Good chance of world economy stabilising in H2 this year or 2010

 

CEO Teng Chee Wai says HwangDBS believes that the ongoing interest rate cuts and fiscal stimulus will help to cushion the recession

THE outlook for the global economy will be challenging at least until the second half of this year.

The world economy is forecast to grow only 1 per cent this year, with the developed markets experiencing recession.

Many global financial institutions are still crippled with balance sheet losses and are reducing capital loans, all of which continue to contribute to the generally gloomy economic climate.

However, we have seen a reduction in some risk indicators.

We believe that the ongoing interest rate cuts and fiscal stimulus will help to cushion the recession. Overall, there can be a good chance of stabilisation in the second half this year or 2010.

We have seen the central banks and the governments around the world implement measures to help save and stabilise the banking system. They have also been cutting interest rates, and on January 21, Bank Negara Malaysia lowered its overnight policy rate by three-quarters of a percentage point to 2.5 per cent.

This will hopefully translate into increased demand for money as it increases loan affordability, as well as prevent more borrowers from defaulting.

On the Malaysian economic front, corporate balance sheets are emerging healthier and stronger with a low gearing. Comparatively, Malaysia has declined less than its regional peers this year due to its perceived defensive status.

However, on the flip side, this could also imply that Malaysia would not be able to rebound as strongly when the market starts to pick up.

Having said that, investors need to be aware of further downside if news flow over the coming quarters is worse than expected. However, the sharp corrections in stock markets worldwide have already priced in, to some extent, the bad news that have created panic and fear in them.

Thus, they will generally gravitate towards lower-risk products with a steady income flow, such as income funds or structured funds with capital protection attributes.

As a house, we urge investors to keep in mind these key points of investing ba-sics to ensure they make sound investment decisions:

* No one can predict where and when the market bottoms

* Investors should have a mid- to long-term view on investments, as it is essential in ensuring the success of an investment portfolio

* Employing cost averaging method of investing is a better approach compared to lump sum investments as it takes much of the emotional aspect out of investing (especially for equity investing).

It is oftentimes best to start investing when one feels most uncomfortable with the outlook of the economy.

However, we are not advocating investors to plough all their savings in, but rather, to set levels and employ this method to capitalise on the current opportunity.

At some point this year, we would suggest that investors could consider taking some equity risks. We foresee that the economy will eventually recover from the current recession, given the encouraging economic stimulus packages orchestrated by the central bank governments globally.

These include rapid interest rate cuts (close to zero levels), massive fiscal stimulus package of US$590 billion (RM2.13 trillion) by the Chinese government and A$10 billion (RM24 billion) by the Australian government, and significant liquidity injection by the world central banks as the "printing press" continue to work overnight. All in the efforts focused at encouraging spending and supporting the economy.

In essence, investors could consider the HwangDBS Select Opportunity Fund and the HwangDBS Global Emerging Markets Fund, as these funds are ideal for investors looking to tap into these growth opportunities and to ride out the recovery stage.