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Saturday, November 20, 2010

Flux in world economy affects everyone

These are interesting times. This has been said before, and will be said again at each fall and rise of the economic cycle.

But the enigma today is not so much whether it is a fall or a rise in the economy, but in the rebalancing of economies around the world. One may ask, how would that affect us in Malaysia? Lots.

Whether it is a 30-something looking for his first home, or a middle-aged person planning for retirement, the flux in which the world economy is in today affects everyone.

Let's go into the big decisions, not the details of how much your cup of coffee costs today. A 30-year-old looking to own his first property will wonder whether it is time to buy. The low interest rates are in his favour, but spiralling house high prices are not.

In the stock market, there stock prices are trending upwards. To place all of one's money in the bank seems folly at this point. Or is it, really? Let's lay some cards on the table to better gauge the situation.

The West is on capital preservation mode, while we in the East, are on growth. The United States and Britain are embarking on printing more money to help lift their economies and reduce unemployment.

But in Asia, the property markets of Hong Kong, China, Singapore are so hot that the respective governments are putting measures to chill these markets.

Bank Negara did the same recently when it imposed a 70% loan-to-value cap for third and subsequent housing loans. These measures will, in all likelihood, work only partially.

> Asia is the place to be in at this point in time. With the United States embarking on a second round of quatitative easing effectively flooding the economy with more dollars this flow of funds are expected to arrive on Asian shores to benefit from Asia's vibrancy and growth. The first round was its various stimulus packages after the fall of Lehman Brothers in late 2008.

This means by next year, there may be huge flow of funds into Asian economies, effectively pushing up stocks and properties. We may be seeing the tiny seeds of that exuberance germinating today.

It started with the property market in the last quarter of 2009 and now stocks are also trending upwards. Are valuations fair? If it is the beginning of a bull run a huge IF then maybe.

> Get your cash ready. You may want to cash in on the uncertainty ahead.

So despite the volatility, consider the accelearation, be it both stocks and properties. That does not mean there are no challenges ahead. If anything, with the rebalancing of the economies in the different regions, massive uncertainty exists.

In fact, fund managers and bankers are very cautious about what's around the corner and also about next year, despite the strong performances in Asian stocks and the property market today.

The various capital controls and measures by governments in this region all point to these uncertainties and challenges ahead.

Given these trends, volatility is expected. The same for uncertainties. That does not mean stock valuations are not fair. Or that houses are over-priced.

In some locations, it is over-priced. The funny thing is, there is demand for it, particularly for certain types of properties.

Don't throw caution to the wind and don't follow the herd instinct. Whatever goes up very fast, also comes down very fast, particularly if prices are pushed up by inflows from the West. They enter a region quickly and exit just as fast.

> Consider how much you are ready to lose, not how much you can make.

You are tired of renting and there is a real need for that house. First, choose where you want to stay. That's the location. Secondly, what type of residential units will you be comfortable in.

If your financial position allows you to get your dream home, then you may want to work towards that. You may have to forgo changing your car. A property is a long term purchase.

> Be it a house or stocks, buy on value, and need. Nobody knows how long this state of uncertainty this rebalancing of economies is going to last. Or when the fragile situation in Western economies will take a turn for the worst and affect the exuberance that exists in Asia today.

As property professionals and economists generally say: You don't know a bubble exists until it bursts. Until then, it's a bull run. Hang on to the safety bar when you go on the roller coaster. These are interesting times.

Assistant news editor Thean Lee Cheng thinks there's something to be made and to be lost in the coming days.

By The Star

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