How to cope ...
iht.com
As the market swings, global investors cope
International Herald Tribune International Herald Tribune
Friday, July 26, 2002
HONG KONG These are scary times for investors around the world. People who thought they were set for life are seeing the value of their portfolios plummet, and wondering how they will cope. The problems can be even more acute for expatriates, who have to juggle assets and expenses in more than one country.
The International Herald Tribune talked to some of these investors to get a picture of how the current crisis in world markets is affecting their daily life:
A stockbroker in Hong Kong takes his losses with a grain of salt. "It is strange the way Americans see stocks as a source of guaranteed fixed income," he said. "To most Asians, the stock market is for gambling, like horse racing."
An American writer and consultant who has lived in London for 20 years has seen the value of her modest savings cut almost in half. "For now, I'm just living day to day," she said.
An investment adviser in Switzerland tells clients to diversify holdings to spread risk - but all of his own money is in cash, just to be sure.
Wilder swings in Asia
:When Elton Man hears U.S. investors fret over recent stock market turmoil, he laughs.
"They seem to panic in the United States with a 3 percent fall of the market in a single day," Man said. "Here in Asia, 5 percent plunges are not so unusual at all."
Man, deputy general manager of Hantec Investment Holdings Ltd., a stock brokerage, is certainly not happy to see the recent declines in his personal portfolio, but he has invested through turmoil that makes current U.S. volatility look like a minor blip.
Take 1985, when stocks rose by more than 680 percent in the Philippines and 400 percent in Taiwan. By the end of the following year, however, Philippine stocks turned out the seventh worst market performance worldwide and a few years later Taiwan posted the worst annual stock market performance of the century: a one-year plunge of 75 percent.
During the Asian financial crisis that ran for two years from July 1997, it was not unusual for investors to face a huge decline in stock values exacerbated by a plunge in the currency.
"It is strange the way Americans see stocks as a source of guaranteed fixed income," Man said. "To most Asians, the stock market is for gambling, like horse racing or the Mark Six lottery."
Man's attitude towards stock markets has determined where he puts his personal money. More than half is kept in a bank account earning almost no interest, while 20 percent is invested in high-grade bonds and other fixed-income instruments.
Fellow Asians echo this conservative style by socking away some of the highest levels of per capita cash savings on earth.
The remaining 30 percent of Man's money is for what he interchangeably calls stock gambling or investing. In Hong Kong, more than 1 resident in 5 owns stock, and most trade actively.
The bulk of Man's current portfolio is held in blue chips like the banks HSBC and Hang Seng Bank, along with a fairly large portion in conglomerates like Cheung Kong Holdings and Hutchison Whampoa. The remaining stocks, which Man describes as speculative, include a telecom company, Pacific Century CyberWorks; an infrastructure company, New World Infrastructure, and a dotcom company promoting Chinese herbal medicines, Greater China Technology.
Man said the companies in his speculative portfolio vary often - based on rumors, hunches or the latest fad - as he tries to catch rising speculative waves. Recent examples of such trends in Hong Kong include the initial public offerings of CK Life Sciences, a biotech venture backed by the billionaire investor Li Ka-shing, and Bank of China (Hong Kong).
Beyond promising the riches of China and the backing of a famous man, neither stock seems particularly attractive. At the end of last year the Bank of China's nonperforming loans were roughly double those of its Hong Kong peers, while the CK Life Sciences staff is short on doctoral-level scientists for a biotech company.
Nonetheless, applications for the shares by retail investors outstripped the number offered by 25 times for the Bank of China and 120 times for CK Life Sciences.
Man was extremely pleased to get his shares in Bank of China. "I often buy companies when a friend says the stock is hot, even when I don't know what it does," he said. "You catch the latest trend and sell the stock before the price goes down."
Fraudulent accounting practices and bad corporate governance do not figure into his strategy.
"These complaints in the U.S. surprise me since I simply presume management does not tell the truth," Man said. "I don't care how they run the company, I just want to sell the stock before it falls."
- Thomas Crampton
Outrage in London
LONDON:Marjorie Thompson talks about the string of corporate scandals that have undermined confidence in U.S. financial markets with an outrage rooted in her years in the peace movement.
"I think we'll see a real ethical backlash against these shenanigans on Wall Street," she said. "I feel particularly sorry for the little people who have lost their whole pensions."
Thompson, a consultant who specializes in socially oriented marketing - pushing the message that companies can do well by doing good - is doing fine, for now.
The income from speeches she gives and from other consulting projects brings in nearly $100,000 a year. "Brand Spirit: How Cause-Related Marketing Builds Brands," a book she co-wrote three years ago, generates small royalties.
But Thompson, an American who has lived in London for about 20 years, has still been hurt by the recent plunge in stock prices. An inheritance from her mother, who died in 1994, has fallen to $79,000 from nearly $150,000 two years ago, she said. In June alone, the account shrank by $8,000.
"It does upset me, because my mother lived quite frugally late in her life," Thompson said. "She had quite a substantial amount that she divided between my brother and me."
Thompson, who is 45, took some of that money seven years ago and bought a house in the south London neighborhood of Camberwell.
Like other homeowners in London, she has enjoyed a surge in the value of her home as the growth of the city as a global financial capital feeds an influx of well-heeled buyers.
Many investors, not just in Britain but also in Continental Europe and the United States, have retreated to a traditional reliance on bricks and mortar during the market turmoil, feeding what some analysts worry is a new bubble.
Thompson estimates that her home is worth £500,000 ($785,000) now, up from £200,000 when she bought it.
She acknowledges that she knows little about the stock market, even though the inheritance from her mother is invested in mutual funds that own U.S. equities. Like many other investors burned by the recent downturn, she said, "I didn't pay much attention until recently." After all, she does not plan to retire for another 20 years.
Thompson never bought any European shares, aside from cashing in some options she once got from an employer. She now says she is more wary than ever. While she does not want to liquidate the account in which the money from her mother is invested, she worries about further losses.
"I just e-mailed the broker and told him, 'Do whatever you can do to minimize the damage,'" Thompson said.
Other than the nest egg from her mother, she has little in the way of savings, though she expects to benefit eventually from a modest pension from several companies she used to work for, including most recently the advertising agency Saatchi Saatchi.
"For now," Thompson said, "I'm just living day to day."
- Eric Pfanner
Cash rules the day
PARIS:Bassam Salem has spent nearly two decades advising the world's richest people on how to invest their millions.
But today Salem, a 45-year-old father of two, is wondering what to do with his own nest egg.
As a former vice president at the Citigroup Private Bank and now a partner at EFG Private Bank in Geneva, his advice to clients has remained consistent: Diversify. Spread your savings both geographically and into different types of assets - stocks, bonds, cash and alternative investments.
But when it comes to his own money, he is sticking to a more conservative strategy: cash, cash, cash.
Salem is one of the luckier investors to emerge from the U.S. stock market debacle. His timing, in fact, is enough to make stock market losers drool.
When he left his job at Citibank three years ago he sold his stock options, worth about $1 million. He considered putting some of the money back into the market but could not find anything worth buying, he said.
"Everything was overpriced," he said. "I kept my money in cash."
His story provides at least one lesson - even the highest-paid financial advisors keep their money in regular savings accounts - and offers some degree of hope for the future: Three years after cashing in his Citibank shares, Salem now says it is time to go back into the stock market.
Salem has a logical formula for judging whether stock prices are reasonable. If the price of a stock is 40 times company profits, it will take 40 years to make his money back, he reckons.
Today, with many of these price-earnings ratios in the single digits, Salem said he was considering buying companies like Citigroup and Nestle, both of which have been hammered in recent months.
He could also buy index-pegged mutual funds, he said.
His job as a private banker has taken him through boom and bust in Europe, Asia and the United States. And it has taught him important lessons, he says.
He said he had seen clients make two mistakes over and over.
"People tend to buy when there is a lot of noise about the market - and this tends to be the very top of the market," he said.
"They tend to buy aggressively when everyone is talking about stocks because they feel there is absolute security in being with the herd."
The second mistake: "Time. Most people don't need the money and yet they make very short-term decisions." This doesn't mean holding onto a losing stock, but it means thinking for the long term, he said.
His main challenge today, he said, is to reduce his exposure to the dollar, which he believes could fall another 10 percent against the euro. Seventy percent of his assets are currently in greenbacks.
He said he had found "a less painful" way to convert dollars into euros. He puts his money into "dual currency" deposits that yield 8 percent interest. He deposits dollars but at the end of the one-month term is given back the weaker currency - plus the interest. One drawback for everyday investors: minimum deposit is $100,000.
He is also invested in hedge funds that are "market-neutral," which can make money if the market goes up or down.
Private bankers report that Europe's wealthiest investors have retreated from stocks and, like Salem, are focusing more on cash and market-neutral hedge funds.
One portfolio that Citibank offers its wealthy clients includes cash and bonds but no stocks. The portfolio offered returns of 1.3 percent since the beginning of the year.
Citibank's more "aggressive" portfolio, which includes 85 percent stocks, was down 7.4 percent during the same period.
Jean-Jacques Delori, the chief investment adviser at Citigroup Private Bank, said bankers had been advised to talk with their clients and reassess their appetite for risk.
"We're getting as close as we can to our clients," Delori said. "The hand-holding is very important in these times."
- Thomas Fuller |
