Keep your wealth for next round

Dec 31, 2008
THE ST INTERVIEW

A tough 2009...but a speedy recovery is possible once Americans start spending again, says Oei Hong Leong

By Lee Su Shyan, Assistant Money Editor

IF ONE word sums up the year just ended for veteran investor Oei Hong Leong, it is 'scary'.
'Looking back, that is the feeling that comes from my heart,' said the multi-millionaire father of four daughters, pointing to the financial firestorm that erupted on Wall Street and swept the globe.

Mr Oei, 60, with a long-standing reputation as a savvy investor, has made some fast bucks through bold moves in the crisis this year, but he has lost money too.

He admitted that he was among the many thousands of investors hit by US investment bank Lehman Brothers' collapse in September, which was a key event in the unfolding meltdown. He had invested in Lehman Brothers' bonds.

'I have been burnt,' Mr Oei told The Straits Times in an interview yesterday, 'and have lost a lot of money.'

But he quickly turned philosophical.

'This is a financial tsunami. One can lose an arm, a leg but don't lose one's head.' He added: 'For the new year, I would advise people to be positive and look after one's health. Spend more time with your family.'

Standing back to size up the unfolding crisis, Mr Oei asked: 'If winter has come, can spring be far away?'

But he is under no illusions about the severity of the winter, while it lasts.

He believes this crisis is '10 times' worse than the Asian financial crisis in 1997 - when only Asia was hit - and even worse than the 1974 oil crisis, which did not involve a financial crisis or credit crunch. OCBC shares fell from $50 to around $4 then, he recalls.

'We have to be ready for our coldest winter yet,' he said. 'If people do not have money, because their jobs are in jeopardy and they cannot service their mortgages, they will not have any confidence to spend.'

He noted that next year marks several key anniversaries of troubled times, the obvious one being the 80th anniversary of the start of the Great Depression in 1929. There is also the May Fourth movement of 1919 in China and with its echo in 1989 which led to the Tiananmen incident. '2009 is likely to make it to the history books too,' he said.

Mr Oei is clearly shocked by recent events. He noted that in the past three months, the Wall Street model of investment banking has disappeared with Merrill Lynch being bought out. The last two to go were Goldman Sachs and Morgan Stanley. Insurance giant American International Group (AIG) obtained a massive bailout, as did mortgage giants Fannie Mae and Freddie Mac.

Citigroup has billions of dollars in off-balance sheet toxic assets. 'What about Bank of America or JP Morgan?' he asked.

So far, most of the impact has been on financial institutions, with the real economy expected to be hit badly next year.

Mr Oei pointed out that AIG had yet to sell its assets, as planned, to raise cash to repay a huge government loan. Hedge funds too, have to sell off their assets to meet redemption calls.

De-leveraging - banks and investors having to unload their vast portfolios to raise money - can only drive prices down further, he noted.

On oil prices, he said: 'I won't be surprised if they hit US$30 or even go below that. The situation now is even worse than 10 years ago.'

If oil prices tumble to those levels, it will likely put the brakes on the various oil-rich Middle Eastern economies which have been powering ahead.

The latest scandal to hit Wall Street is the estimated US$50 billion (S$72 billion) fraud involving Bernard Madoff and his funds.

'This will likely start a big wave of redemptions,' he said. At the end of day, 'the risk is that people lose their trust completely in funds'.

Mr Oei surprised many industry watchers back in September when he swooped in to buy one million AIG shares.

That was at the start of the financial turmoil, as markets watched helplessly as one respected financial institution after another teetered on the brink of collapse.

Yet, with AIG shares at about US$1.80, Mr Oei was brave enough to take advantage of this trading window. The shares traded around this level for only about an hour before recovering at hints of a US government bailout.

About a week later, he sold them at US$5 apiece, enhancing his reputation for good timing. They have since trended downwards over fears the bailout will not solve all AIG's problems and that the US$85 billion will not be enough anyway.

The shares are now around US$1.55. Mr Oei donated the entire proceeds to the Lee Kuan Yew School of Public Policy.

Looking to China, where he has considerable experience, he is not hopeful that a four trillion yuan (S$844 billion) stimulus package unveiled recently will have much immediate impact as he feels the Chinese don't have American spending habits.

Still, the Indonesian-born investor who spent his early years in communist China working in the countryside, and later made money buying state-owned assets to list abroad, is confident of the mainland's long-term growth story.

He is encouraged by proposed legislative changes to allow Chinese rural folk to own property, to take a loan out on their property and to pass it on to the next generation. This will result in the multiplier effect and drive consumption, he said.

Even though 2009 will be tough, Mr Oei is confident that when the US recovers, it will be a speedy recovery.

Consumption is the mainstay of the US economy and since most Americans are poor savers, they will eventually consume, which will propel the economy.

If US stimulus measures can create jobs, then that will help consumption as people will consume once they have jobs and can service their loans. The downside is that there may be rapid inflation.

Singapore is part of the global economy and cannot avoid the effects of the downturn, he said. 'However, we are lucky we have good government, good infrastructure and strong fundamentals.'

One of the most important tasks ahead will be to support small and medium enterprises (SMEs). 'It is better to support and help these SMEs as it will work out cheaper to keep existing jobs than create new jobs,' he said.

The Government has already set aside $2.3 billion to help SMEs deal with the credit crunch and Mr Oei believes that the solution is to help get the money to the SMEs directly. Currently, the banks are reluctant to lend, although it is important to act fast, he said.

As fortunes come crashing down around everyone's ears, he cited an old Buddhist saying. He held out a cup of green tea. 'How long can you hold it? A few minutes, an hour, a few days?' he asked. 'Soon you'll have to put it down.'

The secret to a good night's rest, he said, is to embrace one's problems. 'Face it, accept it, resolve it and put it down.'

Easier said than done, but Mr Oei said that it reminds people not to be too caught up with one's problems.

On a more practical note, he encouraged investors to cut their losses on shares which have been losing value.

'Don't wait until the bank cuts the losses for you,' he said, adding that it is better to have some ammunition in store for when the upturn comes around.

'The stupidest thing to do is to average,' he said firmly, referring to the common practice among investors when the market weakens, to buy more of a certain counter they already own at the lower price, thus lowering the average price they paid for the counter.

That's because many investors are loath to sell their investment at a loss, even though the sale will at least bring in some hard cash.

Mr Oei explained this point with another Chinese saying, which talks about reserving enough firewood for the winter.

'Stop the bleeding and keep your wealth for the next round.'

His resolution for the new year: 'I have lost a lot of money and what I have learnt this time is to be more conservative, more cautious and more patient.'