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Investment markets threatened by governments that have run out of policy options
By SIOW LI SEN
06 August 2011
Cash is the only defence, says Tan Teng Boo, founder of independent fund manager Capital Dynamics.
‘And my cash position is 50-55 per cent.’
Call him prescient but the Malaysian began hoarding cash from April after he felt something worse than the Lehman 2008 crash was coming. In contrast, the July survey of fund managers by Merrill Lynch found global investors broadly cautious on risk assets. They were, however, adding to emerging market positions.
Cash balances fell to 4.1 per cent from 4.2 per cent, indicating wary inactivity, rather than panic, it said.
Mr. Tan, who often holds contrarian views, told BT on Thursday during his latest trip to Singapore that his cash position at the height of the 2008 crisis was just 30-35 per cent.
He began buying during the depths of the 2008 crisis and reduced the cash position to 2 per cent around February/March 2009. At the beginning of 2011, cash had grown to 5 per cent.
By April, he felt that the global economic situation was heading for a crash and it could be worse than 2008 because governments have run out of options.
‘Nowadays, the developed economies don’t have policy options. It all boils down to the large emerging economies, which is really a function of the inflation environment,’ he said.
‘If the coming inflation numbers are being brought under control, then, the problem will not be so severe. If not, the crisis could be worse than 2008.’
The two Asian giants, India and China, which many think are the global engines of growth, are in danger of hard landings, he said. ‘India has raised interest rates, what, 11 times?’
Last week, the Reserve Bank of India again hiked interest rates aggressively, its 11th since March 2010 to rein in inflation of 9.44 per cent as it said that actual inflation was higher than expected.
As for China’s inflation, which in June came to 6.4 per cent, Mr. Tan said that it has yet to show signs of easing.
The People’s Bank of China on Aug 1 said that ‘domestic inflation expectations remain strong and the foundation for stabilising prices is not solid’ and that ‘prices could rebound’.
Capital Dynamics’ total assets under management of US$350 million has grown from less than US$200 million in 2008.
Mr. Tan said that he was keeping cash for the global funds in Swiss francs. For the Malaysia-only funds, they are in ringgit. Since 1997, returns have averaged 21 per cent.
The firm has a staff strength of about 60, with over 20 of them in Singapore.