FILIPINOS MAY BE IN for extended rainy days this year, figuratively that is, as the historic economic storm in the United States starts to rear its ugly head on the rest of the world.
But as the saying goes, a pot of gold can be found at the end of every rainbow, so investing in precious metals such as gold might still be a good idea despite the crumbling global economy.
Viewed as a solid investment choice, precious metals could be an effective component of a diversified investment portfolio. Would-be investors may choose to invest in tangible coins and bars, certificates, precious metals mutual funds, stocks in mining companies, and gold and metals futures.
Local resources, needless to say, are overflowing. State data show the Philippines still has an estimated $1 trillion worth of unexplored copper, gold, nickel and zinc reserves.
Despite pronouncements that the government would miss its ambitious target of luring more than $10 billion in investments into the mining sector due to the global crisis, prospects are still quite bright for investments in precious metals, Nelia C. Halcon, executive vice-president of the Chamber of Mines of the Philippines, said.
The mining industry has attracted $1.7 billion in capital since 2004, when a Supreme Court ruling effectively allowed foreigners to own 100% of large-scale mining projects.
"Gold is as good as cash," Ms. Halcon said in an interview.
Gold remains attractive to investors amid worldwide economic woes because it is used as a hedge against general uncertainties and is utilized by countries as reserves, she added.
"Gold is a good hedge. It’s a good time to buy now because the price is low, though prices can still go down. People will continue to buy gold even in hard times," Ms. Halcon said. (Emphasis added)
She stressed, however, that precious metals should represent only a small portion of an investment portfolio since they are volatile.
"There are so many options. It depends upon the investor’s perception of risk and the returns he wants to expect in the near term but all in all, yes, I still recommend people to invest in gold," she said.
University of Asia and the Pacific economist Victor A. Abola agreed, saying one of the best investment choices for Filipinos during these trying times are precious metals, particularly gold.
"If your objective is to protect your capital, then gold is your best bet but that’s more of capital preservation than making big returns," he said.
It’s normally better to go to precious metals in mutual funds, Mr. Abola said. Those interested to invest, however, should go to foreign banks that specialize in such instruments or local banks with tie-ups among foreign mutual funds.
Analyst Claire S. Quiray of Accord Capital Equities Corp. said buying stocks in mining firms is also a possibility but an investor should first make sure that the company is already into production.
"Mining stocks are a bit speculative at this point but if you will invest money in these companies, just make sure they are already in-to production or in the process of production or have somehow surveyed the reserves," she said.
Apart from investing in precious metals, Mr. Abola said Filipinos should also consider investing in Philippine bonds, which are less risky, have no withholding tax and promise high returns.
Would-be investors should also look for undervalued US stocks that can be held for the long-term, he added.
Ms. Quiray, for her part, said Filipinos should "split their funds" and invest in equities and other fixed income instruments.
"I can’t advise people to spend all funds on stocks. I don’t recommend aggressive buying. Diversify ... position on defensive stocks," she said.
Defensive stocks are those that tend to remain stable under difficult economic conditions. These stocks — food, tobacco, oil and utilities — hold up in even during a crisis because demand does not decrease dramatically.
While Asian countries, the Philippines included, may have initially appeared unaffected by the US financial crisis, economists are now expecting the worst this year.
Even lessons learned from the 1997 Asian financial crisis, which some governments claimed have helped spare the region from the massive effects of the worldwide turmoil, could not offer much solace.
As such, it is always better to let the money work for the investor rather than stash it under the rug due to economic instability.
"You have to have a time horizon. It’s very important. If your idea is to make money in this kind of market, you cannot have a buy and hold attitude," Mr. Abola said.
"It takes a lot of patience. You should not be very fast on the draw. It’s not a matter of being fast, but picking up shares when they are quite low in relation to their true value," he added.
Accord Capital’s Ms. Quiray advised Filipinos to strive to stay liquid.
"Don’t put everything in stocks, make sure to study all investment channels. What’s important is to continue investing even during crisis times," she said.
* I do not agree with some of the statements that are made here about bonds and mutual funds since they are still very risky vehicles. It is way better to hold the actual metal in your possession or open a precious metals account with a foreign entity. Diversification can be very risky especially if you are not familiar with the various investments, it is better to pick out 1 or 2 instruments through thorough study and ride the wave. Warren Buffet does not diversify and does not go into investments that are not familiar to him. Do not go into investments that you do not know about.
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