Is It Time To Capitalize On Global Financial Weakness?

Given the current state of credit crunch and financial turmoil experienced by many global financial institutions, investment bankers and hedge funds as a result of US sub-prime issues, a number of them have suffered billions of financial losses that even led to the resignation of some key CEO positions. The ones in trouble include big names such as Merryl Lynch, UBS AG (world's no 1 private bank from Switzerland) and even Citigroup. So it is therefore equally expected that many of their stock prices have also taken a huge tumble, by as much as 40% to 50%!

So the question beckons, have we seen the worst of it or just the beginning of a bigger crisis to come? Coupled with the continued softening of US economy (possible sign of a recession), US consumer confidence at an all time low and the looming threats of uncontrollable inflation (caused by record high prices of crude oil), it is indeed a very challenging moment for anyone to make a fairly accurate prediction of what's going to happen next!

However, i have made some observations recently that some "Contrarians" are already at work, by snapping up "cheap" financial stocks! This time the Contrarians are mainly from the East, and they are led by the Sovereign Wealth Funds (SWF), the likes of GIC (Government of Singapore Investment Corp), middle east's Abu Dhabi SWF and China's CIC (China Investment Corp). Take for example the recent events, GIC's USD17 billion capital injection into UBS, and Abu Dhabi's USD7.5billion rescue of Citigroup, in exchange for a stake in these bankers.

Could this be a sign that the worst is probably over and these funds were out for a good shopping spree? It certainly appears to be so.

Back home in Malaysia, some local institution such as CIMB Bank has also recently launched a fund called the "Rebound FRNID", a product that enables investors to benefit from the potential rebound of four global banking giants whose share prices have been negatively impacted by the recent US subprime crisis. These are Citigroup, Merrill Lynch, UBS AG and Morgan Stanley. The Rebound FRNID guarantees investors a fixed return of 15% on a 2-year investment, 23% on a 3-year investment and 45% on a 5-year investment, provided the equity basket exceeds a return of 25% at maturity. The principal is guaranteed by CIMB Bank if held to maturity.