The answer is yes, it can. Unfortunately, Asia suffers from the euphoria that surrounded the internet craze in the late 1990s. Lots of hope and optimism is justifiable in the long term, but short-term, there are real challenges. Perhaps the biggest challenge of all is summoning the strength to not live in denial and pretend things can't get worse. Because they can.
With the industrialized world wallowing in the deepest recession since the Great Depression, this is having an undeniable trickle effect that's reverberating throughout the world.
Throughout Asia, a significant slowdown is unfolding. Australia's natural resources industry is under pressure. China's export economy faces dramatic headwinds. Japan faces challenges as the strong yen impacts its economy.
But wait, "I thought the long-term prospects for Asia were great?" They are! Really! However, there is a difference between long-term prospects and short-term realities. Frankly, times are tough and will be for a while.
So what's to be done? Here are a couple of ideas for investors riding out the storm:
Be realistic about current conditions. Let's face it, times are difficult and they are going to be that way for a while. Be defensive in the positions you hold. Hold staples names and cash. Don't gamble trying to find the bottom in damaged names unless you can afford the pain. Buy market leaders on tough days; bottom fish for resilient businesses. Look at valuations not based on history. Instead, focus on what is likely to be a more challenging economic short-term outlook. Don't lose hope, just be realistic.
Look at what is really happening in the world, stand back and take a look at your portfolio. You might own assets that are down but ask yourself -- if you had cash, would you be buying them now? Optimism can be a great perspective for an investor. Blind denial can be fatal.
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So there's my recipe for how to handle Asia's dramatic economic downturn next year. I suspect in 2010, there will be more difficult news.
Asia still has a great future long-term but there's a typhoon blowing right now. I have no doubt that Asia is destined to be an even greater economic power. But as the winds blow, there will be damage.