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.
Tuesday, November 6, 2007
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.
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."
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.
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”.
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.
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
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
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