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Last
week financial giants in the US fell to their
knees—casualties of a financial crisis that started 13
months ago.
Investment goliath Lehman Brothers collapsed after talks
of a possible rescue failed. Another Wall Street giant,
the century-old Merril Lynch, wouldn’t have survived if
not for the $50-billion takeover of Bank of America.
AIG, the world’s largest insurer, was near death when it
got a lease on life with an $85-billion bailout by the
US government.
Morgan
Stanley, one of two independent investment banks still
standing, is in merger talks and scrambling to find
buyers as its shares dropped 24 percent on Wednesday.
The
economic turmoil in the US, which some economists
consider as the worst crisis since the Great Depression
of the 1930s, rattled global markets. Stock markets
worldwide tumbled immediately after the fall of Lehman.
The rescue of AIG, the infusion of $600 billion by
central banks to prevent a global financial-system crash
and a US plan to rescue banks from soured mortgage debts
have calmed the market somehow—for now.
Here at
home, seven banks were reported to have exposure to
Lehman Brothers amounting to $386 million (P17.8
billion). Although the Bangko Sentral ng Pilipinas has
assured that this is not a cause for concern—the amount
is less than 0.4 percent of the banking industry’s
P5-trillion assets—you can’t blame people from getting
jittery.
Ordinary
investors of Philamlife, AIG’s local subsidiary, are the
most nervous. Tens of thousands of policy- and
planholders of Philam and its affiliates are probably
worried silly about what’s going to happen to their
insurance policies and preneed plans. They shouldn’t
lose sleep over the problems AIG is currently facing.
Philam remains financially safe and stable, despite the
troubles of its parent firm.
Philamlife is the country’s biggest life-insurance
company—its P108 billion in assets represents about
one-third of the insurance industry’s total asset base.
It also has the biggest capitalization, most investments
and the largest net worth among the 36 life-insurance
companies in the Philippines.
Policy-
and planholders of SunLife are feeling jumpy, too.
Canada’s SunLife Financial Inc. confirmed that it has
$350 million worth of investments in Lehman and another
$315- million exposure in AIG. Again, this should not be
a major cause of concern for local investors. Most of
SunLife Financial Philippines’ assets are invested
locally.
Unlike
in the US, where people who bought policies and invested
in AIG, Lehman and other beleaguered institutions have
every reason to be gravely concerned, policyholders of
Philam and SunLife should not panic. Both are on sound
financial footing and they should be able to fulfill
their commitments and obligations to their clients and
investors.
Although
the Philippines will not be taking a disastrous hit from
the fall of Lehman and the problems of AIG, we will
certainly feel the effects of the expected slowdown in
the global economy.
Investors of equity mutual funds and unit investment
trust funds (UITFs) and investment-linked life insurance
(whose underlying investments are placed mostly in
stocks) are likely to experience a further drop in the
value of their investments in the near term. Some equity
funds are down by about 30 percent so far this year. And
just when the market was starting to creep upward, a
major financial fiasco hits. In the next few weeks
there’s no telling in what direction the local stock
market is going. But it will closely follow the
performance of the foreign market—which is anything but
stable.
During
these times of uncertainties in the financial system,
ordinary, unsophisticated investors and savers can take
refuge in the relative safety of bank deposits and
government securities. You might want to stay away from
equity funds and the stock market for now, especially if
you are the type who feels nauseous with even the
slightest bump in your investments. (Although some of
the young and gung-ho investors who eat risk for
breakfast will see the downturn as an opportunity to
snap up bargains.)
If you
are already invested in the stock market, mutual funds
or UITFs, you may just have to endure the pain a little
longer and hope to ride out the recent slump. Or you can
bite the bullet—pull out and take the loss. Times like
these only bolster the value of taking the long view
when it comes to investing. Long-term investing allows
you to weather the market’s frequent and sometimes
prolonged dips.
It would
help if you don’t monitor your investments on a daily
basis to reduce your anxiety; try to shut out the bad
news occasionally. A psychologist in the US recommends
observing a five-minute rule for discussing the economic
crisis and then moving on to less-stressful topics. The
psychologist in me suggests a 48-hour breather in
between reading, watching or discussions of distressing
matters.
Smart
savers and investors should also consider cutting down
further on unnecessary expenses. With miniscule returns
on investments and savings, you should save as much as
you can so you will be able to meet your financial
goals. Your long-term survival depends on it.
Alvin T. Tabañag is a registered financial planner and a
member of the RFP
Institute and the Association of RFPs in the
Philippines. He is the founder and training director of
AdvantagePlus Consulting and creator of
www.PinoySmartSavers.com, a web site dedicated to
promoting a culture of savings among Filipinos through
practical financial education. Comments and questions
about the article and other queries maybe e-mailed to
alvintabz@yahoo.com. Join the 12th RFP Program
(September 27 to November 29, 2008). Visit
www.rfp-philippines.com or inquire at info@rfp-philippines.com/Tel.
No. 634-2204. |
