Where to put your money (last part): Post-WTC attack jitters

DURING the September 11 World Trade catastrophe, the whole world stood still. People saw the world's biggest economy in a state of shock. Even if it physically looked like New York was the only one who succumbed to work disruption, we all knew that the economic implications of this devastation goes beyond Lower Manhattan. It is, in truth, a contagion that will hurt Asia the most. And as to how much more will it affect the rest of the world, everything is uncertain. Yes, uncertainty is the most dreaded word of investors. But, one has to embrace it as an inevitable force that can either get things better or worse.

The most significant effect of the WTC attack is the plummeting consumer confidence in the US, obviously the result of the, yet, non-capture of terrorists who perpetrated the atrocity. Consumer sentiment will dwell more on securing themselves safely in their homes, perhaps glued to the news, than be exposed to harm by going shopping or travelling. As such, spending will focus more on the basic essentials such as food, clothing, and shelter. Spending in luxury goods, like cars for example, will be put on hold until they see a definite path of peaceful resolution.

In a pre-September 11 situation, the US economy was itself anemic as indicated by their already massive layoffs and minimal GDP (Gross Domestic Product) growth. The post-WTC attack even put more strain in the still recovering US economy. Thus, the wait-and-see attitude of US consumers will be a big factor in pulling down the export prospects of Asian countries to the US. Japan, being one of the world's major exporters to the US, may be in for tougher times as it will definitely experience slacker demand in consumer imports. One of the tools that Japan can use to pump up its exports demand is to depreciate its currency. Koizumi's plan of propelling Japan itself to a turnaround economic recovery may yet be undermined. Actually, the rest of Asia is relying much on the U.S. market as their main source of exports. But with the already weakened Asian currencies, the idea of further pulling down the currency would be too much to stomach but may yet be the bitter pill than tinkering on zero growth.

One major factor that will have impact on our daily lives is the direction of the prices of world crude oil. As of press time, all fingers point to Osama Bin Laden as the culprit behind the terrorism. How the Middle East will take the extent of America's retaliation and whether the Islamic countries will be in alliance with Bin Laden will both determine the supply and demand movements of oil.

Short-term certainties indicate a decline in air travel, which will consequently affect airports, hotels, and commercial airlines. Tax cuts in the US may be implemented to sustain consumer spending but their budget surplus might also go to increased defense spending. The economic crunch that will be felt by the US will mainly deter employment growth in the US itself and still dampen consumer spending. As a result, the decline of US demand on imports from other countries like Asia will weaken global demands and firms worldwide will even be faced with probable employment cutbacks. This will be the precursor of weakening domestic demands in different economies, thus, putting a looming global recession in the making.

Those who have invested in the stock market should now take a cautious stand. It might be high time for those who have stock investments to look into their portfolio now and sell those that are likely to be greatly affected by the recent WTC disaster. Be wary of stock picks like commercial airlines. The US airline industry recently recorded a total cutback of 100,000 employees. Even airline companies in the Philippines are holding their expansion projects until they see a clearer view of the future. The same can be spoken of the Asian automobile industry having the US as their main market. The banking industry will also experience a setback with the lowering of interest rates in order to sustain economic activity. This, however, will result to lower interest incomes for the books of many banks. Stick to the FBT (food, beverage, and tobacco) group, as these are stocks that are likely to have an inelastic demand. Not everything is doomed to go south, however. There are some stock issues that are worth buying in this time of uncertainty like those businesses that deal with guns and ammo. And if America succeeds in its will to rebuild, then the computer industry might be a good prospect for stock investments in the long run. Buy low today, and sell high after a certain period of time. As noted banker N. M. Rothschild once said, "Buy when there's blood on the streets." But as future directions remain to be blurred, cash reigns supreme. Gamble a little on worthy stocks but keep liquidity your major investment. Though we all dread uncertainty, we simply have to live with it and continue to hope for things to get better. *

Renzi is a graduate of Economics with a Masters Degree in Business Administration from the University of St. La Salle. While working full-time in the Trust & Investments Division of one of the 10 largest banks in the Philippines, she dabbles into writing and does mountain biking as her weekend hobby. You may email the author at renzijuarez@philippinestoday.net