Where to invest in Singapore amidst the current volatile marketsBy Istvan Loh
If you are a follower of financial news, you would have noticed there's a major lack of 'good news' in the markets recently. Falling commodities prices, volatile Chinese stocks markets, poor economic growth in Singapore, and declining regional currency values... it makes one think twice about putting your hard-earned money into the markets, doesn't it?
But if you are an investor or an investor-wannabe, you'd also know that there's value to be found even during times of crisis -- such is the wonders of the financial markets. After all, doesn't the all time adage tell us to 'buy low and sell high'?
Obviously it's not so simple, because to invest amidst falling markets does take some courage and tweak in perspective to combat our irrational fear.
Having said that, where can one look for value, or at least have an idea or how to relook and rebalance their portfolio in the current environment?
Cheap oil, diving gold prices, and falling demand for copper -- these are some of the recent trends in commodities market. The CRB index – a well-used barometer for commodity performance – has recently hit its lowest since March 2009. So why the bear situation in commodities?
One main factor is the economic outlook of China, which has been lacklustre, to say the least. China is a huge consumer of commodities due to its emerging economy and its sheer population size. With Chinese demand for copper lower (less contruction needs) and other economies not doing so much better (except for the US), we can expect a lack in demand for commodities as businesses scale back.
Having said that, commodities is something tangible and has its usage, so in a way there will always be demand for commodities. The only difficult part is to pick a bottom. Suffice to say, it could play a part in your overall portfolio as commodities are often inversely correlated with the stocks market, providing an effective hedge or a portfolio diversifier.
• Falling currency value
You would have heard that the Australian dollar recently hit parity with the Singapore dollar, the Ringgit continues to fall, and Asian currencies took a tumble together with the devaluation of the Chinese Yuan on August 11. The only currency that keeps on heading north seems to be the US dollar, no thanks to the Federal Reserve still 'looking' to increase interest rates.
But with the dollar index trading at its highest since the financial crisis, you may need to be cautious about betting higher since it can't head north forever. To play it safer, why not take advantage of the rising interest rates to buy into money market funds in Singapore?
Money market funds typically invest in short-term fixed income instruments that mature in three to six months. Such investments are usually in 'safer' investment vehicles such as government and corporate bonds. While returns are not fantastic, it still earns you more than your regular savings account.
Another alternative will be to look at the hot Singapore Savings Bonds (SSB) which have made media headlines recently. Essentially, the SSB is a new type of government securities that is principal-guaranteed, provides great liquidity, and offers step-up interest rates.
The Chinese stocks market crash in June saw the Shanghai Composite plunge 8.5% in a single day in its worse sell-off in eight years. The volatility had authorities stepping in to stabilise the markets.
While the crash seemed to have moved on, it definitely spooked many investors into thinking twice about investing in shares. While stock-picking might be challenging in the current volatile environment, Singaporeans can consider putting aside a small amount each month to buy into the Straits Times Index.
Financial products such as the POSB Invest-Saver or the OCBC Blue Chip Investment Plan offer investors an affordable and easy way to invest in blue-chip shares. By buying a small number of shares consistently each month, your average price per share will be reduced over the long term, removing the risks of market timing while taking advantage of the long-term growth prospects of blue-chip companies.
At the end of the day, there is always value to be found any time in the market cycle. It's about matching your risk appetite to the type of investment vehicle you choose. Remember to take calculated risks and if you are looking to invest over the long term, diversification and portfolio management will be key to your success.