With securities markets around the world being more and more integrated, investors must recognise that their investments can be affected not only by events in Hong Kong but also by those on the other side of the world, particularly in the US. The global financial crisis has also contributed to gloomy economic forecasts in many countries, which again will have an impact locally. The recent events have taken a toll on investors worldwide and unfortunately Hong Kong investors also are affected.

Against this backdrop, the markets are likely to remain highly volatile and unpredictable. If you are tempted to go for undervalued stocks under these circumstances, you should first ask yourself these questions:

* If I make the wrong bet, can I afford to hold the investment long term or will I have to sell and realise a loss?

* What is the maximum loss I can afford to make if my predictions are wrong?

* Do I really want to take the risk of high market volatility? There might be an opportunity for some good gains but with increased opportunity comes increased risk.

During the bull market of the past few years, investors worldwide have been offered a wide array of structured products with underlying assets linked to different financial instruments, such as collateralised debt obligations. With structured products, many financial institutions, including the issuer, the guarantor, the arranger, the trustee and any other counterparties, are involved in one deal. Investors can be exposed to the risks not just of underlying assets but also risks arising from the performance and financial conditions of all these related entities. The knock-on effect of the failure of any single entity on its counterparts and on the investor can be very significant. It is very important that investors ensure that any product they buy is fully explained to them by the individual selling them the product and that they understand these risks.

The world's financial markets are experiencing a financial tsunami on a scale that is unprecedented in our lifetime and we in Hong Kong are also caught up in this. In this environment, not all the investment risks are predictable and this in itself increases the risks to an investor. What remains the same, however, is that the wise investor always tries to understand his own risk tolerance level and carefully studies the market and the product before committing himself. Where the risks are too high for his personal tolerance or he does not understand what he is investing in, the wise investor will hold on to his money.

Extract from Dr. Wise Column of Securities and Futures Commission website at www.investED.hk