GOLDEN OPPORTUNITY IN ADVERSITY

There has been a long break since the last posting. During that period, the world was faced with a few obstacles which has interrupted the global economic recovery most notably:-

1) heightened geopolitical tension in the Middle East (Egypt) and North Africa (Libya)

2) March 11 2011 earthquake and tsunami in Tokyo, Japan, which was followed by a nuclear crisis.

These tensions and crisis have resulted the equity market to suffer a downward spiral all over the world arising from panic selling. The unfolding nuclear crisis in Japan is expected to continue to dampen market sentiments as investors take a cautious stance. Even though markets have recouped some of their losses since Japan was hit buy an earthquake and tsunami on March 11, 2011, uncertainties still linger, especially with the actual economic fallout from the developing nuclear crisis.


A report by Nomura Securities Ltd issued last week states that it expects a steep slide in Japanese consumer spending on services, including eating out and recreational services. It anticipates the recent Tohoku, Tokyo earthquake is likely to have heavier impact than the Kobe earthquake in 1995. The Nikkei 225 has recovered only slightly, closing at 9,708.39 last Friday (April 1, 2011) - still far below its pre-earthquake close of 10,434.38 on March 10, 2011.



However, investors can take comfort in the fact that the Dow Jones Industrial Average in US, which plunged heavily after the terrorist attacks on New York's World Trade Centre (WTC) on Sept 11, 2001, recouped all its losses by end of year 2001. There was a widespread fear in the financial markets when Dow Jones fell 684.81 points after the US stock markets opened a week after the WTC attacks. As panic spread amid uncertainties, Dow Jones lost some 1,369.7 points to close at 8,235.81 on Friday, Sept 21, 2001. Nevertheless, by the end of 2001, not only Dow Jones pared its losses, it also managed to register a decent gain of 415.99 points between Sept 10, 2001 and Dec 31,2001, closing at 10,021.5 points.



On a visit to South Korea Monday (Mar 21, 2011), the billionaire investor Warren Buffet spoke of the possible positive economic outcomes from the earthquake-tsunami-meltdown tragedy in Japan: "Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don't think Japan will be an exception."


If you decide to take the plunge and buy Japanese stocks, the high risk of those stocks means you should be prepared to wait a long time to reap those expected returns. If you are investing for a short-term killing, you may be likely to be disappointed.