas, if they believe that times are going to be tough ahead, they may over-react by dramatically cutting down purchases.

    They know that salary increments, commissions and bonuses will be freezed. Higher unemployment rate is expected with more workers losing their jobs. Older workers are likely to delay their retirement plan.

    To cushion the impact of the anticipated downturn, families spend less and cut down on vacations. Consumers refrain from buying luxury goods, cars, properties and any big ticket item. Investors hold back any planned investment to keep liquidity.

    All these austerity measures have big impact on retail, tourism, luxury goods and real estate. Over-reactions triggered by the fear of the unknown become a self-fulfilling expectation of a real economic crisis.


    Actions to take facing a downturn

    Investors have at least three options when a possible downturn is in sight, depending on the financial situation and investment style of individual investors.

    Option 1: Time to cash out


    In an economic crisis, cash is king. Savvy investors know when to sell in time and keep high liquidity.

    Option 2: Wait and see


    In times of uncertainty, hold your horses to avoid making investments that you may regret later. Be patient and wait till the dust settles.

    Option 3: Bottom fishing

    Be greedy when others are fearful. No one knows when the bottom is. You will go for it anyway. Just be prepared of the risks ahead when you bottom-fish. Invest only with calculated risk and always have a plan B in place.


    To keep updated on current market opportunities, sign up for the Property Market Data and Resources for End Users knowledge sharing talk on September 19, and find out what property tools savvy investors have access to and you don’t.

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    News reporting is report what I want you to know.

    One might argue that only the privileged minority invest in stocks in China.

    Farmer is doing share trading in China, not privileged minority.

    US have their fair share of painful memories riding through the dot com bust and subsequent market recession in 2001 and economic crisis in 2009.

    US don't have painful memories, they export their inflation World wide by money printing.

    The Japanese have experienced three lost decades and still counting after their market crashed in the 1980s.

    The Japanese chose to lost three decades to save their company and let Asian Financial Crisis affect the Asian country. Chinese did not devalue their currency during the crisis.

    Singaporeans have survived the Asian Financial Crisis in 1998 and the SARS-related depression in 2003.

    But we become much stronger after the crisis.

    Although Chinese tourists are still the biggest spenders in many countries and Chinese investors are still buying properties overseas, if they believe that times are going to be tough ahead, they may over-react by dramatically cutting down purchases.

    The Chinese tourists will buy even more properties overseas not cutting down purchases.

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    I report what I want you to know called News.

    Leisure spending still exists, of course. Popular restaurants in Beijing are crowded. This month, groups of Chinese tourists snapped up all manner of luxury goods one weekend at Galeries Lafayette in Paris, a high-end destination. Tour groups shuffled through the alleys and luxury shops of Venice.

    http://www.straitstimes.com/asia/eas...ong-for-advice

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    Quote Originally Posted by Arcachon View Post
    I report what I want you to know called News.

    Leisure spending still exists, of course. Popular restaurants in Beijing are crowded. This month, groups of Chinese tourists snapped up all manner of luxury goods one weekend at Galeries Lafayette in Paris, a high-end destination. Tour groups shuffled through the alleys and luxury shops of Venice.

    http://www.straitstimes.com/asia/eas...ong-for-advice
    Should I get another condo since I am seriously stretch with my Mt Sinai landed?

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    Actions to take facing a downturn

    Investors have at least three options when a possible downturn is in sight, depending on the financial situation and investment style of individual investors.

    Option 1: Time to cash out


    In an economic crisis, cash is king. Savvy investors know when to sell in time and keep high liquidity.

    Option 2: Wait and see


    In times of uncertainty, hold your horses to avoid making investments that you may regret later. Be patient and wait till the dust settles.

    Option 3: Bottom fishing

    Be greedy when others are fearful. No one knows when the bottom is. You will go for it anyway. Just be prepared of the risks ahead when you bottom-fish. Invest only with calculated risk and always have a plan B in place.


    Master VIP, I been reading this kind of negative articles too many times thus I m skeptical on property investment. The writer is contradicting, " In times of uncertainty, hold your horses to avoid making investments that you may regret later. Be patient and wait till the dust settles. And be greedy when others are fearful. " People are fearful only in time of uncertainty , why still tell people to hold horses? When the time is good , I think those prudent will have to pay thru the roof like me . When time is good the writer will then say, " dun follow the herd mentality and interest rate rising blah blah blah " . Really confuse Please advise

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    I usually buy property during downturn

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    Quote Originally Posted by indomie View Post
    I usually buy property during downturn
    Great Master Indomie , can you kindly advise when is the downturn? Now or 2020 ? And not to forget downturn usually is the uncertainty time and when the interest rate is low and only way the rate can go is up. Good time also cannot buy because rate is high and dun follow herd mentality. The best is dun buy , just rent from me.

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    Quote Originally Posted by yowetan View Post
    Should I get another condo since I am seriously stretch with my Mt Sinai landed?
    Must look at your secondary income and cash on hand, my primary income is not even enough to pay for the monthly mortgage.

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    Quote Originally Posted by Arcachon View Post
    Must look at your secondary income and cash on hand, my primary income is not even enough to pay for the monthly mortgage.
    No secondary income. Intending to get 2nd property and probably rent out to cover the monthly mortgage. Yes. It is a risk and I am wondering if the risk is worthwhile.

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    Quote Originally Posted by yowetan View Post
    No secondary income. Intending to get 2nd property and probably rent out to cover the monthly mortgage. Yes. It is a risk and I am wondering if the risk is worthwhile.
    Master Yowetan, 福贵险中求

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    1 Australian dollar = 0.9881 Singapore dollars..... A beginning to board SG ship.

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    Quote Originally Posted by Citizen View Post
    Master Yowetan, 福贵险中求
    Good! I am motivated to borrow and loan to get the 2nd property. I believe after 911, the demand will be rising!

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    Sg is a service based economy. Service economy is only as good as the people who are doing the servicing. Now sgd is so strong, the best of talents around the region will be attracted to this country.

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    Quote Originally Posted by yowetan View Post
    Good! I am motivated to borrow and loan to get the 2nd property. I believe after 911, the demand will be rising!
    Master Yowetan , I really salute you. All the Bear Masters can't negatize you.

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    Quote Originally Posted by indomie View Post
    I usually buy property during downturn
    It mean you are "REAL Investor". People like me that can only have one condo is only "part time" investor.

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    Quote Originally Posted by Citizen View Post
    Master Yowetan , I really salute you. All the Bear Masters can't negatize you.
    I am hopeful. I have calculated and seems I am still lacking 200k. I wonder where can I squeeze that 200k cash.

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    Quote Originally Posted by yowetan View Post
    Good! I am motivated to borrow and loan to get the 2nd property. I believe after 911, the demand will be rising!
    Can you explain why are you so desperate to buy a 2nd property? And how do you intend to repay those whom you will be borrowing from?

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    One of the best articles written on this.

    http://m.zaobao.com.sg/story/464832
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    2013年,新加坡有大约40万户家庭的收入超过1万1200元一个月。如果将这个数字与现有的私宅供应量(30万8814个单位),以及正在建造中的私宅供应量(5万9296个单位)相比较,供应可能还不足以应付所有需求。即使将执行共管公寓(Executive Condominium)的潜在供应量——7万2361个单位包括在内,数目还是少于现有的供应量和未来的需求量。 - See more at: http://www.zaobao.com.sg/node/464832....BbabA8nr.dpuf

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