Are investors sleepwalking towards disaster? Despite the headlines in recent weeks, little attention has focused on how to prepare financially for a bird flu outbreak if it happens.
In the face of so much uncertainty, financial advisers admit to a little head scratching over the issue, saying its difficult to know what's right. However, they agree most investors are far too complacent about the impact.
Phil Neilson, Hong Kong-based managing director of ING Financial Planning, said he was revising his thinking in step with the changing picture and was now a lot more worried. This week, he is planning a strategy review to assess the growing risks. What was likely to emerge, he said, was a mandate advising clients to adopt a more conservative stance. He believed the risks were serious enough investors should lighten up on equities, shift towards bonds and cash, and rotate out of sectors that could feel the impact.
It is an action plan that amounts to a general softening of risk rather than pulling up stakes and heading for the bomb shelter. For example, an aggressive investor holding 75 per cent of his assets in equities might want to lower that to roughly 50 per cent - an allocation normally considered balanced.
In addition, it might be a good idea to sell down some shares in industries most at risk, including airlines, hotels, and travel and leisure companies.
To maintain the 50 per cent equity allocation, try buying in more defensive areas such as health care, drug companies and alternative food producers such as beef exporters and organic farms. Before doing any buying, however, make sure you do the homework. Sectors that might at first appear safe havens, such as energy companies, could also blow up during a crisis if the global economy slows dramatically.
Any strategy that attempts to time the market by exiting ahead of an anticipated crisis comes with some risk. If an outbreak never happens, or is much less severe than anticipated, the stock markets may rally quickly, leaving cautious investors sidelined. 'If history has taught us anything, it is that the time in the market dictates better returns rather than trying to time the market,' Mr Neilson said.