Cash is king. Yes, during financial turmoil like this when stock markets all over the world are sinking, having cash is the key. According to The Straits Times on 20 January 2016, just last year alone, about US$735 billion left emerging market. China accounted for $676 billion which formed the bulk of the outflow. Similarly, the fund inflow last year was about US$231 billion against US$1.2 billion per year from 2010 to 2014.
On the corporate front, banks are natural victims during times of liquidity crunch too. Most bank share prices have sunk more than 30% from their recent high when the ST index hit 3500. Right now, banks are trading near or below their book value (BV). Exactly, five months ago, I had written in my blog that there was always a possibility that banks might start to raise funds through rights issue if the turmoil persists. So far, none of the banks have raised alarm, but still it is possible if banks deem it fit to do so. After all, there were past precedence of fund raising activities during financial crises. For example, DBS raised S$4.2b in end 2008 through 1-2 rights issue. Similarly, OCBC and UOB raised $1 billion each through preference shares issue. In a similar way, during Asian financial crisis in 1998, DBS acquired the POSB. Looking ahead, it is still a possibility especially during such times when other banks or companies may fall into bad times. Such huge fund raising activities can come in handy for future acquisitions.
Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.