Tuesday, December 16, 2008

Cash is not lone option, advises fund manager

TheEdge

KUALA LUMPUR: Cash is not the only choice in difficult times as there are many investment opportunities to improve returns in the long term, said Prudential Fund Management Bhd John Lim Eu Hock(PFMB) chief investment officer Yoon Mun Thim.

In a media briefing last week on the topic Cash Is King, But For How Long?, he advised investors to carry out individual risk profiling to judge their own willingness for long-term investments as the market would continue to remain volatile for 2009.

“There is a great chance that you will lose money in the near term, and if you can’t take that kind of volatility, then you should go for something safer,” he said.

He said the situation was different from the Asian financial crisis 10 years ago, when fixed deposit (FD) rates of between 6% and 10% made it worthwhile to retain cash savings. However, with FD rates in recent years below 4%, playing it safe may not be such an appealing option.

Taking a worst-case scenario of the slowdown lasting five years, he advised investors to find investment opportunities that could yield more than 19%, which is the compounded FD interest rate of that period.

“I would advocate to have some risks. Bonds still give more certainty than shares as long as you choose carefully papers from companies that won’t default,” he said.

He added that while investing in the equity market was riskier, many stocks were priced at crisis lows with some values starting to emerge. As an indicator of increasing values, he cited that many listed companies now had lower price-to-book ratios, price-to-sales ratios, and price-to-cash flow ratios than the KLCI average.

“Equities have a history of bouncing back stronger, so the chances of you making a return are high if the companies you invest in survive,” he said, adding that it was vital to do one’s homework in picking the right stock.

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