Month of October

October is the month that bought us the Crash of 1929 and the Crash of 1987!

Warren Buffett invested US$5bn in Goldman Sachs, Congress is throwing its weight and it is still not clear if that what is needed to solve current predicament. One thing that I am sure is that each American’s share of public debt will rise to US$37,000.

Topix is trading at around 1.2x book – at a 20-year low – cheap but not attractive enough, even though is supported by share buy-backs, near 2% dividend yield and generating a ROE of just below 10%.

Central banks are injecting liquidity through various of measures. Emerging markets were already trying to stem the decline of the currencies and equity markets.

As far as Asian market is concerned, we are just 6% shy of the valuation in the 1997/98 Asian financial crisis. Historical PE dropped to 10.3x and is comparable to lows of 10.3x in the 1991 global recession, 11.1x in 1998 and 12.6x during the 2001 global recession.

Under current environment, cash is king. The KLCI has dropped 34% from its Jan08 peak and this could mean another 8-10% drop in the KLCI, if history repeats itself. Meeting with friends across Europe, US and Asia recently has given me a sense that investors are favouring maximum cash levels and very defensively in stock selection. It is also clear that most are very biased towards defensive domestic equities with highly visible cash-flows and holding as much cash as mandates allow.