Wednesday, December 19, 2007

Remisier versus Online Trading

By Ooi Kok Hwa

In this article, we will look into whether we should buy shares online or use our existing remisier’s services to execute trade

COMMISSION rates for Internet trading and cash upfront transactions will be fully negotiable next year.

Although the full details on the actual implementation are not available yet, if the commission on Internet trading drops to a low of 0.15% (it may be even lower for some stockbroking firms), retailers may be tempted to execute the online transactions themselves without going through their remisiers.

Based on the existing structure, most retailers are paying a brokerage fee of about 0.6% per transaction. Assuming some stockbroking companies are willing to offer commission rates of 0.15% for Internet trading, there will be savings of 0.45% for retailers who trade online.

Nevertheless, we need to understand that transaction costs have two main components: explicit cost and implicit cost.

Explicit cost is the direct cost of trading, such as brokerage commission, stamp duties and clearing fees. Implicit costs are indirect trading costs like opportunity cost, market impact and missed trade costs.

Opportunity cost is the loss of opportunities due to the time retailers are required to spend on executing stock transactions instead of focusing on their main business or their work.

If you are working and have limited time to monitor the stock market, you may still need the remisier’s services to execute stock transactions.

I personally feel that it is really not productive to stay in front of the computer just to execute a few stock transactions. Sometimes, it can be quite time consuming getting the best price.

Any retailer who wants to trade online needs the necessary skills to be able to read market movements. He needs to know whether the current price is the best price to buy, or wait for a while because he may get a cheaper price later.

Market impact is the realised profit or loss reflecting the price movement of a share from the price decided on to the execution price.

Since remisiers follow market movements throughout the day, they should be able to read those movements better than we do.

They may not be able to get the best price in every trade but if they are able to save one or two bids lower than your intended purchase price, the cost saving can be quite substantial.

For example, your remisier is able to get one bid lower for you when you want to purchase a stock priced at RM1.50. You will save 1 sen over RM1.50, which is 0.67%.

Assuming your remisier is able to do that in eight out of 10 trades, the average cost saving will be 0.53% (8/10 x 0.67%).

This saving will still be greater than the commission of 0.45% that you would have saved through online trading.

Besides, you have not taken into consideration the time you could have saved and the opportunity loss on your current business if you spend too much time on share trading. The extra 0.45% that you pay is for your remisier’s skills.

As mentioned earlier, besides opportunity costs and market impact, there are other implicit trading costs, like missed trade costs.

Missed trade costs arise from the failure to execute a trade in a timely manner.

If you split a purchase of 20 lots of Stock A into two equal limit orders when the quote for Stock A is RM11.00 to RM11.10, the first order is executed at the buying price of RM11.00, after which the quotation moves up to RM11.10 to RM11.20.

The second order is placed and executed at RM11.10. You are paying an additional 10 sen (or 0.9%) for the remaining 10 lots.

Missed trade will cost you an additional 0.45% (0.5 x 0.9%) as 50% of your remaining stocks were traded at a price that was 0.9% higher.

A good remisier should be able to save you the above implicit costs. In this competitive business environment, remisiers need to continue upgrading their skills in order to give better services to their clients.

Consumer Spending To Remain Robust

The CEO Outlook 2008 continues with the views of Tan Sri Liew Kee Sin, Alain Crouy and Rajah Kumar, from the property development, cement and consumer electronics sectors respectively. Liew, who leads the country's biggest property development company by market value, looks forward to spillover effects of RM9bil that may be released from the Employees Provident Fund's monthly withdrawal scheme. Crouy at Lafarge Malayan Cement welcomes fairer prices for cement after they had remained unchanged for many years following the Asian financial crisis. Rajah Kumar, who heads Philips, expects consumer spending to continue to be healthy as consumers become more affluent and look for innovative lifestyle products.


Tan Sri Liew Kee Sin
Managing director and CEO
SP Setia Bhd Group


What is your outlook for the property market next year?

The property sector is on a growth trajectory, having benefited significantly from sweeping changes geared towards making Malaysia the top real estate investment destination as well as stimulating domestic home ownership. The FIC easing on foreign ownership and the real property gains tax exemption have put Malaysia on the radar screen of international investors.

Foreign interest in local properties is gaining momentum, as reflected in new price benchmarks. The retirement and holiday home market is beginning to attract more interest from tourists. Foreigners are also keen on commercial developments with many Middle East consortia purchasing properties en bloc or taking equity interest in projects.

We believe foreigners’ appetite for local properties will continue unabated as they are betting on an under-valued market with significant upside potential.

Moreover, the unlocking of some RM9bil worth of funds from the Employees Provident Fund is set to unleash a profound spillover effect on the industry. The higher purchasing power arising from the monthly EPF withdrawal will enable contributors to upgrade to better homes.

Collectively, we believe the broad-based boost from these initiatives will be sustained into 2008. Underpinned by the stable economy and attractive financing packages, we believe the property sector will continue to thrive next year.

What are some of the opportunities and challenges for industry players going forward?

Thanks to the slew of pump-priming efforts to revitalise the property sector, market demand has picked up. The Government’s efforts to enhance the public delivery system have also contributed to increased investor confidence; foreign investors are also beginning to invest in the special economic zones such as the Iskandar Development Region (IDR) and North Corridor Economic Region (NCER).

With the spotlight shifting to the Malaysian market, the stage is set for industry players to seize the opportunities and aggressively promote their products to the world. But liberalisation of the industry brings about increased competition. Foreign buyers are accustomed to the demanding and exacting standards of developed nations so the challenge is to meet these expectations.

Moreover, the entry of foreign developers into the local market also means that local players would be subject to greater scrutiny by consumers who are increasingly spoilt for choice.

Demand-wise, the domestic market will continue to expand organically by virtue of the nation’s young demographics. With 60% of the population below 30 years of age, the group will form the core base of housing demand as wealth creation and family formation increases. Developers that can distinguish their value proposition by identifying untapped potential and demonstrating superb delivery capability and branding prowess will garner greater market share and stay ahead of the pack.

Which property sector and what development types offer the best potential for your company?

SP Setia has set its sights on becoming a fully-integrated developer with a complete suite of projects spanning the entire property spectrum.

Building on our position of strength in Malaysia, we are also expanding geographically with Vietnam being our first stop overseas. We believe this will not only diversify S P Setia’s product offerings but also continue to drive future earnings growth and value creation for stakeholders. We are confident that our latest ventures will dovetail neatly into the upswing in the high-end and commercial sub-sectors.

Recent news reports show that a luxury condominium in the KLCC vicinity changed hands at RM2,100 psf compared with the developer’s price at RM800 psf in 2005. Industry figures revealed that in 2006, 45% of the value of office transactions was by foreigners, compared with 19.3% the year before and 1.9% in 2004. Investments in office buildings also grew 119% in 2006 over 2005 to RM2.7bil from RM1.2bil, driven primarily by real estate investment trusts (REITs) and foreign investment funds.

The statistics point to the vast potential to be tapped in these new market segments. While pursuing these new ventures, we will also stay focused on the mass and mid-end housing market, which continues to provide a stable stream of income for the Group.

What are the challenges and issues being faced by the industry and what is the possible impact on your company?

Like any other industry, the fortunes of the property sector are dictated by the economic climate. The rising cost of doing business caused by the spike in oil as well as raw material prices has exerted tremendous pressure, particularly on the construction and real estate related industry. On one hand, developers are finding it increasingly hard to absorb the escalating costs as this will shrink margins but on the other, passing the buck to the consumer is also not possible due to the affordability threshold.

The perennial problem of poor quality workmanship remains an issue. This is largely due to the shortage of quality and skilled manpower as well as the high dependence on foreign labour, given that locals continue to shun the sector.

To mitigate this, we benchmark our high-end homes using the Singapore-developed CONQUAS quality measurement standards. For mass housing, all our contractors are subjected to stringent in-house quality control criteria. Outperformers will be rewarded while those who are not up to par will be penalised.

I think the most pressing need to ensure the country’s long-term vitality is to devise a new economic model that completely weans itself off the “subsidy mentality” and protectionist policies.

Malaysia cannot afford to distance itself from the wave of globalisation or we will fall behind with the rise of new economic stars such as China, India and now Vietnam.

The only way to go forward is to open up, enhance competitiveness and fully integrate Malaysia into the world’s free market. For instance, there should not be oligopolies permitted in critical industries such as cement and steel production, which have caused artificially inflated prices and created supply problems that add to the cost burden for the construction and property industry.

Even the fuel subsidy for the public cannot be continued indefinitely. Malaysians need to be prepared to face global realities even if it means we have to go through the painful adjustment period.

What are some of the interesting property launches that can be expected from your company?

We will be rolling out a range of products under our five product brands in 2008. To mark our foray into the luxury high-rise sector, we will be launching Setia Sky Residences. Situated on six acres in Jalan Tun Razak, Kuala Lumpur, this striking landmark comprising luxury serviced apartments will enjoy spectacular views of the KLCC Twin Towers. Another project is Duta Grandé, an ultra luxurious development in the upscale Bukit Tunku neighbourhood.

With just 15 units of select bungalows on 6.2 acres of freehold land, Duta Grandé aims to set a new price benchmark at RM30mil per bungalow.

Under the commercial brand, we recently launched our first mixed use project named Setia Walk in Puchong to good response. Positioned as a one-stop lifestyle destination, the RM800mil Setia Walk is a creative hybrid of retail and residential components. Other similar niche projects to be launched include Setia Nexus 1 in Klang with a gross development value (GDV) of RM200mil.

We also have ambitions to develop sizeable retail and commercial cities in the foreseeable future. These include Setia City in Shah Alam and Setia EcoCity in Johor Baru, which will be undertaken in phases with construction expected to start as early as next year.

We will also be launching a number of projects under our award-wining “Eco” brand of green-themed developments. These include the RM2bil Setia Eco Gardens in Johor Baru and the RM1.2bil Setia Eco Villas in Cyberjaya. This popular concept will also be exported to Vietnam via our first project in Vietnam, EcoLakes near Ho Chi Minh City.


Alain Crouy
President and CEO
Lafarge Malayan Cement Bhd


What is the crux of the problem which resulted in builders and contractors crying foul over the high prices in major building materials like steel bars and cement?

Builders and contractors are our customers and if there is a wrong perception over the prices of our products, we are pleased to provide our perspective on the issues.

The perception of the current cement price being high is a result of cement having been sold, for many years after the Asian financial crisis, at unsustainably low levels (including in 2005 where builders and contractors enjoyed steep discount in prices for a six-month period), which did not provide the industry with reasonable returns.

The price of cement remained unchanged for 11 years between 1995 and December 2006. The situation became untenable a few years ago when prices of fuel, electricity and materials as well as transport cost started to surge recently, resulting in a 40% increase in total costs.

Since 1995, the only revision of the cement price was the 9% increase in December 2006. Even after such revision, the cement price in Peninsular Malaysia is still one of the lowest in South-East Asia and still significantly lagging behind the 40% cost increase, with an insufficient return on investment for the cement industry.

The Automatic Pricing Mechanism (APM) proposed by the Government in April is a measure that would bring more responsiveness to industry’s cost movements. With a more orderly mechanism for price adjustments, builders and contractors will be able to take into account such price movements in their budgets, planning and project bids.

Is it true that developers are at the mercy of building material manufacturers, which can command higher prices for their products despite the ceiling prices for cement and steel?

Cement is sold in accordance to the ceiling price set by the Government, including a commission for distributors for the cement which is not sold directly to end users.

Furthermore, cement constitutes only a small portion of construction costs of residential or commercial properties, although it constitutes a slightly higher proportion in infrastructure works.

For example, in a double-storey house, the cost of cement is approximately 5% to 7% of total construction costs. A 10% revision in the ceiling price should then translate into a 0.5% to 0.7% increase in the total cost of construction.

Would it be fair to ask the Government to open the local cement and steel market, and leave local prices to the free market?

In a free market economy where there is no price control, prices of goods will be determined by market forces.

As Malaysia is a trading nation, we believe that for market efficiency, cement could be in the future be considered for exclusion from the price control list.

At the current price of cement on the domestic and on the international markets, however, and taking into account the cost of freight necessary to bring in the cement, importing cement into Malaysia would not be economically viable.

Also, we believe that innovation and quality can be important differentiating factors vs potential imports. In the last two years, Lafarge has introduced two new products - Avancrete for bag users and Mascrete Pro for bulk users to better meet their needs.

At the end, the proposed implementation of the APM will allow government controlled price to more responsively mirror free market price movements and would be a good interim step towards letting local prices to follow free market flows as mentioned in the question.

What is the 2008 outlook for raw material/feedstock prices for building material manufacturers? Please compare the past two to three years performance and the supporting drivers for further growth in demand.

The drivers of cement demand growth will be the implementation of the Ninth Malaysia Plan (9MP) projects, stronger private investments and consumption, hopefully leading to more construction of residential, commercial and industrial properties. No significant increase in cement activities has been seen in the last two years and, in fact, cement demand has stayed flat since 2004. We hope to see a growth of 4% to 5% in the domestic cement market for the next two to three years.

With the recent surge in sea freight rates and commodity prices such as crude oil and coal, production costs are expected to increase considerably in 2008 compared with 2007. If the high crude oil prices lead to the Government’s withdrawal or reduction in price subsidy for diesel and gas, transport costs and electricity prices are likely to increase. It is, therefore, important that the ceiling price of cement be reviewed again with the implementation of the APM.

What are the immediate and long term measures that should be considered by the Government/associations to help remedy the current distortion in building material prices, and artificial shortage in supply (as claimed by developers) as well as better coordination in the supply chain between manufacturers and builders?

It is true that, during the third quarter of this year, there was a short supply of cement in a limited number of places in the country. This was due to the unfortunate conjunction of several simultaneous unplanned plant shutdowns for maintenance by several producers during the same period. We helped those manufacturers who had problems to limit the disruptions as much as possible.

With domestic cement demand at only about 70% to 75% of total cement industry capacity, there is still a major overcapacity in the industry and ample cement supply to serve all the needs of the Malaysian domestic market.

This situation is likely to continue at least for the next four to five years despite the expected growth of the Malaysian market as the industry, in addition to gradually redirecting its exports to serve the domestic market, is also developing the use of blended cement, which adds to capacity.

An increase of the cement price and the proposed implementation of APM will improve the situation in the cement industry and allow for the long term supply of Malaysia’s cement needs throughout the 9MP and beyond.


Rajah Kumar
Chairman & CEO
Philips Group of Companies, Malaysia


What is your outlook on consumer spending for 2008?

With the promising economic outlook, I believe that consumer spending will continue to be healthy in 2008. We are almost back to the pre-recession growth rate, although many consumers are still quite cautious when it comes to high value items. The recent rise in electricity and fuel prices has also sparked increased interest in energy efficient appliances, an area in which Philips is the leader.

The buoyant mid to high-end residential housing market will also drive the demand for premium electronic products into 2008.

Also with the increase in government expenditure such as additional increments for police and army workforce; a 100% increase in the Cost of Living Allowance (COLA) and; a revision of pension payments for retired civil servants, we can expect a bigger impact on the economy arising from the multiplier effect of the collective monetary adjustments for civil servants.

How was consumer spending in 2007?

Consumer spending bolstered by rising incomes, led economic expansion in the first half of 2007. There were a few drivers for the increase in spending. Firstly, private consumption rose in conjunction with strong growth in home ownership, buoyed by low interest rates. The Government’s announcement to allow EPF contributors to offset or pay their housing loans also encouraged the growth in home ownership.

From this, it is only natural to see excellent growth in demand for consumer lifestyle products, ranging from household appliances, entertainment electronics and also our new range of Ambilight TVs.

Secondly, in the second half of this year, private consumption was given further support from significant pay increases for public sector employees. This coupled with a drop in the unemployment rate this year and the Government’s price control on staple products allowed for more spending dollars for the average household.

What is your expectation of spending at the higher end? Please define ‘higher end’ in your industry.

As Malaysians become more affluent and knowledgeable, they tend to spend more on lifestyle products.

Philips’ key business focus is in the continuing innovation in healthcare and lifestyle products. More than 50% of Philips global revenue now comes from products that are less than three years old.

Most of them are high-end, high-tech products, but with our brand promise of Sense and Simplicity.

Currently, there is increasing appeal for green products. Consumers are more aware of the threat of global warming and are looking at alternative avenues to be more energy efficient.

The lighting solutions offered by Philips, although slightly more expensive than traditional light bulbs, provide substantial savings on electricity consumption in the long run. Knowing that lighting represents up to 30% of a home’s energy consumption, it is clear that remarkable savings in electricity cost can be achieved with smart lighting choices.

In the latter part of this year, we launched a new range of consumer LED lighting solutions that are 90% more energy efficient.

We have high-end green products in all categories of lifestyle and healthcare segment such as Ambilight TV, digital audio video players, Achieva MRI machines and also garment care and personal care products.

How has the tourism dollar helped to boost consumer spending? What further measures can be introduced to boost tourism?

Medical tourism is a strategic area that has gained much attention from both Government and the private sector. In order to draw health tourists to Malaysia, our medical facilities should continue to be world-class and be at the leading edge of technology and patient care.

Philips is unique in using its competencies in lighting, display and healthcare systems and products to provide ambient intelligent diagnostic suites where patients experience a friendly and conducive environment for undergoing diagnostic examinations and treatment.

This lifestyle experience in a healthcare environment will attract our local population as well as tourists as human beings are increasingly averse to stress.

What are the new challenges during a time when consumers are said to be spoilt for choice?

I would look at it positively and call it rightfully that consumers are now more empowered to make their choice. In the past, it was about introducing new and innovative products with better design features at the right price point.

Today, consumers are more discerning; they demand products that address their environmental concerns, enhance their lifestyle and that are aesthetically pleasing as well. For example lighting. There is now a shift from fluorescent and tungsten bulbs to LED lighting. Instead of viewing lighting as purely functional, consumers today want lighting to enhance their living or working space, save energy and be environmentally-friendly - all at the same time.

The challenge remains as always to recognise fast-evolving consumer trends and lifestyle changes and being flexible and forward-thinking enough to compete effectively for consumers’ mind share and purchasing ringgit.

Tuesday, December 18, 2007

Domestic Consumption Still Strong

KUALA LUMPUR: Domestic consumption in the country will remain strong although growth may not be in double digit next year, Second Finance Minister Tan Sri Nor Mohamed Yakcop said.

He said as the base grew bigger, growth might not “be that strong''.

“I think the domestic consumption figures are good. We are seeing double-digit figures now. However, the growth will continue to be strong because of the action that we have taken as well as the higher income,” he told reporters after the launch of Naza Group of Companies' latest car, Forza, yesterday.

Nor Mohamed reiterated that domestic consumption would continue to be a significant factor in the country's growth for many years. Private consumption for the third quarter grew to 14% from 13.1% in the preceding quarter.

Should there be a dent in growth in the US, Malaysia would not be very much affected because the country had diversified from exports to domestic consumption and investments as well as increasing exports to more countries, he said.

On rising crude palm oil (CPO) and crude oil prices, the minister said this would benefit the country.

Nor Mohamed did not think the CPO price was too high and felt that it would be sustained for a few more years.

“I think the price will hold and continue to be strong because of demand from the growing middle class in China and India. At present, their per capita consumption of palm oil is low,” he added.

On the country's budget deficit, Nor Mohamed said this would be reduced to 3.2% of gross domestic product (GDP) this year from 3.3% last year. The Government is targeting a deficit of 3.1% of GDP next year.

The CPO futures contract has crossed RM3,000 per tonne, having gained more than 50% over the past year. The CPO physical price for December south was traded at RM2,910 on Friday, while the benchmark contract for March 2008 delivery last traded at RM2,930.

Thursday, December 13, 2007

EPF: Unit Trust Charges To Be Halved

EMPLOYEES Provident Fund (EPF) members will pay 50 per cent less in service charges for unit trust investments effective January 1 2008.

EPF said the service charges would be capped at three per cent and fund management institutions are not allowed to impose charges above that.

"Members can enjoy better returns from their investment in unit trusts with the lower service charges," EPF chief executive officer Datuk Azlan Zainol said in a statement issued yesterday.

He said the capped charges, approved by the Finance Ministry, was in the interest of EPF members and fund managers.

Currently, members pay about five to six per cent in service charges, which is relatively higher compared with countries such as Singapore, the UK, Japan and the US.

Azlan said a study commissioned recently by the EPF revealed that a major factor affecting the investment returns for members is the high service charges imposed by the fund management institutions.

More Flexible Market Rules

To attract new listings and fend off regional competition, the Securities Commission will no longer require firms selling shares to the public to provide profit forecasts

By Adeline Paul Raj

THE Securities Commission (SC) will introduce more flexible rules early next year to attract fresh listings on the stock exchange and boost the market's competitiveness in the region.

Among other things, it will no longer require firms going for a listing to provide profit forecasts.

Instead, directors will have to provide an enhanced discussion and analysis on the company's financial condition and prospects.

Also, to encourage foreign listings, firms with foreign operations will be subject to the same listing criteria as those with domestic operations.

These changes are in line with international best practices, chairman Datuk Zarinah Anwar said.

She announced the new measures, which will be detailed in guidelines to be released in January, in her keynote address at the initial public offering (IPO) conference organised by Bursa Malaysia Bhd yesterday. Some of the measures will take effect from January 2.

"It is our objective to strengthen the positioning of Bursa Malaysia as a preferred listing destination for domestic companies, as well as to attract foreign companies to consider a primary or secondary listing.

"That's why we have to try and ensure that our listing rules and criteria are very much in line with international standards," she said.

The measures may help increase the number of new listings next year to as many as 40, said Bursa Malaysia's chief executive officer Datuk Yusli Mohamed Yusoff.

The number of IPOs in Malaysia has slowed down considerably in recent years, with just 25 so far this year compared with 40 last year and 79 previously. In comparison, Singapore attracted 52 IPOs and Hong Kong, 62, at the end of September.

Yusli attributed the lower numbers at home to more stringent quality-control vetting.

"I think there's been no shortage of companies wanting to come to list, but there's been a higher rejection rate (lately) as we want to attract only the best-quality companies," he said.

He believes the new SC measures will not only result in fresh listings but also encourage dual listings as well as merger and acquisition activities.

On the removal of profit forecasts, Zarinah explained that the move is to help develop a more well-informed breed of investors.

"We would like investors to make their investment decision not on the basis of one figure provided by the company, but a whole spectrum of information with regard to the business sustainability, prospects, risks and financial condition," she remarked.

Wednesday, December 12, 2007

‘Investment Outlook Remains Positive’

KUALA LUMPUR: Malaysia’s investment outlook next year is expected to remain positive despite the challenges from rising inflation and external risk, said Alliance Finance Group chief executive offi cer Datuk Bridget Lai.

In a statement yesterday, Lai said given the sustained economic growth and the government’s initiatives such as promoting the growth corridors – Iskandar Development Region, Northern Corridor Economic Region and Eastern Corridor Economic Region – the investment environment is expected to be optimistic.

“Growth for the coming year will be broad-based with the services sector expected to remain the key driver on the supply side, on the back of strong sub-sectors like business services, real estate, finance and insurance.

“On the demand side, private investment is expected to cushion the moderation in
consumer spending, while the announcement of corridors and implementation of Ninth Malaysia Plan should sustain the public spending momentum,” she said.

Lai, however, said rising inflation risk remained a key risk to the current robust picture.

“While Malaysia has been building up it resilience over the years, we are still susceptible to external environment.

“Inflation will also be a key concern in 2008 amid expected administrative price increases. High inflation may curb consumer spending,” she said.

She said Malaysia, as one the largest producers of crude palm oil in the world, is expected to benefit from the high prices of crude oil and crude palm oil underpinned
by robust demand from China, India and Europe.

Lai said the global market is expected to face a challenging time with sub-prime worries expected to linger into next year.

“The global credit market is experiencing a credit squeeze arising from the sub-prime crisis to force more prudent lending by financial institutions and an increased risk premium on financial instruments,” she said. – Bernama

Malaysia Ranks 16th Among Top 25 Destinations For FDI

NEW YORK: Although China and India continue to rule the roost, Malaysia has been rated 16th among the 25 top destinations for foreign direct investments (FDI).

China is the world's number one FDI destination with India taking the second spot while three other Asean nations are also in the list - Singapore at seventh, Vietnam 12th and Indonesia 21st, according to a study by global strategic management consultancy A.T. Kearney.

The current malaise in the credit markets does not seem to have dampened corporate plans for a fresh flush of FDI, according to the study that was based on a survey of top executives conducted since the subprime crisis began this summer.

The assessment of senior executive sentiment at the world's largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investments in the years ahead, according to Kearney's FDI Confidence Index.

The index provides an overview of the prospects for international investment flows. Companies that participated in the survey accounted for more than US$3.8tril in global revenue.

While China and India remain uncontested as the leading FDI destinations in the 2007 index, 15 of the most attractive FDI destinations are developing markets.

Brazil, the United Arab Emirates (UAE) and Russia figure in the top 10 destinations.

South Africa and other Gulf states (Bahrain, Kuwait, Oman and Qatar) made their debut in this year's index while Vietnam, Malaysia and Indonesia are returning to the index's top 25 most attractive destinations.

Emerging markets have also registered the strongest investor optimism, with India, China, Brazil, the UAE and Vietnam experiencing the most positive change in investment outlook in the past year, according to executives. – Bernama

Ringgit Rises To All-Time High

By LOONG TSE MIN

PETALING JAYA: The ringgit rose to an all-time high yesterday as players sold off dollars in anticipation of a possible interest rate cut at the US Federal Reserve (Fed) Open Market Committee meeting on Tuesday.

The ringgit closed at 3.3125/3155 against the greenback compared with 3.3155/3185 on Monday. It had hit an intra-day high of 3.3100, its best level since the local currency was de-pegged.

The market largely expects a 25 basis-point interest rate cut from the Fed, which will lower interest rates and make the dollar less attractive to hold.

A chartist at a local investment bank said: “A 25 basis-point cut is already priced into the market and would unlikely cause much of a stir on Wall Street.

“Nonetheless, most investors would opt to stay on the sidelines on the off-chance that the Fed decides to surprise the market with a larger than expected rate cut of maybe 50 basis points.”

An economist interviewed earlier said the local unit (trading at 3.34 at the time) still lagged other regional currencies against the dollar in value terms on a trade-weighted basis.

“However, the appreciation must be in an orderly fashion.

“This is necessary to avoid not just currency volatility itself but also volatility in the commodities market.”

Another economist agreed, adding: “The region will be looking at the Chinese yuan. We can’t be too strong against the yuan due to export competitiveness, among other things.”

Meanwhile, AFP quoted dealers in Asian markets as saying that while a 25 basis-point cut was seen as the most likely outcome of the Fed meeting, after last week’s robust non-farm payrolls data and some stronger than expected housing data on Monday. The dealers also said a 50 basis-point cut remained a possibility as the Fed tried to fend off a severe economic slowdown.

The newswire also quoted Ashraf Laidi at CMC Markets in New York as saying: “A less generous easing (of below 25 basis points) will likely disappoint a shaky stock market and curtail risk appetite.

“Renewed selling in equities will weigh on higher yielding currencies.”

Meanwhile, the local unit ended the day mixed against other major currencies.

It firmed up against the Singapore dollar at 2.2965/3000 against Monday’s 2.3002/3039 and was stronger against the Japanese yen at 2.9579/9611 versus 2.9666/9704 a day earlier.

The ringgit, however, softened against the euro at 4.8727/8778 compared with 4.8579/8633 on Monday.

It was also weaker against the British pound at 6.7790/7865 yesterday compared with 6.7590/7644 on Monday.

Friday, December 7, 2007

After China, Vietnam Will Be World's Factory

Investors who see the boom in Vietnam’s two-wheeler market as a sign of Vietnam’s young labour force yearning for the tools it needs to plug into a global supply chain will win, says the writer.

By Andy Mukherjee

THE four million motorcycles on the streets of Ho Chi Minh City offer a remarkable - if somewhat noisy - testimony to the prosperity that beckons Vietnam.

A US$900 (US$1 = RM3.34) Honda may not be everyone's idea of affluence. However, it has the same pride of place in this rapidly industrialising nation as a bullock cart in an agrarian society.

Young men and women - many of them migrants from rural areas - commute to large, modern factories on the outskirts of the city on bikes they are proud to own and scared to lose.

This mobility is so crucial to the workers' productivity that some employers in the city formerly known as Saigon have even begun buying insurance, at their own expense, against the risk of bikes being stolen from their factory premises.

Investors who take the boom in Vietnam's two-wheeler market as a harbinger of a burgeoning mass market may be disappointed for a few years. Those who see the lust for bike ownership as a sign of Vietnam's young labour force yearning for the tools it needs to plug into a global supply chain will win.

After China, Vietnam is emerging as the world's next factory of choice for labour-intensive goods.

One can see that in the changing composition of the country's exports. Rice and coffee - two of Vietnam's biggest agricultural exports - are now becoming less significant to the US$61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.

The other fast-growing export industry is furniture.

Exports of wood-based products have grown 24 per cent from last year to more than US$2 billion.

James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc's Pottery Barn stores in the US.

Koda Ltd, of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 per cent.

"The labour cost in Vietnam is half that of China, while worker productivity is about the same," says Koh.

Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 per cent to one million Vietnamese dong, or US$62, a level that is still affordable, Koh says.

Chinese-made goods have become increasingly expensive in the US for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.

Vietnam's accession to the World Trade Organisation in January has provided its textile industry with quota-free access to the US. Joining the WTO regime has also caused a 37 per cent surge this year in overseas investment commitments to US$13 billion.

The biggest draw of the country is clearly its labour.

The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades.

The risk for Vietnam is inflation, which accelerated to 10 per cent last month, the fastest pace in three years.

In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material.

If left unchecked, inflation will become a drag on Vietnam's competitiveness even if the central bank doesn't allow the dong's nominal exchange rate to appreciate.

On the whole, though, Vietnam is on the road to prosperity.

The swanky Louis Vuitton and Gucci showrooms that have sprung up in Ho Chi Minh City may be a bit premature in a country where the annual per-capita income was US$723 last year.

The time for the Vietnamese consumer will undoubtedly come.

With a population of 85 million, and an economy that the International Monetary Fund forecasts to grow more than eight per cent this year and next, the Southeast Asian country will soon represent a sizeable domestic market.

For now, the Vietnamese producer is the bigger opportunity.

There is, however, no room for complacency.

Cheap labour makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in.

Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the US has become too complex to undertake without overseas capital and expertise.

First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs US$300,000.

Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as a minimum use of packaging material, Koh says. Americans, meanwhile, are getting fussy about making all shipments terror-proof.

Most importantly, no retail store - European or American - wants a sweatshop scandal at any of its suppliers' units.

Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it's getting the investments it needs for the workers to graduate from motorcycles today to cars in the future. - Bloomberg

US Faces Sharp Slowdown But No Recession: OECD

PARIS: The US faces a sharp slowdown in economic momentum next year as it grapples with a "bleak" housing market but should escape recession, The Organisation for Economic Cooperation and Development (OECD) predicted yesterday.

The OECD in its twice yearly assessment of global prospects slashed its 2008 growth forecast to 2.0 per cent from its earlier projection in May of 2.5 per cent.

It recalled that a downturn in US house sales and construction has been under way since early 2006, "and the latest data indicate that the slump is getting worse." It said: "The immediate outlook for the US housing market is bleak: housing permits, starts and surveys of builders' sentiment are all at low levels and continue falling almost without interruption." As a result, the OECD said that "GDP (gross domestic product) should decline to well below potential in 2008" before rebounding in 2009.

But OECD chief economist Jorgen Elmeskov said in a preface to the report that "accelerated adjustment in the US housing sector ... will drag down growth to low levels in the near term, but will not trigger a recession and will only modestly push up unemployment."

The downturn in the US housing sector, brought on by a wave of foreclosures in the high-risk mortgage market, has roiled global financial markets since August and led to a credit crunch.

The US economy should expand 2.2 per cent in 2009, it said. - AFP

KL Shares Seen Continuing Climb

The market is showing signs that it will be pushed up for the year-end, a dealer with a foreign brokerage says.

MALAYSIAN stocks should continue their climb today, buoyed by strong regional markets and broad buying in plantations, financial services and power stocks, a dealer and an analyst said.

“The buying sentiment should continue today,” said OSK Securities research chief Kenny Yee.

“Yesterday’s regional performance and the strong US market gives some indication of how the local market will do today. We’re in uncharted territory now.”

The benchmark Kuala Lumpur Composite Index yesterday ended 0.9 per cent higher at a record high of 1,440.39 points, boosted by plantation stocks IOI Corp and Sime Darby and state power firm Tenaga Nasional.

The December futures contract put the index at 1,445 and the January contract put it at 1,442.

“The market is showing signs that it will be pushed up for the year-end,” a dealer with a foreign brokerage said. “We see continued buying momentum by foreign and local investors.”

He said fund managers were particularly interested in buying shares such as IOI, stock exchange operator Bursa Malaysia and plantations-to-energy group Sime Darby.

The Dow Jones industrial average gained 1.30 per cent to 13,619.89. - Reuters

Higher Asean Spending Power

NEWS ANALYSIS
By LOONG TSE MIN

THE expected continued weakening of the US dollar could mean higher spending power for people in Asean countries, including Malaysia.

Kenanga Investment Bank economist Wan Suhaimi Saidi is targeting 3.25 to the dollar for the ringgit by end-2008 and a 3.35 to 3.40 by Dec 31.

With an expected fuel price and electricity rates hike on the horizon, is it really true that Malaysians will have more money to spend?

Well, local economists seem to think so.

OSK Investment Bank economist Sia Ket Ee said the country's fundamentals were strong and the sustained trade surplus, continued foreign direct investment flows and favourable growth story, all point towards an appreciation of the local currency, leading to better spending power.

Another plus point for the strengthening of the ringgit against the greenback is that the exchange rate has actually lagged behind the theoretical rate on trade-weighted basis.

“This means that despite the strengthening of the ringgit in recent months, there is room for further appreciation,” Sia said.

Many would now be asking whether a rising ringgit will hurt exports but according the economists, the scenario has changed.

Instead, a weaker US dollar to regional currencies is now desirable.

It will go some way in correcting the “global trade imbalance” that is resulting in huge trade deficit being faced by the US and that the US government has been frequently commenting on.

Sia said: “This trade deficit cannot go on forever, the world cannot sustain this”.

A rebalancing of the trade deficit will lead to healthier long-term global economic growth, said both economists.

Another reason why the region can sustain a weaker dollar is that 10 years after the Asian financial crisis, economies in the region are fundamentally stronger and less dependent on exports.

At the same time, savings rates in many countries remain very high.

However, Wan Suhaimi cautions that while the US dollar might weaken, “in the investment world, there will still be an affinity to the US dollar” as the US is still the world's largest economy.

He expects the dollar to stabilise in late 2008, before the market assesses the currency again.

Tuesday, November 6, 2007

How To Fight Rising Prices

Comment by WONG SULONG

THE other day I was catching a train from KL Sentral to KLCC when I bumped into an old friend.

“Hey Sulong, everything is going up. What’s the Government doing about it?” he asked in a tone of frustration and resignation.

It’s simple question with no easy answers.

It’s also a question that is the preoccupation of hundreds of thousands of anxious Malaysian households, particularly wage earners and those who do not have strong bargaining clout.

Inflation, or to the layman, rising prices of goods and services, is rearing its ugly head not only in Malaysia, but all over the world. It poses a great challenge to governments and central bankers.

High and prolonged inflation can erode the very foundation of the global economy and lead to widespread social and political unrest.

Who are the culprits of inflation? Is it the Americans and their extravagant lifestyles, living beyond their means and on world credit? Is it China whose surging economy is gobbling up almost every conceivable commodity? Or it is the heightened political risks arising from tensions in the Middle East and Iran?

It’s difficult to apportion blame. But it’s important for Malaysians to realise that rising prices are due as much to the global forces of demand and supply as to inefficiencies in the Malaysian economic system.

China and India, accounting for 40% of the world’s population, are on the move. They are creating waves of titanic proportions.

Take oil. Six years ago, crude oil price was trading at around US$15 a barrel. Now it’s more than US$90. A year ago – when the Government promised it would not increase the petrol price till the end of this year – crude oil was US$60 a barrel. That was considered to be very high then.

Now, there are many economists and analysts who say oil will hit US$100 a barrel. The question for the Government is: how long can the Government keep petrol prices down? Or should the Government spend tens of billions of ringgit subsiding petrol and gas?

Another case is steel, a product that is vital for the global economy.

The world price of steel has risen sharply in recent years due to buoyant demand from China and India. The price of iron ore rose by more than 100% during the past three years, and now Australian ore exporters are asking the Chinese for a 50% increase in iron ore prices for 2008. And they are likely to get it.

Given the world scenario for iron ore/steel prices, the question is: how long can the Malaysian Government keep the lid on steel prices? Should it, in the first instance?

However, the Government knows that an increase in the price of fuel and steel will impact almost every sector of the economy and it will be painful for many segments of society.

I believe that so far the Government has done quite an admirable job in keeping the lid on inflation and helping those groups that are most vulnerable to rising prices. We complain about petrol prices, but foreign visitors can’t believe how cheap our petrol prices are.

But there is still a lot that the Government can do. Step up the fight against wastage and corruption. Continue to cut red tape and reduce the cost of doing business. Review monopolist situations with a view to injecting competition.

Last week, the Australian Federal Court imposed a A$36mil (RM110.97mil) fine – the highest on record – on a cardboard box company, owned by one of the country’s richest man, for colluding with another manufacturer to raise prices.

“Cartels are thefts usually by well-dressed thieves,” said Graeme Samuel, the chairman of the powerful Australian Competition and Consumers Association, who brought up the case.

Yet in Malaysia, we see producer associations regularly raising prices of their products, without a protest. There is nothing better than competition for consumers to get the best prices. Look at AirAsia and Malaysian Airlines System. They are slugging it out. The consumer benefits.

At the same time, Malaysians, on their own, must make efforts to fight rising prices.

Many Malaysians are feeling that they are losing the battle against rising prices. But they are many ways they can help themselves.

Off the top of my head, I can think of a few:

IF you buy a RM7.50 cup of coffee to give you a daily perk up at the office why not make your own coffee?

> IF you are a smoker, cut your smoking by half. In fact, you should not be smoking at all;

> TAKE shorter and cheaper holidays;

> DELAY purchases of big-ticket items like cars, flat screen television sets, fridges and music systems; and

> GO for less expensive products that are just as good as the branded goods. Don’t worry too much about prestige.

Finally, I would suggest to readers to look for ways to earn some extra income. There are many ways to earn an extra dollar if one is resourceful. However, I do not recommend begging, borrowing or stealing.

US Markets To Give Direction To KLCI

Stock Market Signals: A weekly column on Bursa Malaysia's performance and outlook by G.M. Teoh

THE KL Composite Index (KLCI) successfully vaulted the 1,400-point psychological barrier and made a new record high early last week, boosted by the higher US markets.

The rally failed to expand with values congesting for a couple of sessions and was followed by an abrupt sell-off on Friday influenced by a sharply lower Dow Jones. This forced the index to return all of its previous gains.

Investors are generally confused about the random nature of the KLCI. The US markets are all that matters these days.

Last week witnessed the meltdown in financial stocks in the United States and the Federal Reserve’s decision to cut rates by 25 basis points received an icy reception. Record high crude oil at US$96.20 a barrel continued to be ignored by market participants.

With worldwide markets at or near historic highs, the upside potential is lower compared with the downside risks. At this juncture, the markets can correct drastically for a lot of reasons.

The KLCI fell from a new high of 1,423.81 points to a week's low of 1,385.85. It rebounded on Friday to end the week with small losses at 1,397.48, off 0.87 point or 0.06% from previously.



Most of the main index-linked stocks recovered from earlier losses and ended the week in the minus column.

Maybank, Public Bank, Tenaga Nasional, MISC, Telekom, Genting, Petronas Gas, DiGi.com and RHB Capital settled with minor losses and took away a combined 7.67 points from the index.

IOI Corp, Bumiputra-Commerce, Plus Expressways, KL Kepong, and MMC Corp closed with minor gains and supported the index with a total 6.12 points.

Volume of the KLCI for the week rose to 1.04 billion compared with 897.73 million shares a week earlier. The daily average volume increased to 208.46 million from 179.55 million shares previously.

The candlestick chart closed the week negative with the formation of a “falling window”. This negative chart setting suggests the newly developed bearish cycle would continue.

An important chart hurdle now stands at the 1,405–1,420 level. The main trend could turn bullish again if these levels are vaulted this week.

Chart support for this week is seen at 1,390–1,380. Further downward adjustment would occur if these levels are breached.

Most of the daily technical indicators closed the week neutral to slightly negative and suggested the index would enter into sideways band trading in the immediate term.

The daily stochastic gave the short-term sell signal on Oct 31 and stayed negative for the near-term trend at Friday’s close. The oscillators per cent K and D settled the week sharply lower at 67.95% and 83.23% respectively.

The daily Money Flow Index (MFI) plunged from a week's high of 100 points and closed sharply lower near the neutral zone at 63.16. The MFI indicated that strong distribution took place last week.

The main trend-tracker, the 3- and 7-week exponentially smoothed moving-average price lines (ESA lines), remained in bullish divergence despite the strong drop last Friday and showed the main trend was still bullish.

The short-term trend-tracker, the 3- and 7-day ESA lines, ended in negative convergence at Friday’s close and showed the immediate-term trend was attempting a cycle reversal.

The 5-day Relative Strength Index plummeted from an oversold position at 83.10 points on Oct 31 and closed the week sharply lower at 52.15. At present, the daily RSI is indicating the immediate underlying strength of the index is neutral to slightly negative.

Sunday, November 4, 2007

Price Rises Hurting The Wallets Of Malaysians

By JOSEPH LOH and RASHVINJEET S.BEDI

PETALING JAYA: Bread now costs 20 to 30 sen more per loaf, and toll charges may be raised again next year. All over the country, Malaysians are paying more for popular local fare like char kuay teow and roti canai.

Prices are increasing across the board for items and commodities essential for a modern lifestyle. Toll on the Damansara-Puchong Expressway (LDP), for example, has increased this year from RM1 to RM1.60.

While this may be a worrying situation for Malaysia, it is hardly a localised phenomenon but one that is happening globally.

The immediate concern to Malaysians, however, is the effect on their wallets.

According to the latest Consumer Price Index (CPI), prices have increased by 2% from January to September. The highest increase was in alcoholic beverages and tobacco (7.3%) and food and non-alcoholic beverages (2.8%).

The Consumers Association of Penang (CAP), however, feels the CPI does not reflect the true situation.

“The CPI deals with averages but most consumers will dispute this figure.

“Consumers can tell you prices have gone up by more than 2%,” said CAP president S.M. Mohamed Idris.

Razak Hamzah, 43, and his wife Siti Ruhayu, 37, who have three school-going children, know for a fact that the price of their purchases has gone up significantly.

They, like many other families, really feel the pinch when it comes to basic necessities like Milo, milk, flour, cooking oil and chicken.

“I can remember getting two chickens for RM13, but today I can only get one,” said Siti.

So, for the couple, it is all about juggling expenses and keeping strictly to a budget – which remains at RM300 per month for groceries despite higher prices.

“We try to make do with less. Our income hasn’t gone up so we have to be smart and adjust our needs,” said Siti, who runs a business with her husband.

Those in the middle and lower middle income groups will feel the effects of the price increases most painfully as food is one of their core expenses.

Fears that the salary increases for civil servants of between 7.5% and 42% effective July 1would result in price hikes despite government controls have come true.

Hence, the call by MTUC for a cost of living allowance (Cola) for private sector workers; and Cuepacs' nationwide boycott campaign against rising prices of essential goods.

Dr Yeah Kim Leng, group chief economist at Ratings Agency of Malaysia (RAM), attributes the price increases to the rise in commodity prices like wheat, milk, corn, soya bean and rice, which are at a 10-year high. There are also energy commodities such as petrol and gas to take into account. Oil is currently selling at US$92 per barrel.

“The revision of control prices of commodities has exerted domestic price pressures,” he said.

A price increase in petrol will result in higher transportation fees, and is relayed to the consumer – and this trend is occurring all over the world. Other factors include the growing of crops for bio-fuel and animal feed instead of for food.

Even global warming is in the picture. The rising price of wheat due to drought and reduced harvests in Australia caused the price of flour to rise: in Jamaica it’s up by 30%; in China, the price of a packet of instant noodles jumped an average of 20% and by as much as 40% in some cases in July.

Mydin Mohamed Holdings Bhd (MMHB) managing director Datuk Ameer Ali Mydin looks at increasing prices differently.

“Undoubtedly, prices for almost everything are going up, but is anything wrong with that?”

He believes that if prices globally are increasing, there has to be a pass-through mechanism implemented by the Government.

“We cannot live in an isolated world. In this globalised economy, we cannot have a protected economy.

“We can live with it temporarily to obtain a balance, but currently we can see the Malaysian economy becoming increasingly distorted because of the millions of ringgit going into subsidies of petroleum, flour or rice, for example.”

He said the country did not have deep-enough pockets to maintain this indefinitely.

He said the wages of Malaysians had also been artificially kept low.

Citing the example of his starting salary 26 years ago at RM1,400, Ameer Ali said: “Now, I am employing graduates at the same salary. There is something wrong here. In every other developed country, the minimum wage has increased by at least 100%.”

He said certain measures taken have helped the country in its early development stages.

"But we have to get out of this rut and become a consumption-based economy. When you increase wages, you can increase the price of flour or petrol. So, the person who now earns more is also paying more, but all subsidies have been removed."

Saturday, November 3, 2007

Pace Of Growth Still Strong

By Eileen Hee

PETALING JAYA: The pace of growth in Malaysia is not expected to ease in 2008, but would remain strong as the resilient economy reaps the benefits of a robust domestic economy.

Public Bank in its October issue of Economic Review said the increasing trend and higher growth of the Leading Index (LI) in 2007 indicated that the Malaysian economy would “continue to remain strong and healthy in 2008.”

According to the bank, the LI, which predicts the pace of economic activity six to nine months ahead, showed a monthly growth 7.2% from January to July.

The index, which tracks eight key economic variables, showed a reading of 8.8% in July. It peaked at 8.9% in May this year.

“In absolute terms, the LI rose consistently from 138.5 in January 2006 to 153 in July 2007. From the high and rising growth in the leading index, it is not unreasonable to expect a higher GDP in 2008 compared with that of 2007.”

Earlier in the week, the Malaysian Institute of Economic Research (Mier) revised downward its forecast for the country's gross domestic productivity (GDP) next year to 5.4 % from 5.8%, citing external uncertainties.

However, despite the US subprime woes, roiling oil prices and inflationary pressures, the US economy could be headed for a soft landing. It has been reported that the US posted a stronger than expected third quarter GDP growth of 3.8%.

Public Bank also said that to gauge whether there would be an impending economic slowdown, a Coincident Index and Lagging Index would provide clues on the likely direction of the economy.

“While the ratios have softened in 2007 from its peak in January, they remain high. In fact, the ratios of the Coincident Index to the Lagging Index were significantly higher in 2007 compared to 2006.”

The bank said the high ratios indicated that the Malaysian economy would remain on an expansionary mode with GDP likely to be higher in 2008 than that of 2007.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng told Starbiz that favourable GDP figures for 2008 would premise on a positive external environment and strong domestic growth momentum.

Yeah, who sees a soft landing for the US, said that America's economy surprised the market with strong third quarter results amid subprime woes.

Should the global slowdown be more pronounced, the strong domestic growth momentum would be able to offset it, he said.

OSK research economist Sia Ket Ee remained optimistic on the economic outlook for the year ahead.

“Domestic sources of growth should be able to offset any external weakness arising from a weakening US economy,” he said, adding that smooth implementation of the 9MP and the projects in the various corridors would provide the support for a domestic-driven growth.

12-Month Target To Breach 1,500 Mark

Analysts remain positive on Malaysian market

By LOONG TSE MIN and YVONNE TAN

PETALING JAYA: Analysts generally remain bullish on the Malaysian market, with most setting 12-month targets above the 1,500-point level for the KL Composite Index.

Credit Suisse country head and head of research Stephen Hagger told StarBiz his research house’s country strategy report was not yet out but that it was “safe to say that we remain positive on the (Malaysian) market”.

TA Securities in its market strategy report dated Oct 7 reiterated its bullish view on the market with a 12-month target of 1,520.

The brokerage is maintaining a “buy” call on the market with a view to increasing exposure in “undervalued big cap stocks with strong earnings growth prospects”.

TA also likes “domestic plays that will benefit from the Government’s pump priming measures and FDI inflow into various economic corridors”, as well as “the bottom-up approach on lower and second liners that will catch up with the big caps due to the valuation gap”.

Citigroup said its latest equity strategy report could have given the impression that the company was underweight on Malaysia and clarified that Citigroup head of research in Malaysia Choong Wai Kee had only advocated going defensive in light of possible de-rating and higher risk premiums.

A company spokesman said in an e-mail yesterday, “We thought we would clarify that while he is asking investors to go defensive in light of possible de-rating and higher risk premiums, Malaysia still remains an overweight in Citi’s Asia-Pacific weightings.”

Citigroup said in the report dated Wednesday that it expected the Malaysian market to drift lower “until valuations become compelling again”.

The bank has a 12-month target of 1,547 points, implying a year-end target of 1,425 points, a 1.9% upside from current levels.



Citigroup is “overweight” on the plantation and telecom sectors, “neutral” on banking and media and “underweight” on construction and property. It recommended a defensive strategy focusing on stocks with a reasonable yield.

OSK Investment Bank head of research Kenny Yee when contacted by StarBiz said: “We maintain our year-end target of 1,500 for the KLCI, which we have had since the middle of the year.”

Yee said OSK’s strategy report was still in the works but that “we (Malaysia) are still shielded from crude oil price spikes and the strengthening ringgit is a positive factor for the Malaysian equity market”.

Thursday, November 1, 2007

The Right Strategy For Preserving Wealth

Many investors today fail to anticipate or prepare for wealth preservation. Focusing solely on wealth accumulation without preservation could lead to loss of wealth. This month, CIMB Private Banking enlightens readers on what wealth preservation is and the appropriate strategy to adopt.

THE concept of wealth preservation is not new. However, it is not widely adopted even by the most sophisticated individuals or investors.

Wealth preservation generally means keeping the value of one’s investment assets. An effective wealth preservation plan considers not just how to keep control of the assets, but also how to keep the asset value – taking into account inflation – in order to maintain the total wealth of an investor in real terms.

Wealth preservation is very much of concern today for it plays a vital role in the protection of personal assets, whether for the purpose of living off those assets during retirement years or passing them on to heirs.

In this third cycle of wealth, the main objective is to achieve a suitable return without putting undue risk to one’s investment assets and to adopt a more conservative investment strategy.

Here, protection of one’s wealth becomes more important than growing it. An investor generally becomes conservative in assuming capital risk, seeks regular income from his investment and, in some cases, aims for moderate growth from the investment.

When should an investor adopt wealth preservation?

Knowing when to adopt wealth preservation is important as failure to do so could result in taking on inappropriate level of capital risk. This could lead to putting one’s entire life goals, such as retirement plan, children’s education fund and wealth for the next generation, in jeopardy.



Any major losses to an investment would make it hard for an investor to re-build his wealth. As such, the process of wealth preservation should commence when an investor’s income or wealth-generation capacity decreases due to age.

Here’s an example. The table above shows the portfolio of an investor where the higher the losses he suffered, the longer and more difficult it would take for him to contribute to the portfolio to recover the losses.

In the case of a 40% loss on a portfolio sum of RM5mil and based on RM500,000 annual contribution to the portfolio, it would take the investor four years to recover the loss.

This may be difficult to achieve if the investor no longer has the earning capacity to contribute to the portfolio, unless the portfolio earns a higher return the following year and yields the required RM300,000 return.

In addition, the required return now increases up to 10%. This may be difficult to execute as the investor, under the wealth preservation cycle, may not be in a position to take on more capital risk. More often than not, investors who experience this would end up having to downgrade their investment and life goals.

The wealth preservation strategy



Before adopting a wealth preservation strategy, an investor needs to assess or review his present investment portfolio to reflect his risk tolerance and long-term investment goals.

When an investor switches to a preservation mode, wealth protection becomes more important than growing wealth. The investor generally becomes conservative in assuming capital risk and is seeking regular income from his investment asset instead, although in some cases, the investor may still be looking for moderate growth in his investment.

As a rule of thumb, an investor should aim for a return volatility as well as a prospective return of no more than 10% per annum and this is because as mentioned, investors should not expose themselves to undue risk in their wealth preservation strategy.

To achieve this, the portfolio would be fixed-income biased, with fixed-income type investments comprising 75% to 100% of the portfolio. At the same time, growth type investments could consist of up to 25% of the portfolio. A sample of these investments is shown in the table above (right).

Wealth preservation strategy allows an investor to determine whether there is sufficient wealth to fulfil all of the investor’s life goals. For example, the investor needs to consider how much wealth is sufficient for his retirement or the amount of wealth that he wants to leave behind for his heirs.

After determining this, an investor would need to look into protecting and planning the distribution of his assets. Part of the wealth preservation strategy includes adopting life insurance to protect oneself and the family, and having a will or a trust, and a tax plan.

Trust in wealth preservation, for example, is important because it is a tool that could help protect assets from creditors or from a long-drawn court probate process when distributing the assets to heirs. The vehicle also ensures that the wealth is managed and distributed according to one’s wishes.

Another is to put in place a comprehensive tax plan as it could maximise tax saving and avoid it affecting the investor’s portfolio income. Without a proper tax planning structure in place, taxes could cause an investor's income level to be lower than anticipated.

One of the simplest ways is to keep fixed deposit amounts below RM100,000 as this could save the investor withholding tax on the interest. In addition, individuals investing in fixed income instruments could create a stream of tax-exempt income. The next article will cover tax-planning strategy for high net-worth individuals in greater detail.

In conclusion, every investor should know when and how to preserve and protect his wealth in order to achieve his investment objectives.

Reducing risk to investment capital, aiming for a reasonable level of returns that take into account inflation and investment objectives, protecting wealth through a trust and minimising taxes are all crucial elements to consider in preserving wealth.

Malaysia Sticks To 6% Growth Forecast For Economy

KUALA LUMPUR: Malaysia is sticking to its forecast of 6 percent growth for the economy this year and 6 to 6.5 percent next year.

Rising oil price help and hurt Malaysia. As a net exporter of crude oil, the country stands to gain 250 million ringgit (US$71 million; euro49 million) for every US$1 (euro0.7) rise in prices, said Second Finance Minister Nor Mohamed Yakcop.

At the same time, the government will have to pay higher subsidies for retail fuel.

But the net effect is a positive gain, he said.

"In the immediate term, there is no impact on our 2007 forecast of 6 percent,'' Nor Mohamed told reporters on Thursday.

He said he is confident that the 2008 growth target could also be achieved as the government had forecast a range of 6-6.5 percent to factor in uncertainties such as high oil prices.

Nor Mohamed declined to say if the government would raise controlled retail fuel prices if the oil rally continues.

Crude oil prices rose to a new record above US$96 a barrel Thursday.

Malaysia heavily subsidized fuel prices, which are among the lowest in Southeast Asia.

In the long run, Nor Mohamed said, the government is "somewhat concerned'' that sustained high oil prices could cause a downturn in developed countries and this could hurt Malaysia's trade-driven economy.

But he said the government has taken measures to boost domestic consumption and investment to ensure the country isn't overly dependent on exports.

Tourism and investment from the Middle East are also expected to help spur Malaysia's growth, he added. - AP

Tuesday, October 30, 2007

KLCI Shoots Past 1,400 Points

PETALING JAYA: The KL Composite Index (KLCI) yesterday crossed 1,400 points for the first time as plantation stocks led by IOI Corp Bhd and Kuala Lumpur Kepong Bhd soared after the crude palm oil price breached RM2,900 per tonne.

Other market heavyweights posted sharp gains on strong foreign interest, with Bursa Malaysia Bhd and Bumiputra-Commerce Holdings Bhd among the biggest advancers.

The KLCI surged 13.27 points, or nearly 1%, to 1,411.62 yesterday for the third consecutive day of double-digit gains and the fifth straight session of advances.

Total market turnover rose to 2.12 billion shares worth RM2.57bil, compared with last Friday's volume of 1.9 billion shares valued at RM2.2bil.

Shares in exchange operator Bursa Malaysia led gainers, advancing RM1.60 to a new high of RM16.30 amid expectations that rising trading volume would translate to higher income.

Dealers said local sentiment had been firming up over the past few days, fuelled by growing corporate earnings and improving outlook for the domestic economy.

The local bourse also benefited from rising stock prices across Asia, with the indices in South Korea, Hong Kong, Australia, Indonesia and India closing at record highs yesterday.

A bank-backed brokerage, in its weekly outlook yesterday, said the global equity outlook continued to remain upbeat despite soaring crude oil prices and lingering concerns over the health of the US economy.

Another brokerage, Inter-Pacific Research, sees an exciting week, with a steady flow of economic news hogging the headlines.

Analysts said the market broadly was expecting a further cut in borrowing costs at the US Federal Reserve's policy meeting tomorrow.

The US is also expected to release its third-quarter gross domestic product (GDP) data this week.

An interest rate cut would help boost the sagging US economy, which is facing a slump in the housing sector. Such a move would, however, weaken the dollar and stoke inflation in the world's biggest economy.

The greenback fell to a record low against the euro yesterday and continued to weaken against other currencies, including the ringgit.

Analysts said the weak dollar had contributed to rising crude oil and gold prices.

The Nymex crude oil breached US$93 per barrel for the first time in Asian trade yesterday, while spot gold hit US$793 an ounce – its highest since 1980.

Crude oil – which has surged 63% year-to-date – has fuelled demand for palm oil as an alternative fuel source.

The price of the country's main agricultural commodity export has risen almost 50% this year.

Saturday, October 27, 2007

KLCI Rallies To New High On Strong Earnings

By IZWAN IDRIS

PETALING JAYA: Shares on Bursa Malaysia rallied to a new high yesterday, fuelled by improved investor appetite for stocks amid a healthy outlook for corporate earnings and favourable domestic economic conditions.

Plantations companies IOI Corp Bhd and Kuala Lumpur Kepong Bhd advanced after the benchmark crude palm oil (CPO) futures contract hit RM2,800 a tonne for the first time.

Other top gainers included SP Setia Bhd and exchange operator Bursa Malaysia Bhd, partly on speculation that foreign funds were buying in as the appreciating ringgit raised the appeal of quality local companies.

The benchmark KL Composite Index rose 20.08 points, or 1.46%, to close at 1,398.35 yesterday.

“Some of the results announced by blue-chip companies during this reporting season were fantastic,'' MIDF Amanah Investment Bank analyst S. Sharath said.

Bursa, Public Bank Bhd and DiGi.com Bhd were among the top companies that reported strong profits for their most recent quarter. All three stocks were traded to record highs yesterday.

But heavyweight Tenaga Nasional Bhd (TNB) shares were down 20 sen at RM9.25, despite reporting on Thursday a big jump in earnings for the year ended Aug 30.

Most analysts, however, maintained their “buy'' call on the counter, largely due to the company's cheap valuation versus other big-cap stocks on the bourse.

TNB shares have fallen 15% year-to-date against the KLCI's 25% rise during the same period.

Shares in Hong Leong Bank Bhd also gained yesterday, putting on 35 sen to RM6.25, after the bank said it would take a stake in a small-sized commercial bank in China.

Rising share prices around the region also boosted local sentiment, despite record high crude oil prices and the sluggish performance of US stocks overnight.

All major regional indices were up except New Zealand and Vietnam's. South Korea's Kospi Index led the advances with a 2.6% gain.

In Hong Kong, the Hang Seng Index powered to a fresh high of 30,405 points, or up 1.8%.

The Nymex crude oil futures contract spiked up to above US$92 a barrel in Asian trade yesterday, ahead of the US session. In London, the Brent was above US$88 per barrel in early trading.

Service Charge, Management Fee, Trustee Fee and Fund Expenses (Unit Trust)

I've found out that many are still confused with charges and fees imposed in unit trust investment. To make it simple, service charges are directly related to investors while other fees are indirectly related. Why do I say so? This is because investors have the right to know how's the net income is calculated for a particular fund and what are the expenses involved.

Service charge of up to 6.5% of NAV per unit (equity and balanced) or 0.25% of NAV per unit (bond and money market) is applicable upon the purchase of units of the fund by investors [Initial Investment(II)]. (This include also during "Standing Instruction"(SI) / "Direct Debit Instruction"(DDI) / "Additional Investment" (AI).)

As for other fees imposed are subjected to the annual operating expenses involved in running a fund. These expenses are deducted from the gross income of the fund.

------------------------------------------------------------------------------------
Take for example:
Public Ittikal Fund (P ITTIKAL)
Annual Management Fee: 1.5% per annum of NAV
Annual Trustee Fee: 0.07% per annum of NAV (min RM18K, max RM600K)

Based on "Accountants' Report" in Master Prospectus of Public Series of Shariah-Based Funds expires on 29 April 2008 (pg. 128). Statement of Income and Expenditure for the years ended 31 May.

The investment income for the fund for year 2007 is RM240,515,000

The expenditure needed:
Trustee's fee = RM463,000
Management fee = RM22,261,000
Audit fee = RM6,000
Other expenses = RM396,000

Total expenditure accumulates to RM23,126,000

Net Income Before Taxation = Investment Income - Total Expenditure
RM240,515,000 - RM23,126,000 = RM217,389,000

Taxation amounted to RM6,729,000

Net Income After Taxation = RM217,389,000 - RM6,729,000 = RM210,660,000

From here we noticed that 9.62% of the investment income is deducted for expenditure and 2.8% of the investment income is deducted for taxation.

Based on the percentage deducted from the income achieved, I'm sure most doesn't bother much regarding the fees. This is due to the fact that in a business, everyone work for salary. For a small amount to pay for the profit we can make in return, in my opinion is well deserved.

------------------------------------------------------------------------------------

If anyone wants to know more about Public Mutual funds or anything related, don't hesitate to contact me.

Tuesday, October 23, 2007

12 Steps To Become A Millionaire

You don't have to own the company or be a CEO. Here's how to build a rich nest egg one paycheck at a time.

By Kiplinger's Personal Finance Magazine

A number of the people profiled in "Millionaires tell how they did it" made their millions as entrepreneurs. But working for the Man doesn't mean you have to be a wage slave or resort to buying lottery tickets to strike it rich. The trick is to maximize your income on the job (and know when to move on), make the most of your employee benefits and tax breaks and use that extra money to start investing.

1. Keep your eyes peeled for better ways to do your job. Streamline a procedure, shave costs, create a new profit center, become an expert on a specific topic, volunteer for a company committee -- anything that will make you stand out as a prime candidate for a promotion or a pay boost.

2. Don't be afraid to negotiate. In a study of master's degree graduates from her university, Carnegie Mellon economics professor Linda Babcock found that those who negotiated their first salary boosted their pay by 7.4% compared with those who didn't bargain.

3. Get your ducks in a row and your numbers on paper. If possible, quantify how much your efforts add to the company's bottom line. If that's not feasible, spotlight your value with comparable salaries for workers in your position from a Web site, such as Salary.com, or from a professional association.

4. Plot your strategy when it's time to move on. Create a professional-looking page on MySpace that tells prospective employers why you're an exceptional candidate, recommends John Challenger of the outplacement firm Challenger, Gray & Christmas. And don't neglect more conventional networking: Join a professional association or show up at school reunions toting business cards.

Milk your benefits
5. Contribute as much as you can to your 401(k) and other tax-deferred retirement plans. You'll not only build a bigger nest egg, but you'll also cut your tax bill. In the 25% federal tax bracket, every $1,000 you contribute to a 401(k) trims your taxes by $250. And you'll save on state income taxes, too.

6. Flex your tax-saving muscle. Contribute pretax dollars to a flexible spending account to pay for dependent care or out-of-pocket medical expenses. If you set aside $1,500 per year and you're in the 25% bracket, avoiding federal income and Social Security taxes means Uncle Sam will subsidize almost $500 of your expenses.

7. Review your tax withholding. If you're expecting a refund this spring, you're having too much tax withheld from your paycheck -- and making an interest-free loan to Uncle Sam. That's no way to become a millionaire. Put more money in your pocket by using Kiplinger's withholding calculator and then filling out a new Form W-4.

8. Stash savings in a Roth IRA if you're eligible. Withdrawals in retirement, including decades of compounded earnings, will be tax-free. This year, income-eligibility limits for a Roth increase to $114,000 for individuals and $166,000 for married couples.

Invest like crazy
9. Don't delay. The quicker you get a jump on putting money aside, the easier it will be to stuff a seven-figure cushion. If you start at age 25, for example, investing $286 per month will get you $1 million by age 65, assuming you earn 8% annually.

10. Invest automatically, either through your employer's retirement plan or by setting up a regular deposit to a mutual fund or broker. You'll never miss the money, and you'll avoid two big mistakes: buying too much when stock prices are high and not buying at all when prices fall.

11. Watch for fund fees. The more you pay, the tougher it is to earn an above-average return. The typical hedge fund, for example, takes 20% of any gains, a huge hurdle to overcome. A better bet: no-load mutual funds with expense ratios of 1% or less. If you trade individual stocks, watch those commissions.

12. Keep it simple. Be wary of get-rich-quick schemes or sales pitches for complex investments, such as oil-and-gas partnerships, that trade on the millionaire cachet to lure investors into buying high-fee products they don't understand. Most millionaire households accumulate their wealth over the long term by sticking to a regular investing plan in a balanced portfolio.

Published Feb. 27, 2007

Friday, October 19, 2007

China A Strong Buffer

CAPITAL TALK
By i Capital

The US subprime problem will not be catastrophic because central banks and monetary policy have become more sophisticated and anticipatory. Sources of US economic growth have also broadened due to the change in forces shaping the global economic structure. One of the most important forces is the rise of China

CHINA is now the world's fourth largest economy and is projected to overtake Germany as the third largest soon. China contributed 17% to the world’s gross domestic product (GDP) growth in the last five years as opposed to 16% from the US. The emergence of China has a significant impact on the world economy.

First, commodity prices have surged due to a large extent to China’s strong growth. Commodity-producing countries have benefited tremendously from the persistently high commodity prices. Second, the world economy had been experiencing low inflation rate despite the sustained strong global economic growth and high commodity prices in the past seven to eight years.

This in turn enabled central banks to maintain a low interest rate environment, which facilitated economic expansion. China’s huge and cheap manufacturing capacity played an important role in creating this favourable condition.

Third, China’s rapid economic growth has lifted her purchasing power tremendously. China is now the world’s third largest importer. This has made her an important destination for many countries’ exports, hence lifting the growth rates of these countries. China's rise has made the world’s economic structure more balanced. The US has dominated the world economy since World War Two, giving rise to the phrase “when the US economy sneezes, the world catches a cold”.

With China becoming a major source of world economic growth, the world need not worry so much that the global economy will collapse should the subprime problem cause the US economy to slow down sharply.

Although China is still unable to take the place of the US completely, the impact of a US slowdown will be significantly reduced. The last time the US economy fell into a recession in 2001, China’s economy expanded by 8.3% and the world economy expanded 2.5%.

Some people may argue that exports are playing an increasingly important role in China’s economy, and a slowdown in the US economy will affect China’s growth significantly, hence limiting her ability to support the world economy.

Well, from 2002 to 2006 when the Chinese economy expanded above 9%, with the exception of 2005 and 2006, net exports contributed less than 10% to China’s real GDP growth. Consumption and investment were the main growth contributors, accounting for 80% to 90% of overall GDP growth.

In addition, US’ share in China’s exports has been rather constant in the last six years, hovering around 21%. Exports to the US account for about 7.7% of China’s GDP. Hence, a 10% fall in China’s exports to the US would shed only 0.77 percentage point off China’s GDP growth.

In 2001, China’s exports to the US still managed to grow 4.2% although the rate of growth was substantially slower than the 24.2% increase in 2000. Therefore, a substantial slowdown in the US economic growth is not expected to have a major impact on China’s economic growth.

While a number of Chinese banks have some exposure to the US subprime market, losses are expected to be small; hence, no material impact is expected on the economy. With China’s surging inflationary pressure, investors are also worried that the People’s Bank of China (PBC) will tighten monetary policy so aggressively that China’s economy will hard land.

i Capital thinks chances of this happening are almost zero. First, the inflationary pressure came mainly from food, whereby supply was affected by bad weather conditions and a disease outbreak.

In the first half of 2007, the core inflation rate, which excluded food and energy prices, stood at a mere 0.9%. Hence, the PBC is unlikely to raise interest rates aggressively in response to this temporary spike in inflationary pressure.

Second, while China’s stock market is still in a frothy state, the Chinese government is more likely to introduce direct measures to deal with the condition rather than implement indirect measures, such as an aggressive interest rate hike.

Third, 2007 and 2008 are very important years for China. The 17th National Congress of the Communist Party of China will be held next month. This is a very important meeting as new leaders will be elected to lead the country for the next five years. Hence, party leaders cannot afford to let the economy tank.

China will host the Olympics in 2008, a highly important event to boost her international standing. It is unlikely the Chinese government will let her economy slow down so much that social stability will be undermined.

Hence, taking all factors into consideration, as the subprime problem continues to unfold, i Capital believes that China will be able to play the stabiliser role she had played so well during the Great Asian Crisis. The world economy will still be able to grow reasonably well in the face of a sharp US economic slowdown.

Thursday, October 11, 2007

An Inspiration To All

FROM BAIKONUR
By JANE RITIKOS

BAIKONUR (Kazakhstan): Dr Sheikh Muszaphar Shukor’s childhood dream came true when he blasted off into space, but his hope, before leaving Earth, was that he would be just the first of many more Malaysian Angkasawan to come.

“I’ve dreamt of this since I was 10 years old, and now I am living the dream of all Malaysians,” he said, just hours before launching into space at 9.22pm (Malaysian time) yesterday.

The dashing cosmonaut hopes his “impossible dream”, once it comes true, will make young boys and girls believe they can reach for the stars.

“I want to inspire them as the first Malaysian in space, just like Yuri Gagarin (the first man in space) and Neil Armstrong (first man on the moon) still inspire many today.

“I hope to make them believe in their capabilities and get them interested in science, mathematics and engineering.

“Hopefully after me, there will be more Angkasawan in the future,” he said.


Dr Sheikh Muszaphar smiling from inside the spacecraft minutes after the launch on Wednesday.

The orthopaedic surgeon, however, admits he expected to be the chosen one.

“To be honest I was not really surprised because I worked hard, was focused and motivated. I sacrificed everything – my life, surgery, business, my loved ones and modelling,” he said.

Dr Sheikh Muszaphar, however, believes that his trip to space is secondary to what he will learn and bring back from the experience.

“More important is what I can contribute to Malaysia, such as the technologies I learned from Russia that I hope to share with our scientists.

“I hope Malaysia will rally to enter a new era and one day, we’ll have our own space rocket and become a leader in the aerospace arena,” he said.

On a personal level, he looks forward to the life-changing experience in space, including gaining new spiritual experience in the skies.

“I want to share my experience of fasting and praying in space with Malaysians and all Muslims. I think space will change my life perception,” he said.

Fully trained and prepared, Dr Sheikh Muszaphar was calm and ready the night before his big day.

He spent his time reading the Quran and conducting sembahyang hajat, and calling his family and loved one.

He wants to succeed in his mission so as not to let down the scientists who had spent three years preparing for the experiments he will conduct.

Thursday, October 4, 2007

Customising Portfolio Of Investment

Today's article explains the importance of having an investment plan and ways to devise an appropriate investment portfolio

EVERY investor aspires to earn the highest possible returns but this approach often ignores the need for an investor to first accept the volatility risk that comes with earning high returns.

It is best for investors, before making an investment, to ask themselves how much volatility they are able to withstand and work backwards to obtain a reasonable level of expected returns based on their risk appetite. If investors want higher returns, they should be prepared to take on greater volatility risk.

To better manage their expectations, investors first need to understand their behaviour towards volatility. This can be achieved by answering the following questions: the extent of losses one can bear in the short term before an investment earns a return; the time one has to stay invested; the need for the investment to provide immediate liquidity; familiarity with the investment and financial markets; available time for managing and learning about investments; and the expectations on returns.

Why is this important? Understanding oneself is a prerequisite to devising a personal investment plan and portfolio. Having a customised investment plan keeps the end objective of investing in focus.

It also helps counter pressure to go after what is hot in the market and avoid panic when markets suddenly turn downwards.

Aligning investment plans to risk profile

An investor can be generally classified into one of three risk behaviour profiles: aggressive, balanced and conservative.

An aggressive investor generally has the highest tolerance of volatility. He would, therefore, be comfortable staying invested in an instrument that may be making losses in the short term, but which could perform well in the longer run.

A conservative investor prefers minimal or no exposure to volatility and would be uncomfortable with short-term negative returns.



The profile of a balanced investor is between that of an aggressive and a conservative.

Once an investor has ascertained his risk behaviour profile, he can determine how much to invest in equities and fixed income or capital protected type of investments by adopting the “Strategic Asset Allocation” strategy. This tool forms the basis of allocating assets based on an investor’s risk profile independent of market condition (See Table 1).

An investor can maximise returns in the short to medium term by varying the allocation to each asset class, depending on the equity market environment. This can be done using the “Tactical Asset Allocation” strategy as shown in Table 2.

As the strategy requires active management of the portfolio, a great deal of insight and conjecture about the economy, financial markets and investments, investors are advised to work with financial advisers.

The next step is to select investment products in each asset class with attention to understanding the respective return, volatility and correlation profile with other investments.

As covered in the previous article, a superior portfolio is one that maximises return for a given level of volatility risk. That involves diversifying into various investments that have low or negative correlation to one another. Table 3 shows the various types of investments classified into different categories.

Given the current uncertain outlook for equities, investors should focus on investments that have less volatility in returns and low correlation to equity returns.

Examples of the former include fixed-income securities, under-researched growth stocks and structured products. And for the latter, commodities and foreign exchange.

Rebalancing portfolio



The final but often neglected or forgotten part to investing is to periodically re-balance the investment portfolio. Re-balancing involves buying and selling investments in the portfolio to bring the asset allocation for each asset class back to either the Strategic or the Tactical level.

Re-balancing automatically results in cutting back on performing investments and adding to under-performing investments, provided the case for investing in the latter is still valid.

Investing should involve proper planning, knowing one’s behaviour towards volatility and understanding the reasons for changes made in portfolio, because failure to do so could lead to unfulfilled expectation on investing.

Source: TheStar October 4, 2007