Be a Contrarian: Buy When It's Down

Gerald Ambrose ... 'Markets are now operating on a trampoline. The safety net doesn't work anymore.'

Thomas Yong ... 'Risk aversion will remain for now and everyone will be cutting positions.'

They say never waste a crisis. Fund managers are cautious but see an opportunity in the midst of global markets tumbling on the back of Europe's tumultous debt problems.


Emerging markets are always known to be more volatile. As its ups and downs are always more extreme, would it be wiser to rejig one's portfolio or brace through the storm?

Fortress Capital Asset Management Sdn Bhd chief executive officer CEO Thomas Yong, who started trimming his position three weeks ago, is no longer selling, but waiting to see how things pan out.

“We are in a position to buy (in Malaysia), but it would be premature to act now. Risk aversion will remain for now, and everyone will be cutting positions,” he said.

He opined that Europe might not be as quick as the United States in implementing measures, hence uncertainty would continue to dominate sentiments for the time being.

Aberdeen Asset Management managing director Gerald Ambrose is a buyer of the market, and is in fact buying some of the stocks he could not previously buy because it had moved too fast. “For instance, the rubber gloves have done very well and have gone up a lot. With this correction, they also fall faster. Here's an opportunity,” he said.

He added that volatility was irrelevant, and Aberdeen's investment was not based on market volatility.
“Markets are now operating on a trampoline. The safety net, which had been the interest rates and financial stimulus used by central banks, have been used so much that it doesn't work anymore. Now that the safety net has been removed, there is a possibility that things could go really wrong,” Ambrose said.
Ambrose likes gold, and said it was the only insurance against the follies of the authorities of the world.

Meanwhile, HwangDBS Investment Management Bhd chief investment officer David Ng said that in view of what's happening in the euro zone, they had reduced the risk in their portfolios by cashing in on the less liquid stocks.

“Moving forward, we are still cautiously optimistic about the market as we expect the economic recovery to continue even if it might be reduced by the events in Europe. However, the market will need to further re-price this slower growth outlook before we opt to increase our invested levels,” he added.

On Thursday, BNP Paribas' Cliver McDonnell said that the euro zone crisis signalled that markets were about 40% through the crisis.

“We believe we are in the fear phase, don't buy stocks until capitulation is reached,” he said.
He added that for Asian equities, the two biggest worries were negative earnings translation due to euro weakness and the impact of a slowdown on euro-zone demand.

McDonnell listed his 10 steps to capitulation, four of them which he said had already occurred. These included worst recession, loss of investment-grade status, drying up of liquidity, and further de-rating of the euro-zone banks.

He said the next likely step was the nationalisation of a bank in southern Europe, as he thought it was improbable that not a single bank had racked up significant losses related to non-performing loans and trading losses as a result of the recent economic downturn and wild swings in markets.