How likely is it to face an economic recession this year (2014)? If we are able to detect a trend before that happens, then we could prepare ourselves to “brace for the impact”, instead of being taken by surprise – when we are able to see the trend is already there. You can throw the fundamentals (of any form of investment or any company) out the window when the down cycle comes – that is not to say we should panic but it’s more of managing the risk of macroeconomics. We analyze what we can control based on data and manage what we can not. And the data we want to look at here is from Malaysian Institute of Economic Research, based on overall business condition and consumer sentiment between Oct to Dec 2014.
It is yet to see if a rebound is present for Q1 2014. Up until Q4 2013, the Business Condition Index (BCI) has been below the threshold. So is GDP.
BCI TAKES ANOTHER KNOCK
- BCI slides further to 92.0 points
- Sales performance deteriorates
- Sluggishness in domestic orders
- Fewer increases in export orders
A VOTE OF NO CONFIDENCE
- CSI falls below 100-point threshold in almost five years to 82.4 points
- Current household income deteriorates
- Abating job prospects cloud financial expectations
- Inflationary jitters soar
- Prudent consumer spending on the cards
Now we want to know the data for the first quarter of 2014, should be released by end of this month (April 2014) at the time of this writing.
WHAT TO DO NOW (IN GENERAL)
For Stocks: Hold more cash, liquidate part of portfolio which has given you returns more than you expected. Like what a fund manager will do. Note: that does not mean don’t invest and stay on the sideline. That means – don’t be invested fully with all you have but keep “bullets” ready to take advantage of quality & cheap investment opportunity should prices drop.
For Properties: For own stay, I think timing doesn’t really matter. For investment, patient buyer who wait until it is buyers’ market will reap the benefit. As I’ve told my client, valuation will NOT be down, but asking price will when owners are bleeding cash, no holding power or desperate to let go due to cashflow. That’s where buyers have the upper hand to negotiate down the prices. Just like in 2008.