What sense do we make of the financial crash?

Events of the last month, though not flummoxing me, have definitely left me in a state of wonder. Wonder about how do we make sense of what is happening around us as financial markets crash, banks run for cover and governments panic into bailing out these so called safe and dependable institutions. I, for one, am being quite equanimous about the whole affair but, as any reasonable person would vouch, having a crystal ball in my hands at this moment in time would not go amiss. Alas, crystal balls and soothsayers are devices best left to the weak. Rational judgement demands that we look at the situation with cold reason and plan for the future.

The credit crunch, mortgage crises, bank runs and stock market collapses in the Western world had seemingly left the emerging markets untouched. But the performance of the emerging market indices have put paid to the belief that these markets were “decoupled” from the west and as a result would be safe harbour for investments. Markets in China, India, Indonesia, Brazil and Middle East have joined the West in a bear run. Investors are selling off their holdings to salvage whatever they can rather than wait for the markets to recover. In my opinion, this is a herd mentality that we are falling prey to. Selling off in stages might be better. Personally, I see an opportunity in the downward slide of shares. With stocks at levels seen 5-7 years ago, it has never been a better chance to buy them than NOW.

Also, diversification presents an alternative strategy: real estate, cash, gold and art are alternative investment assets which provide good stable returns and tend to rise when markets pick up. The exception being cash, as cash will not grow in a low interest regime. So essentially your cash is not working for you if not invested in some productive asset: an asset that provides a constant stream of income or appreciates in value thereby making it possible to realize profits from sale. Or if you have the luxury of currency arbitrage, then you can remit in your hard earned dollars and £s in India as the Rupee continues to weaken. However, in a few months, when the Rupee gets stronger you will have more $s and £s as a result.

Bottom line, as long as you are able to maintain exposure to the stock market without feeling the heat, I would recommend staying invested. Perhaps buy more in the Mumbai Stock Exchange and increase your chances of growing your portfolio in the coming years when the inevitable upturn comes.