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Friday, 24 October 2008

United we stand

Goh Eng Yeow on the blood-letting on the local stock market.
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THE financial tsunami of the century has finally hit our shores.

As I write, the benchmark Straits Times Index has plummetted 139 points or nearly 8 per cent.

Why the rout ?

I had written on Monday about the implosion of hedge funds which is causing a run across stock markets worldwide, as they desperately sell everything in sight - emerging markets equities, oil, commodities and even gold - to pay off angry investors and nervous bankers.

The only way we can trace their activities is through the foreign exchange market where they have made massive purchases of Japanese yen to repay their loans, sellng selling every other regional currency - the Aussie dollar, the Singapore dollar, the Korean won - after making an exit from these markets.

After the relative calm early this week, they have come back with a vengeance.

Nothing escapes. Hong Kong, Tokyo, Seoul and Sydney are in similar plight.

And Wall Street looks likely to suffer another bout of blood-letting tonight. The Dow Jones futures is already flashing red - down a staggering 483 points.

What should investors do in such circumstances ?

The selldown hit our local market at the worst possible times - when companies are unable to defend themselves with shares buybacks because they are in the midst of releasing their third quarter results.

But bear in mind that the blue-chips which form the bedrock of our economy are here to stay.

It will be business as usual tomorrow at Fraser & Neave, Singapore Airlines, United Overseas Bank and DBS Bank, even though their prices have taken a battering.

So don't lose heart as you see your nest-eggs melting away in the selldown. This had happened before during the SARS crisis in 2003 and the Asian financial crisis in 1998.

But the blue-chips came charging back stronger than before, after each crisis.

They have also taken the lessons from the Asian financial crisis to heart. They have plenty of cash to sit out any financial crunch that may come along.

A few examples: SIA sits on $5 billion of cash, while SembCorp Marine has a war-chest of over $1 billion.

Companies such as ComfortDelgro and SMRT will be ferrying hundreds of thousands of passengers every day - financial crisis or otherwise.

And unlike foreign banks, local banks and finance firms are highly capitalised. They have plenty of financial cushioning.

It is time to put the controversy over Lehman minibonds and High Five notes behind us. The institutions involved have been punished enough by the bad publicity. And the process of compensation has been put in place.

As one forum writer succinctly put it, the issue of compensation for the affected 10,000 investors had been pursued with so much zest that the tens of thousands of investors - many of them retirees - who had placed their savings in bank stocks had been neglected. They too are hurting from the collateral damage as listed banks lost billions of dollars in market value.

Yet, even as they shed their tears in silence, there is no mention of compensation for them!

As the financial crisis unfolds and hurt us in many ways, we have to stand united to fight it together. Divided, we will be fodder for the hedge funds now pounding on our gates.

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