JEDDAH, 17 September — With the US markets opening today the entire world will be looking toward Wall Street for clues into the stability and strength of the global economy. Speaking from Bahrain, Qais F. Almaskati, market analyst, PricewaterhouseCoopers (PWC) gave his advice for investors in the Gulf. With 150,000 people in more than 150 countries, PWC is a major name in financial analysis and risk management consulting.
Many small investors are concerned about the status of US-based mutual funds. According to Almaskati mutual funds are almost totally secure as the funds are covered by the US Federal Reserve. Pulling out investments from such funds will cause the most hurt to the individual investor. Almaskati recommends holding those assets unless liquidation is essential for immediate need.
Local investors with funds tied up in US stocks are in a more difficult position. “Markets will no doubt fluctuate wildly at least for the next few weeks,” said Almaskati. “Market sentiment will be down until the US decides on its course of military action. It should also be remembered that the US economy was showing negative signs even before this crisis and there has been no improvement.”
It is thought that the slowdown in the US economy will spread globally as consumer confidence falls. “I certainly don’t feel like going out and spending money after Tuesday’s events,” said Bill Robinson, head UK economist, PWC. The only thing that might provide a real boost is new spending on security. “There will be high investment in people and equipment worldwide,” he said.
If strikes against the perpetrators of the terrorist attacks escalate into all-out war, then analysts believe this could be good for the global economy, as governments pump billions into technology, hardware and arms. But if the US government decides to pick a fight with an oil-producing state, the economic ramifications would be catastrophic.
To support its markets, the US has eased certain rules on stock trading. Public companies may now repurchase their own securities without meeting the normal volume and timing restrictions. Cisco, Webster Financial, North Fork and Mobius Management Systems have already revealed buyback plans and other companies will follow suit.
“As large institutional investors dump blocks of shares to move into more stable securities, companies will step in to buy up their own shares, especially if their price is falling dramatically,” explained Almaskati. “This buffering action will artificially prop up the prices of those shares. Individual investors must do their research and be careful about purchasing or holding the shares of such firms. It always sets off certain alarms when a company feels that it must support its own shares because the market will not. People should also be aware that in anticipation of major upward and downward market movement brokers do have the right to limit trading action.”
Some online brokers did not honor any transactions made after the closing bell on Sept. 10. That means that after hours trades were not concluded. If individuals are trading over the Internet they should be aware of their brokers’ policy in regards to transactions and might consider more traditional trading resources for important transactions.
“There will be little harm if small time traders exit the markets,” said Almaskati. “If you are a small investor and have no stomach for the fluctuations — sell. Right now people should have some liquidity, so if all your funds are tied up in the market sell the stocks you are least comfortable holding. On the other hand, it should be noted that there will be money to be made. If you can do the research, have the financing and strong nerves, the markets can be profitable even now. For institutional investors and market movers the situation is a bit different. These market makers must decide if they will serve national interests first or the immediate interests of their clients.”
Almaskati had some risk management advice applicable to all. “Develop a crisis plan. By this I don’t mean that people should buy food,” said Almaskati. “Have a comfortable amount of local currency available in a current account at a local bank. Decide on both local and international meeting points for your family. Develop a communications plan and a list of contact numbers, addresses and e-mails. In general, be more aware of the whereabouts of your family members so that if necessary everyone can be located quickly. Making decisions in advance and having information readily available limits panic in a time of crisis.”