TheEdge
KUALA LUMPUR: The worst of the current economic crisis may be over in 2010 but asset managers have not ruled out further upheavals within the next decade.
According to a survey on 225 asset managers in 30 countries carried out by Principal Global Investors, most respondents do not rule out more systemic crises in the next decade. It said the scale of recent economic stimulus in G20 countries was expected to stoke inflation.
“We are not completely out of the credit crunch yet. Getting credit going is the key initiative for central banks for the next year. They have been flooding the market with liquidity in hope of getting credit moving again.
“But a lot of times, this is just simply liquidity. It is not generating new credit. And there is recognition that credit is a necessary evil in the economy,” COO of Principal Global Investors Barbara McKenzie said at a CIMB Principal Asset Management Bhd media briefing yesterday.
She added that until the market could get back on its feet again, it would continue to need access to credit and thus more government aid.
NEW CREDIT NEEDED TO FUEL ECONOMY... Markets need access to credit until they get back on their feet again, says Principal Global Investors COO Barbara McKenzie (right) at CIMB-Principal Asset Management Bhd media briefing in Kuala Lumpur yesterday. Also present were CIMB-Principal Asset Management chief executive Datuk Noripah Kamso (left) and Principal Global Investors (S) Ltd MD for Asia ex Japan Kirk West. Photo by Suhaimi Yusuf
The survey also found that 45% of its respondents did not expect the worst of the crisis to be over till the first half of next year while 25% expected it to be even later.
The 225 asset managers and pension funds surveyed were responsible for collective assets worth US$18.2 trillion (RM63.9 trillion) as at April 2009.
“We are now primarily driven by retail industries locally, significant fiscal stimulus and low interest rates. All these will naturally fade.
“However, the stimulus will eventually have to be removed and the key timing to withdraw this stimulus and how it is removed are important to consider as we are juggling between growth and potential inflation.
“But that will be in the second half of 2010,” Principal Global Investors (S) Ltd managing director for Asia ex Japan, Kirk West said.
On the survey findings, West added that although it was carried out during “the eye of the storm”, the results could be used to study investor behaviour moving forward.
“People have lost confidence in a lot of the longer-term growth assets. The whole concept of equity risk premium has made people feel uncomfortable. They will now be looking at increased liquidity.
“Several things eroded investor confidence during the crisis, especially the fact that diversification of assets hasn’t worked in the short term because of deleveraging. Going forward, however, we still believe in diversification,” said West.
He added that asset managers also expected further regulatory pressures to intensify over the next three years which may result in fee compression.
Consequently, West said a majority of firms had shown a significant revenue decline of 35%.
“One of the key issues we’ve seen in the last 12 months is compensation within the finance industry. We expect one outcome will be greater alignment in terms of compensation. So, maybe people will have lower fixed compensation, and a higher component of variable compensation and this will be more aligned with the performance of the underlying funds,” he said.
McKenzie said there was already a movement of money away from some of the traditional hedge funds centre that had light regulations to other offshore jurisdictions with higher regulatory standard as investors started understanding a need for greater regulation post crisis.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Wednesday, August 26, 2009
Monday, August 24, 2009
Fund managers cut exposure on China
TheEdge
KUALA LUMPUR: Fund managers have recently shifted their investment focus to Europe, the Middle East and Africa (EMEA) away from Asia, especially China, according to one Bank of America Merill Lynch (BOA-ML) survey.
It said based on its August survey, there was a "big rotation" to EMEA and away from Asia.
In a statement last Thursday, the bank said the main driver of this investment pattern was the "switching" to Russia and out of China, which saw its stock market entering bear territory last week, having plunged over 20% from the year’s peak.
A total of 204 fund managers, managing a total of US$554 billion (RM1.95 trillion), participated in the global survey from Aug 7-12. A total of 177 managers, armed with US$370 billion, participated in the regional surveys.
BOA-ML noted that in two years, China saw the lowest number of overweight positions by fund managers while South Korea got its first overweight call.
It added that investors had also sharply cut exposure to Chinese equities to "neutral".
The survey also showed more investors were becoming less optimistic in August on China economic growth compared to June while optimism on European growth prospects surged in August.
The most favoured global emerging market (GEM) markets are growth or liquidity plays such as Russia, Turkey, and Indonesia while the least favoured are the defensive markets such as Chile and Malaysia.
On specific sectors, BOA-ML said "consumer discretionary" and financials were the only sectors tagged with overweight calls.
"Most unloved sectors in GEM portfolios are utilities and healthcare," it said, adding that TECHNOLOGY [] stocks were the strongest engines behind the early recovery of GEM markets.
BOA-ML said globally, technology too remained the number one sector, with 28% of the global panel putting an overweight stance on the industry.
The bank said investors within GEM were positive about banks with a net 17% of fund managers in the regional survey overweight on bank stocks. It said 60% of the fund managers believed global corporate earnings could rise by over 10% over the next 12 months. Interestingly, it added, balance sheet repair was becoming less of a concern to investors.
Meanwhile, on the local front, fund managers like HwangDBS Investment Management Bhd is also bullish on finance stocks.
Its head of equities Gan Eng Peng told The Edge Financial Daily that the finance sector offered one of the best exposures to the economic recovery story.
Gan said despite a recent increase in volatility within the financial sector, valuations remained attractive over the next one to three years.
"Even at current valuations, the global financial sector represents a window of opportunity which has not been open for the last 10 to 20 years," he added.
Gan said as for the PLANTATION [] sector, shares of large-cap plantation companies in Malaysia had hardly corrected and their valuations remained too high.
"We think investors can get much better value and faster returns in the Indonesian names listed in Singapore," he added.
Gan said it also remained positive on the CONSTRUCTION [] sector, as it had performed relatively well in the current market rebound.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
KUALA LUMPUR: Fund managers have recently shifted their investment focus to Europe, the Middle East and Africa (EMEA) away from Asia, especially China, according to one Bank of America Merill Lynch (BOA-ML) survey.
It said based on its August survey, there was a "big rotation" to EMEA and away from Asia.
In a statement last Thursday, the bank said the main driver of this investment pattern was the "switching" to Russia and out of China, which saw its stock market entering bear territory last week, having plunged over 20% from the year’s peak.
A total of 204 fund managers, managing a total of US$554 billion (RM1.95 trillion), participated in the global survey from Aug 7-12. A total of 177 managers, armed with US$370 billion, participated in the regional surveys.
BOA-ML noted that in two years, China saw the lowest number of overweight positions by fund managers while South Korea got its first overweight call.
It added that investors had also sharply cut exposure to Chinese equities to "neutral".
The survey also showed more investors were becoming less optimistic in August on China economic growth compared to June while optimism on European growth prospects surged in August.
The most favoured global emerging market (GEM) markets are growth or liquidity plays such as Russia, Turkey, and Indonesia while the least favoured are the defensive markets such as Chile and Malaysia.
On specific sectors, BOA-ML said "consumer discretionary" and financials were the only sectors tagged with overweight calls.
"Most unloved sectors in GEM portfolios are utilities and healthcare," it said, adding that TECHNOLOGY [] stocks were the strongest engines behind the early recovery of GEM markets.
BOA-ML said globally, technology too remained the number one sector, with 28% of the global panel putting an overweight stance on the industry.
The bank said investors within GEM were positive about banks with a net 17% of fund managers in the regional survey overweight on bank stocks. It said 60% of the fund managers believed global corporate earnings could rise by over 10% over the next 12 months. Interestingly, it added, balance sheet repair was becoming less of a concern to investors.
Meanwhile, on the local front, fund managers like HwangDBS Investment Management Bhd is also bullish on finance stocks.
Its head of equities Gan Eng Peng told The Edge Financial Daily that the finance sector offered one of the best exposures to the economic recovery story.
Gan said despite a recent increase in volatility within the financial sector, valuations remained attractive over the next one to three years.
"Even at current valuations, the global financial sector represents a window of opportunity which has not been open for the last 10 to 20 years," he added.
Gan said as for the PLANTATION [] sector, shares of large-cap plantation companies in Malaysia had hardly corrected and their valuations remained too high.
"We think investors can get much better value and faster returns in the Indonesian names listed in Singapore," he added.
Gan said it also remained positive on the CONSTRUCTION [] sector, as it had performed relatively well in the current market rebound.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Thursday, March 19, 2009
EPF returns on the slide
TheStar
Difficult to sustain payouts above 5% in coming years
PETALING JAYA: Employees Provident Fund (EPF) contributors may have to be contented with lower returns in the coming years as the country’s biggest pension fund struggles to boost income amid steep falls in interest rates and a weak equity market.
Analysts said given the pension fund’s size and strict mandate, it would be very difficult to sustain payouts of above 5% in the coming years.
The 4.5% dividend declared for 2008 on Monday was generally well received, despite coming in lower than the 5.8% in 2007.
There were calls for a review from various parties demanding a higher payout, but some quarters said the pension fund had done well in safeguarding the nation’s retirement savings amid the current economic crisis.
The question now is how will EPF fare in 2009 and beyond?
Already the fund has warned that this year’s payout would be less than that for 2008.
Weak equity markets will continue to hurt EPF in the near term, but in the longer term, the fund’s performance will also be determined by the returns it gets from investing in low-risk assets such as government bonds.
The EPF had allocated a quarter of its RM342bil investment funds for higher yielding government papers. But as these higher yielding notes expire, the fund must purchase new issues which will now come with lower returns.
Malaysian Government Securities (MGS) debt papers maturing in three and five years are currently yielding less than 4% at today’s prices.
In comparison, MGS five-year notes yielded more than 5% a decade ago and above 7% during the 1997/98 Asian financial crisis.
Another big chunk of EPF holdings is in highly rated corporate bonds and low-risk guaranteed loans.
However, the global economic turmoil has cut the supply of new bonds coming into the market.
Cheaper lending rates had also reduced interest income from loans given out.
Investment in bonds and loans made up 40% of EPF’s total investments as at the end of last year.
Dwindling yields from these asset classes have been a drag on EPF’s income for the past couple of years.
That the EPF was able to fork out steady dividends of above 5% between 2004 and 2007 was mainly due to gains from investments in equities.
The collapse in global equities last year, however, had eroded the value of EPF’s shareholdings, forcing it to make a provision of RM4.69bil to account for the lower value of its shares, both domestically and abroad.
The KL Composite Index fell 40% in 2008 and was down 3.3% so far this year at yesterday’s closing of 847.96 points.
Also, the economic slowdown has dragged down corporate profits. This, in turn, has impaired their ability to pay out dividends to shareholders, further reducing the return on investments for EPF.
The EPF has stakes in more than 100 companies listed on Bursa Malaysia, as well as smaller stakes in a number of big listed firms overseas.
Income from equities accounted for 35%, or RM6.67bil, of EPF’s total gross investment income last year.
Just how bad EPF’s dividend payouts will be affected by the current market situation remains to be seen.
It is worth noting that under the law, EPF has to maintain a dividend rate of at least 2.5% annually. The dividend must come from income generated from its investments.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Difficult to sustain payouts above 5% in coming years
PETALING JAYA: Employees Provident Fund (EPF) contributors may have to be contented with lower returns in the coming years as the country’s biggest pension fund struggles to boost income amid steep falls in interest rates and a weak equity market.
Analysts said given the pension fund’s size and strict mandate, it would be very difficult to sustain payouts of above 5% in the coming years.
The 4.5% dividend declared for 2008 on Monday was generally well received, despite coming in lower than the 5.8% in 2007.
There were calls for a review from various parties demanding a higher payout, but some quarters said the pension fund had done well in safeguarding the nation’s retirement savings amid the current economic crisis.
The question now is how will EPF fare in 2009 and beyond?
Already the fund has warned that this year’s payout would be less than that for 2008.
Weak equity markets will continue to hurt EPF in the near term, but in the longer term, the fund’s performance will also be determined by the returns it gets from investing in low-risk assets such as government bonds.
The EPF had allocated a quarter of its RM342bil investment funds for higher yielding government papers. But as these higher yielding notes expire, the fund must purchase new issues which will now come with lower returns.
Malaysian Government Securities (MGS) debt papers maturing in three and five years are currently yielding less than 4% at today’s prices.
In comparison, MGS five-year notes yielded more than 5% a decade ago and above 7% during the 1997/98 Asian financial crisis.
Another big chunk of EPF holdings is in highly rated corporate bonds and low-risk guaranteed loans.
However, the global economic turmoil has cut the supply of new bonds coming into the market.
Cheaper lending rates had also reduced interest income from loans given out.
Investment in bonds and loans made up 40% of EPF’s total investments as at the end of last year.
Dwindling yields from these asset classes have been a drag on EPF’s income for the past couple of years.
That the EPF was able to fork out steady dividends of above 5% between 2004 and 2007 was mainly due to gains from investments in equities.
The collapse in global equities last year, however, had eroded the value of EPF’s shareholdings, forcing it to make a provision of RM4.69bil to account for the lower value of its shares, both domestically and abroad.
The KL Composite Index fell 40% in 2008 and was down 3.3% so far this year at yesterday’s closing of 847.96 points.
Also, the economic slowdown has dragged down corporate profits. This, in turn, has impaired their ability to pay out dividends to shareholders, further reducing the return on investments for EPF.
The EPF has stakes in more than 100 companies listed on Bursa Malaysia, as well as smaller stakes in a number of big listed firms overseas.
Income from equities accounted for 35%, or RM6.67bil, of EPF’s total gross investment income last year.
Just how bad EPF’s dividend payouts will be affected by the current market situation remains to be seen.
It is worth noting that under the law, EPF has to maintain a dividend rate of at least 2.5% annually. The dividend must come from income generated from its investments.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Islamic funds’ asset growth likely to slow
TheStar
But long-term recovery is certain, says KFH
KUALA LUMPUR: The rate of asset growth of funds in Islamic financial institutions this year is expected to be slower than in 2008, says Kuwait Finance House (M) Bhd managing director Datuk K. Salman Younis.
He said this was due to the prevailing global economic downturn but added that long-term recovery was certain.
“We believe asset growth of Islamic funds will be back to its strong level once the global economy improves,” he said at the Dow Jones Islamic Market Indexes media briefing yesterday.
Salman said there was huge potential for Malaysia to be the leading Islamic financial hub in the region and for Islamic financing to be the country’s key pillar of growth.
According to The Banker, a global financing intelligence magazine, the top 500 Islamic financial institutions charted a 27.6% asset growth to US$639.1bil in 2008 compared with US$500.1bil the previous year.
The major contributors to asset growth for Islamic funds are Gulf Cooperation Council (GCC) countries (US$262.7bil); Asia (US$67.1bil), led by Malaysia; Australia/Europe/the United States (US$35.3bil); and non-GCC Middle East countries, Middle East and North Africa (US$248.3bil).
PricewaterhouseCoopers Taxation Services Sdn Bhd senior executive director (Islamic financial services practice) Jennifer Chang concurred with Salman’s view on Malaysia’s potential as the region’s Islamic financial hub.
For instance, she said, Malaysia’s takaful industry had doubled in asset size over the last five years and its penetration rate was expected to reach 20% by 2010, compared with 6.5% currently.
She added that Malaysia was the largest player with 20% share of the global takaful business worth US$4bil.
Chang also said that as at end-November 2008, there were 149 Islamic funds domicled and managed in Malaysia, compared with 131 in Saudi Arabia.
“This is despite Malaysia’s total Islamic assets under management being only US$4.64bil, compared with Saudi Arabia at US$13.9bil for the period under review,” she said.
As at April 2008, the total Islamic assets under management worldwide is believed to be US$33.9bil.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
But long-term recovery is certain, says KFH
KUALA LUMPUR: The rate of asset growth of funds in Islamic financial institutions this year is expected to be slower than in 2008, says Kuwait Finance House (M) Bhd managing director Datuk K. Salman Younis.
He said this was due to the prevailing global economic downturn but added that long-term recovery was certain.
“We believe asset growth of Islamic funds will be back to its strong level once the global economy improves,” he said at the Dow Jones Islamic Market Indexes media briefing yesterday.
Salman said there was huge potential for Malaysia to be the leading Islamic financial hub in the region and for Islamic financing to be the country’s key pillar of growth.
According to The Banker, a global financing intelligence magazine, the top 500 Islamic financial institutions charted a 27.6% asset growth to US$639.1bil in 2008 compared with US$500.1bil the previous year.
The major contributors to asset growth for Islamic funds are Gulf Cooperation Council (GCC) countries (US$262.7bil); Asia (US$67.1bil), led by Malaysia; Australia/Europe/the United States (US$35.3bil); and non-GCC Middle East countries, Middle East and North Africa (US$248.3bil).
PricewaterhouseCoopers Taxation Services Sdn Bhd senior executive director (Islamic financial services practice) Jennifer Chang concurred with Salman’s view on Malaysia’s potential as the region’s Islamic financial hub.
For instance, she said, Malaysia’s takaful industry had doubled in asset size over the last five years and its penetration rate was expected to reach 20% by 2010, compared with 6.5% currently.
She added that Malaysia was the largest player with 20% share of the global takaful business worth US$4bil.
Chang also said that as at end-November 2008, there were 149 Islamic funds domicled and managed in Malaysia, compared with 131 in Saudi Arabia.
“This is despite Malaysia’s total Islamic assets under management being only US$4.64bil, compared with Saudi Arabia at US$13.9bil for the period under review,” she said.
As at April 2008, the total Islamic assets under management worldwide is believed to be US$33.9bil.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Monday, February 2, 2009
Fund managers see muted recovery
TheStar
INVESTORS today are presented with attractive opportunities as considerable value has emerged from the downward spiral in asset values.
Many fund managers think the worst would soon be over and the markets on their way to recovery although it may be fairly muted given the severity of the losses incurred globally.
HwangDBS Investment Management Bhd chief executive officer and executive director Teng Chee Wai notes that investors may start investing again as they digest the bleak economic data in the first quarter of 2009.
“In fact, some investors have already been taking advantage of the lacklustre market to invest in equities that are now trading at relatively attractive prices,” he adds.
In 2008, every asset class – equities, bonds, commodities and properties went through a downward spiral.
Singapore’s Straits Times Index, Hong Kong’s Hang Seng and Japan’s Nikkei 225 plunged by more than 40% while crude oil was down 55% last year.
Dragged down by the equities markets, the net asset value (NAV) of the unit trust industry has dropped from RM169bil at end-2007 to RM135bil at end- November 2008. However, the 20% drop in NAV is relatively lower compared with the decline in the commodity and stock market indices.
“This is attributed to the nature of unit trusts – a collective investment scheme with reduced risks due to a diversified portfolio spread across securities, asset classes, managers and countries,” says Federation of Malaysian Unit Trust Managers (FMUTM) president Tunku Datuk Ya’acob Tunku Abdullah.
While volatility and poor economic conditions may persist in the near term, he says a well-diversified portfolio in a unit trust fund will be able to reduce risks and provide better cushion against market fluctuations.
Other industry experts observe that the general investor sentiment towards unit trusts, especially equity-based ones, will continue to be negative this year due to the crisis.
That is also due to the fact that many investors would be tightening their disposal or investible income in anticipation of a sharp economic slowdown.
However, they note that Malaysia’s banking system is still flushed with liquidity and hence, there would be appetite for investment products.
“Moreover, investors may be willing to consider investment products as we enter a phase of low interest rate environment,” HLG Unit Trust Bhd acting chief executive officer and executive director Teo Chang Seng said.
As such, the industry is expected to see more capital-protected funds being launched this year along with other low-risk fixed income products.
“In challenging times, many investors resort to the common notion that cash is king. They are also more concerned about capital preservation instead of potential yield,” says CIMB-Principal Asset Management Bhd chief executive officer J. Campbell Tupling.
Teng of HwangDBS notes that while the performance of some of its equity-based funds has been affected, its cash and money market funds have shown positive growth, year-on-year.
In view of the falling markets last year, most fund managers reported lower overall total sales and significant decrease in fund management fees as NAV of equity funds, whether local or global, declined considerably.
But on a positive note, redemptions were also considerably lower than in previous years, which is a good sign that investors are holding on rather than making panic sales.
The industry, which expects a rather quiet period this year, is stepping up its housekeeping efforts to improve internal and external efficiencies as well as enhance its delivery system.
For example, Pacific Mutual Fund Bhd is upgrading its administration and customer interface systems to achieve better connection and communication with its direct and third-party customers.
At the same time, HwangDBS is focusing on staff development and rewards to improve investors’ experience and after-sales service.
CIMB Wealth Advisors Bhd chief executive officer Tan Beng Wah says the company will continue with its plans to expand its agency force.
“At the end of 2008, we had close to 7,000 agents. We are targeting to recruit 2,500 agents this year,” he says.
According to FMUTM, it has not seen any significant number of unit trust consultants exiting the industry last year.
“For the year, it was less than 10%, which is much better than in any agency-related industry. The consultants are in for the long haul as they understand the recent market volatility is temporary,” says Ya’acob.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
INVESTORS today are presented with attractive opportunities as considerable value has emerged from the downward spiral in asset values.
Many fund managers think the worst would soon be over and the markets on their way to recovery although it may be fairly muted given the severity of the losses incurred globally.
HwangDBS Investment Management Bhd chief executive officer and executive director Teng Chee Wai notes that investors may start investing again as they digest the bleak economic data in the first quarter of 2009.
“In fact, some investors have already been taking advantage of the lacklustre market to invest in equities that are now trading at relatively attractive prices,” he adds.
In 2008, every asset class – equities, bonds, commodities and properties went through a downward spiral.
Singapore’s Straits Times Index, Hong Kong’s Hang Seng and Japan’s Nikkei 225 plunged by more than 40% while crude oil was down 55% last year.
Dragged down by the equities markets, the net asset value (NAV) of the unit trust industry has dropped from RM169bil at end-2007 to RM135bil at end- November 2008. However, the 20% drop in NAV is relatively lower compared with the decline in the commodity and stock market indices.
“This is attributed to the nature of unit trusts – a collective investment scheme with reduced risks due to a diversified portfolio spread across securities, asset classes, managers and countries,” says Federation of Malaysian Unit Trust Managers (FMUTM) president Tunku Datuk Ya’acob Tunku Abdullah.
While volatility and poor economic conditions may persist in the near term, he says a well-diversified portfolio in a unit trust fund will be able to reduce risks and provide better cushion against market fluctuations.
Other industry experts observe that the general investor sentiment towards unit trusts, especially equity-based ones, will continue to be negative this year due to the crisis.
That is also due to the fact that many investors would be tightening their disposal or investible income in anticipation of a sharp economic slowdown.
However, they note that Malaysia’s banking system is still flushed with liquidity and hence, there would be appetite for investment products.
“Moreover, investors may be willing to consider investment products as we enter a phase of low interest rate environment,” HLG Unit Trust Bhd acting chief executive officer and executive director Teo Chang Seng said.
As such, the industry is expected to see more capital-protected funds being launched this year along with other low-risk fixed income products.
“In challenging times, many investors resort to the common notion that cash is king. They are also more concerned about capital preservation instead of potential yield,” says CIMB-Principal Asset Management Bhd chief executive officer J. Campbell Tupling.
Teng of HwangDBS notes that while the performance of some of its equity-based funds has been affected, its cash and money market funds have shown positive growth, year-on-year.
In view of the falling markets last year, most fund managers reported lower overall total sales and significant decrease in fund management fees as NAV of equity funds, whether local or global, declined considerably.
But on a positive note, redemptions were also considerably lower than in previous years, which is a good sign that investors are holding on rather than making panic sales.
The industry, which expects a rather quiet period this year, is stepping up its housekeeping efforts to improve internal and external efficiencies as well as enhance its delivery system.
For example, Pacific Mutual Fund Bhd is upgrading its administration and customer interface systems to achieve better connection and communication with its direct and third-party customers.
At the same time, HwangDBS is focusing on staff development and rewards to improve investors’ experience and after-sales service.
CIMB Wealth Advisors Bhd chief executive officer Tan Beng Wah says the company will continue with its plans to expand its agency force.
“At the end of 2008, we had close to 7,000 agents. We are targeting to recruit 2,500 agents this year,” he says.
According to FMUTM, it has not seen any significant number of unit trust consultants exiting the industry last year.
“For the year, it was less than 10%, which is much better than in any agency-related industry. The consultants are in for the long haul as they understand the recent market volatility is temporary,” says Ya’acob.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Thursday, January 15, 2009
Global fund managers sees recovery this year: Survey
BusinessTimes
GLOBAL fund managers are optimistic that markets in most regions will begin to recover this year, according to a survey by consulting firm Watson Wyatt.
The fund managers, who collectively have assets under management of over US$10 trillion (US$1 = RM3.57), indicate that the period of recovery in most markets will be protracted.
They believe that the influence of hedge funds and investment banks will decline significantly while that of pension and sovereign funds will rise.
The respondents also expect to see their institutional clients opting for more conservative investment strategies as well as prioritising greater risk control.
"The views expressed by this influential group give us some valuable insights and should inform how, why and when key investment decisions are made," Carl Hess, Watson Wyatt global head of investment consulting, said in a press statement released in Washington.
According to the survey, which was conducted at the end of 2008, managers have overall bullish views of returns on public equities, investment grade bonds, high yield bonds and emerging markets over the next five years.
However, they hold fairly bearish views of returns on hedge funds, government bonds, money market and real estate during the same period. They remain generally neutral on private equities and currencies.
On equities, respondents expect stock markets to revert to historical return levels by 2012, while projections about returns in 2009 vary significantly by region.
According to the median view of respondents, the anticipated returns on global equities in 2009 is 6.7 per cent, with the US, the UK, eurozone, Australian, Japanese and other Asian equity markets are expected to deliver 8.8 per cent, five per cent, 5.5 per cent, eight per cent, 5 per cent and 10 per cent, respectively.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
GLOBAL fund managers are optimistic that markets in most regions will begin to recover this year, according to a survey by consulting firm Watson Wyatt.
The fund managers, who collectively have assets under management of over US$10 trillion (US$1 = RM3.57), indicate that the period of recovery in most markets will be protracted.
They believe that the influence of hedge funds and investment banks will decline significantly while that of pension and sovereign funds will rise.
The respondents also expect to see their institutional clients opting for more conservative investment strategies as well as prioritising greater risk control.
"The views expressed by this influential group give us some valuable insights and should inform how, why and when key investment decisions are made," Carl Hess, Watson Wyatt global head of investment consulting, said in a press statement released in Washington.
According to the survey, which was conducted at the end of 2008, managers have overall bullish views of returns on public equities, investment grade bonds, high yield bonds and emerging markets over the next five years.
However, they hold fairly bearish views of returns on hedge funds, government bonds, money market and real estate during the same period. They remain generally neutral on private equities and currencies.
On equities, respondents expect stock markets to revert to historical return levels by 2012, while projections about returns in 2009 vary significantly by region.
According to the median view of respondents, the anticipated returns on global equities in 2009 is 6.7 per cent, with the US, the UK, eurozone, Australian, Japanese and other Asian equity markets are expected to deliver 8.8 per cent, five per cent, 5.5 per cent, eight per cent, 5 per cent and 10 per cent, respectively.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Tuesday, January 13, 2009
Crisis offsets Islamic fund management 2008 gains
TheEdge
LONDON: Market volatility wiped out all the asset gains made by the Islamic fund management industry in the year to September 2008, research and data provider Cerulli Associates said on Wednesday.
Islamic or syariah-compliant funds posted an 8% increase in the year to September 2008, due to new investments and returns on assets, Cerulli said. But assets were likely to have fallen to 2007 levels or even further by the end of last year, its report based on a sample of global asset managers said.
Syariah-compliant fund managers had assets of US$65 billion (RM227.5 billion) at the end of the third quarter 2008, including assets managed via discretionary mandates for institutions and high net-worth individuals and mutual funds.
The Boston-based company said Islamic-compliant equity investments performed like their conventional counterparts, while sukuk or Islamic bonds remained “rare” due to the illiquidity and scarcity of the underlying securities.
Once markets stabilised this industry could potentially expand at a rate of above 10% a year, driven by the large amount of Islamic bank deposits and increased regulatory support from governments, the report said.
Islamic mutual funds alone accounted for US$35 billion — up from US$23.2 billion gathered in 2005. — Reuters
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
LONDON: Market volatility wiped out all the asset gains made by the Islamic fund management industry in the year to September 2008, research and data provider Cerulli Associates said on Wednesday.
Islamic or syariah-compliant funds posted an 8% increase in the year to September 2008, due to new investments and returns on assets, Cerulli said. But assets were likely to have fallen to 2007 levels or even further by the end of last year, its report based on a sample of global asset managers said.
Syariah-compliant fund managers had assets of US$65 billion (RM227.5 billion) at the end of the third quarter 2008, including assets managed via discretionary mandates for institutions and high net-worth individuals and mutual funds.
The Boston-based company said Islamic-compliant equity investments performed like their conventional counterparts, while sukuk or Islamic bonds remained “rare” due to the illiquidity and scarcity of the underlying securities.
Once markets stabilised this industry could potentially expand at a rate of above 10% a year, driven by the large amount of Islamic bank deposits and increased regulatory support from governments, the report said.
Islamic mutual funds alone accounted for US$35 billion — up from US$23.2 billion gathered in 2005. — Reuters
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Wednesday, January 7, 2009
Fund managers cautious despite rally
TheStar
Many stay on sidelines while waiting for right time to invest
PETALING JAYA: The recent “mini” stock market rallies on rising crude palm oil (CPO) prices ushered in some much needed cheer in the new year, but fund managers have generally remained cautious.
Kurnia Insurans Malaysia Bhd chief investment officer Pankaj Kumar said it was likely that most fund managers and investment heads would channel their funds into several asset classes to reduce risk.
“They might be placing more of the funds in corporate bonds which are a safer bet, compared with investing in the stock market under the current global economic climate,” he told StarBiz yesterday.
A fund manager with a local bank said fund managers were waiting for more positive and consistent signals before investing in the stock market in a bigger way.
“The worst is likely not over and there is too much volatility in the market to make an assessment,” the fund manager said.
Areca Capital Sdn Bhd chief executive officer Danny Wong said most fund managers would likely wait until the release of fourth quarter financial results before deciding to invest.
“They want to see if the corporate results meet their expectations and also whether the general global economic conditions are conducive to invest more in the market,” he said.
Many fund managers were choosing to stay on the sidelines and waiting for the opportune time to invest, Wong added.
“When the investment climate is right, they will then not lose out on the opportunity to enter the stock market in a big way,” he said.
Meanwhile, Pankaj said the global economic downturn also presented opportunities for cash-rich institutions to buy into battered stocks that had strong fundamentals and a potential upswing in their share prices in the medium to longer term.
“Despite the downturn every economic crisis presents opportunities for those able to capitalise on the situation,” he said, adding that state agencies such as Employees Provident Fund (EPF) and Khazanah Nasional Bhd should consider investing in undervalued stocks, locally or abroad.
Pankaj said some of the stocks, especially those in the United States were worth looking at as their share prices had fallen significantly.
He said while the current downturn could not be compared with the Great Depression of the 1920s and 30s, the global economic crisis would undeniably impact stock markets around the world, including Bursa Malaysia.
“Malaysia’s economy and stock market are intrinsically link to the US economy,” Pankaj noted.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Many stay on sidelines while waiting for right time to invest
PETALING JAYA: The recent “mini” stock market rallies on rising crude palm oil (CPO) prices ushered in some much needed cheer in the new year, but fund managers have generally remained cautious.
Kurnia Insurans Malaysia Bhd chief investment officer Pankaj Kumar said it was likely that most fund managers and investment heads would channel their funds into several asset classes to reduce risk.
“They might be placing more of the funds in corporate bonds which are a safer bet, compared with investing in the stock market under the current global economic climate,” he told StarBiz yesterday.
A fund manager with a local bank said fund managers were waiting for more positive and consistent signals before investing in the stock market in a bigger way.
“The worst is likely not over and there is too much volatility in the market to make an assessment,” the fund manager said.
Areca Capital Sdn Bhd chief executive officer Danny Wong said most fund managers would likely wait until the release of fourth quarter financial results before deciding to invest.
“They want to see if the corporate results meet their expectations and also whether the general global economic conditions are conducive to invest more in the market,” he said.
Many fund managers were choosing to stay on the sidelines and waiting for the opportune time to invest, Wong added.
“When the investment climate is right, they will then not lose out on the opportunity to enter the stock market in a big way,” he said.
Meanwhile, Pankaj said the global economic downturn also presented opportunities for cash-rich institutions to buy into battered stocks that had strong fundamentals and a potential upswing in their share prices in the medium to longer term.
“Despite the downturn every economic crisis presents opportunities for those able to capitalise on the situation,” he said, adding that state agencies such as Employees Provident Fund (EPF) and Khazanah Nasional Bhd should consider investing in undervalued stocks, locally or abroad.
Pankaj said some of the stocks, especially those in the United States were worth looking at as their share prices had fallen significantly.
He said while the current downturn could not be compared with the Great Depression of the 1920s and 30s, the global economic crisis would undeniably impact stock markets around the world, including Bursa Malaysia.
“Malaysia’s economy and stock market are intrinsically link to the US economy,” Pankaj noted.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Wednesday, November 12, 2008
Commodities-linked funds take a beating
TheStar
Strengthening US dollar will continue putting pressure
PETALING JAYA: Commodities-linked funds in Malaysia have been the worst performers for the past one year and the outlook is not encouraging, according to data provider Morningstar Asia Ltd.
Economists said commodity prices would continue to come under pressure, going forward, given the current bullishness of the US dollar.
“The strengthening of the US dollar, to some extent, explains the weakness of commodity prices,” said Nor Zahidi Alias, chief economist of Malaysian Rating Corp Bhd.
“The current surge in the greenback against major currencies – except the yen – means many traders will continue unwinding their positions in the less attractive dollar-denominated commodities.”
Morningstar Asia’s data showed that, on average, commodities-linked funds slumped 37.32% while equity funds fell 36.36% in the past 12 months from October, underperforming other funds.
The CRB/ Reuters US Spot All Commodity index fell by 28% from its high in July this year.
Another closely watched barometer – the CRB/ Reuters US Spot Raw Industrials index – declined by 30% from its high in May.
Only money market funds delivered positive returns, climbing 2.19% over the same period.
However, it must be noted that the fund size for commodities was RM206.5mil as at end-September compared with equity funds, which had RM22.6bil, and money market funds RM13.1bil.
Morningstar Asia said the commodities market might remain subdued over the short term due to the slower global growth, de-leveraging by financial institutions and sharply-tighter global credit conditions.
Singapore-based Asian Forecasting Group economics director David Cohen said in view of the current downbeat outlook, investors were expected to make further redemptions from commodities-linked investments in the near term.
Does this mean that unit trust funds with primary exposure to commodities, especially those launched recently, are in a quandary?
One asset management company told StarBiz the commodities market were still volatile and was, therefore, unable to comment.
Another fund manager said sales had slowed and redemptions increased, but not at an alarming rate.
Some funds had lost their net asset value by more than 30% over the past six months due to the softening demand for commodities, the fund manager said.
Nor Zahidi said a downbeat outlook on global economic growth by the International Monetary Fund (IMF) also led to a drastic decline in overall commodity prices.
The IMF has forecast that the global economy will grow by only 3% in 2009, suggesting that the world is near a recession.
Nor Zahidi said China’s economy, for instance, had moderated to 9% in the third quarter this year, down from 10.1% in the preceding quarter.
“Prices of crude palm oil (CPO) have also responded to the expectation of a softer demand, particularly from China, and lower crude oil prices,” he said.
“Prices have recently fallen below its 12-year average of RM1,622 per tonne and will likely remain below RM 2,259 per tonne in the near term.”
The January 2009 benchmark contract for CPO closed unchanged yesterday at RM1,586 per tonne.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Strengthening US dollar will continue putting pressure
PETALING JAYA: Commodities-linked funds in Malaysia have been the worst performers for the past one year and the outlook is not encouraging, according to data provider Morningstar Asia Ltd.
Economists said commodity prices would continue to come under pressure, going forward, given the current bullishness of the US dollar.
“The strengthening of the US dollar, to some extent, explains the weakness of commodity prices,” said Nor Zahidi Alias, chief economist of Malaysian Rating Corp Bhd.
“The current surge in the greenback against major currencies – except the yen – means many traders will continue unwinding their positions in the less attractive dollar-denominated commodities.”
Morningstar Asia’s data showed that, on average, commodities-linked funds slumped 37.32% while equity funds fell 36.36% in the past 12 months from October, underperforming other funds.
The CRB/ Reuters US Spot All Commodity index fell by 28% from its high in July this year.
Another closely watched barometer – the CRB/ Reuters US Spot Raw Industrials index – declined by 30% from its high in May.
Only money market funds delivered positive returns, climbing 2.19% over the same period.
However, it must be noted that the fund size for commodities was RM206.5mil as at end-September compared with equity funds, which had RM22.6bil, and money market funds RM13.1bil.
Morningstar Asia said the commodities market might remain subdued over the short term due to the slower global growth, de-leveraging by financial institutions and sharply-tighter global credit conditions.
Singapore-based Asian Forecasting Group economics director David Cohen said in view of the current downbeat outlook, investors were expected to make further redemptions from commodities-linked investments in the near term.
Does this mean that unit trust funds with primary exposure to commodities, especially those launched recently, are in a quandary?
One asset management company told StarBiz the commodities market were still volatile and was, therefore, unable to comment.
Another fund manager said sales had slowed and redemptions increased, but not at an alarming rate.
Some funds had lost their net asset value by more than 30% over the past six months due to the softening demand for commodities, the fund manager said.
Nor Zahidi said a downbeat outlook on global economic growth by the International Monetary Fund (IMF) also led to a drastic decline in overall commodity prices.
The IMF has forecast that the global economy will grow by only 3% in 2009, suggesting that the world is near a recession.
Nor Zahidi said China’s economy, for instance, had moderated to 9% in the third quarter this year, down from 10.1% in the preceding quarter.
“Prices of crude palm oil (CPO) have also responded to the expectation of a softer demand, particularly from China, and lower crude oil prices,” he said.
“Prices have recently fallen below its 12-year average of RM1,622 per tonne and will likely remain below RM 2,259 per tonne in the near term.”
The January 2009 benchmark contract for CPO closed unchanged yesterday at RM1,586 per tonne.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Wednesday, November 5, 2008
In these troubled times do you hold stocks or cash?
TheStar
OVER the past few weeks, as a result of the sharp plummet on the stock market, some investors regret not selling their stocks early as almost all of their stocks have been incurring huge losses.
However, the market recovery over the past few days caused some investors to again regret — not buying stocks when the market hit the bottom.
The decision to hold more cash or stocks is one of the most difficult decisions to make.
According to a study by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower in 1986, 95% of the variance of fund returns was the result of the asset allocation decision.
Hence, the right asset allocation between cash and stocks plays a very important role in determining the returns of a portfolio.
In this article, we will look into two key strategies in asset allocation, namely the constant mix (CM) and the constant proportion portfolio insurance (CPPI) strategy.
The key principle behind the CM strategy is to buy stocks when the market drops and sell them when the market recovers.
As for the CPPI strategy, it is the reverse, which is to sell when the market plunges and buy when it recovers.
We should continue selling stocks until the portfolio drops near our pre-set floor level. Once the market touches our floor level, we will hold all cash and no stocks.
Under normal market conditions, the CM strategy is an excellent tool for rebalancing our portfolio.
This strategy requires us to rebalance our portfolio based on a constant mix, where we set a constant ratio of stocks to total assets.
Assuming we have only two asset classes, namely stocks and cash, we will maintain the desired invested portion in our portfolio regardless of market conditions.
If we have a portfolio value of RM100,000 and intend to maintain a stocks to total asset ratio of 60%, we invest RM60,000 in stocks and hold RM40,000 cash.
If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Now, our portfolio will be RM94,000 (RM54,000 + RM40,000 cash)
Our invested portion will drop to 57.5% (RM54,000 of stocks divided by our new portfolio value of RM94,000).
In order to maintain a 60% investment, we need to have an invested portion of RM56,400 (0.6 x RM94,000).
So we will use RM2,400 in cash to buy stocks (RM56,400 - RM54,000).
After this portfolio rebalancing, our new invested portions will be RM56,400 in stocks and RM37,600.in cash.
This will bring the invested portion back to 60% with the total portfolio value of RM94,000.
The CM strategy will cause us to buy more stocks when the market drops. We will be able to acquire a lot of quality stocks at cheap prices.
However, we will continue buying more stocks while the overall market continues to plunge.
During a bear market, we will see our portfolio shrink in value as our earlier purchase price may get cheaper.
Unfortunately, not many investors can tolerate a drop in their portfolio value.
The CPPI strategy is appropriate for use in either a super bull or a super bear market.
It is not suitable for use on normal market periods as we need to sell stocks when the market drops and buy when the market is on the way up.
We may end up buying at high prices and selling them at low.
Under the CPPI strategy, the portion of money in stocks is based on the formula that:
Money in stock = M x (TA - Floor) Where M = stock investment multiplier (proportion), TA = total assets held in the portfolio, Floor = the minimum allowable portfolio value (zero risk level) and TA - Floor = cushion or funds that can be put at risk.
Assuming we have a portfolio value of RM100,000, if we set our minimum allowable value (Floor) = RM70,000 and stock multiplier (M) = 2, we will invest RM60,000 in stocks [2 x (RM100,000 – RM70,000)].
If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Our portfolio will be RM94,000 (RM54,000 + RM40,000 cash).
Our invested portion needs to be reduced to RM48,000 as 2 x (RM94,000 – RM70,000).
We need to dispose of RM6,000 worth of stocks (RM54,000 – RM48,000) and bring the cash level to RM46,000.
Following this portfolio rebalancing, the portion invested in stock is RM48,000 with cash of RM46,000.
The total portfolio value is RM94,000.
We will continue to sell stocks and hold more cash as the market drops.
We will stop investing in stocks when our total portfolio hits the floor level (TA – Floor= 0).
The strength of the CPPI strategy is that our lowest portfolio value at any point in time will be RM70,000 whereas the CM strategy may cause our portfolio value to drop much lower if the market crashes further.
In conclusion, the choice of strategy will depend on the overall economic outlook.
Unless we know our economy will not drop into recession, otherwise — based on our current situation, the CPPI strategy has the advantage of protecting our minimum portfolio value at the floor level.
Ooi Kok Hwa is an investment adviser licensed by Securities Commission and managing partner of MRR Consulting.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
OVER the past few weeks, as a result of the sharp plummet on the stock market, some investors regret not selling their stocks early as almost all of their stocks have been incurring huge losses.
However, the market recovery over the past few days caused some investors to again regret — not buying stocks when the market hit the bottom.
The decision to hold more cash or stocks is one of the most difficult decisions to make.
According to a study by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower in 1986, 95% of the variance of fund returns was the result of the asset allocation decision.
Hence, the right asset allocation between cash and stocks plays a very important role in determining the returns of a portfolio.
In this article, we will look into two key strategies in asset allocation, namely the constant mix (CM) and the constant proportion portfolio insurance (CPPI) strategy.
The key principle behind the CM strategy is to buy stocks when the market drops and sell them when the market recovers.
As for the CPPI strategy, it is the reverse, which is to sell when the market plunges and buy when it recovers.
We should continue selling stocks until the portfolio drops near our pre-set floor level. Once the market touches our floor level, we will hold all cash and no stocks.
Under normal market conditions, the CM strategy is an excellent tool for rebalancing our portfolio.
This strategy requires us to rebalance our portfolio based on a constant mix, where we set a constant ratio of stocks to total assets.
Assuming we have only two asset classes, namely stocks and cash, we will maintain the desired invested portion in our portfolio regardless of market conditions.
If we have a portfolio value of RM100,000 and intend to maintain a stocks to total asset ratio of 60%, we invest RM60,000 in stocks and hold RM40,000 cash.
If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Now, our portfolio will be RM94,000 (RM54,000 + RM40,000 cash)
Our invested portion will drop to 57.5% (RM54,000 of stocks divided by our new portfolio value of RM94,000).
In order to maintain a 60% investment, we need to have an invested portion of RM56,400 (0.6 x RM94,000).
So we will use RM2,400 in cash to buy stocks (RM56,400 - RM54,000).
After this portfolio rebalancing, our new invested portions will be RM56,400 in stocks and RM37,600.in cash.
This will bring the invested portion back to 60% with the total portfolio value of RM94,000.
The CM strategy will cause us to buy more stocks when the market drops. We will be able to acquire a lot of quality stocks at cheap prices.
However, we will continue buying more stocks while the overall market continues to plunge.
During a bear market, we will see our portfolio shrink in value as our earlier purchase price may get cheaper.
Unfortunately, not many investors can tolerate a drop in their portfolio value.
The CPPI strategy is appropriate for use in either a super bull or a super bear market.
It is not suitable for use on normal market periods as we need to sell stocks when the market drops and buy when the market is on the way up.
We may end up buying at high prices and selling them at low.
Under the CPPI strategy, the portion of money in stocks is based on the formula that:
Money in stock = M x (TA - Floor) Where M = stock investment multiplier (proportion), TA = total assets held in the portfolio, Floor = the minimum allowable portfolio value (zero risk level) and TA - Floor = cushion or funds that can be put at risk.
Assuming we have a portfolio value of RM100,000, if we set our minimum allowable value (Floor) = RM70,000 and stock multiplier (M) = 2, we will invest RM60,000 in stocks [2 x (RM100,000 – RM70,000)].
If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Our portfolio will be RM94,000 (RM54,000 + RM40,000 cash).
Our invested portion needs to be reduced to RM48,000 as 2 x (RM94,000 – RM70,000).
We need to dispose of RM6,000 worth of stocks (RM54,000 – RM48,000) and bring the cash level to RM46,000.
Following this portfolio rebalancing, the portion invested in stock is RM48,000 with cash of RM46,000.
The total portfolio value is RM94,000.
We will continue to sell stocks and hold more cash as the market drops.
We will stop investing in stocks when our total portfolio hits the floor level (TA – Floor= 0).
The strength of the CPPI strategy is that our lowest portfolio value at any point in time will be RM70,000 whereas the CM strategy may cause our portfolio value to drop much lower if the market crashes further.
In conclusion, the choice of strategy will depend on the overall economic outlook.
Unless we know our economy will not drop into recession, otherwise — based on our current situation, the CPPI strategy has the advantage of protecting our minimum portfolio value at the floor level.
Ooi Kok Hwa is an investment adviser licensed by Securities Commission and managing partner of MRR Consulting.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Wednesday, October 22, 2008
Great Depression versus now
TheStar
As much as there are similarities between the two crises, the damage caused by the current turmoil is likely to be less severe given the swift actions of central banks.
AS a result of the recent financial tsunami, some experts have started to ponder whether we are headed for a depression.
The current credit crunch and the meltdown in some financial institutions were quite similar to what happened during the Great Depression in the 1930s.
In this article we will analyse the reasons behind the 1929 Wall St crash, which kickstarted the Great Depression and compare it to the current situation to identify any signs that a depression is approaching.
Milton Friedman, the leading advocate of monetarism, argued that every great depression had been accompanied or preceded by a monetary collapse.
According to Ben Bernanke, the US Fed chairman, the main reason behind the Great Crash of 1929 was due to the tight monetary policies adopted during that period.
He said the high interest rates back then caused the US economy to fall into a recession that led to the great market crash in October 1929.
As the US dollar was backed by gold, the acute selling of dollars for gold resulted in a run on the dollar.
The Fed continued to increase interest rates in an effort to preserve the value of US dollar.
As a result, high interest rates caused bankruptcies for many companies.
At the peak of the Great Depression, the US unemployment rate hit 25%
To rub salt into the wound, massive withdrawals of cash by panicky depositors were the last straw that brought about the total collapse of financial institutions.
In that period, bank deposits were uninsured and the collapse of the banks caused depositors to lose their savings.
And due to the economic uncertainties, the surviving banks were reluctant to give out new loans.
Another culprit in the 1929 crash was margin financing which caused excessive speculation in the stock market.
Investors needed only to put up 10% capital and borrow the rest from the bank to invest in the stock market.
The collapse of stock prices led to margin calls and further selldowns.
Coming back to the 2008 crash, the banking and credit-market crisis was mainly due to the property boom and subprime bust.
The collapse of subprime loans sparked the credit crunch, which dragged some financial institutions into trouble.
As a result of the securitisation and the creation of innovative financial products like collateralised-debt obligations and credit-default swaps, the collapse of one financial institution had a domino effect, leading to the collapse of other financial institutions.
Now, the pertinent question is whether we are in a long bear market and heading for a depression.
We believe a depression like the one in 1929 may not happen exactly the way it did before.
Given the fast actions taken by central banks around the world, the damage caused by this crisis will be less severe than the one in 1929.
Central banks around the world have been putting in concerted efforts to make sure the global economy will not fall into a depression.
The rescue packages being implemented throughout the world will help stabilise the financial system.
We believe the reduction of interest rates and the increase in money supply will help cushion the impact of the credit crunch.
Besides, deposits placed with most financial institutions are guaranteed by central banks.
Even though the US unemployment rate may rise to 10% from 6.1% currently, it is still far below the peak of 25% hit during the Great Depression.
In the 1929 crash, the Dow Jones Industrial Average took about three years to reach bottom in July 1932 from its peak in September 1929.
From the peak to the trough the Dow lost about 90%.
The Great Depression in the US started in August 1929 and ended only in March 1933.
The stock market started to recover eight months before the US economy ended its depression.
At present, the Dow has already dropped for a year from its peak in October 2007, currently down about 37.5% against its peak of 14,164 points on Oct 9, 2007.
In view of the possible economic recession in most developed countries, we think the Dow will drop further from current levels.
Nevertheless, we believe it will recover much faster and the magnitude of the fall will be far less severe than the one in 1929.
Lastly, we believe the stock market will eventually recover.
At this point, to be more prudent, we may take a “wait and see” approach until things stabilise.
> Ooi Kok Hwa is an investment adviser licensed by Securities Commission and the managing partner of MRR Consulting
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
As much as there are similarities between the two crises, the damage caused by the current turmoil is likely to be less severe given the swift actions of central banks.
AS a result of the recent financial tsunami, some experts have started to ponder whether we are headed for a depression.
The current credit crunch and the meltdown in some financial institutions were quite similar to what happened during the Great Depression in the 1930s.
In this article we will analyse the reasons behind the 1929 Wall St crash, which kickstarted the Great Depression and compare it to the current situation to identify any signs that a depression is approaching.
Milton Friedman, the leading advocate of monetarism, argued that every great depression had been accompanied or preceded by a monetary collapse.
According to Ben Bernanke, the US Fed chairman, the main reason behind the Great Crash of 1929 was due to the tight monetary policies adopted during that period.
He said the high interest rates back then caused the US economy to fall into a recession that led to the great market crash in October 1929.
As the US dollar was backed by gold, the acute selling of dollars for gold resulted in a run on the dollar.
The Fed continued to increase interest rates in an effort to preserve the value of US dollar.
As a result, high interest rates caused bankruptcies for many companies.
At the peak of the Great Depression, the US unemployment rate hit 25%
To rub salt into the wound, massive withdrawals of cash by panicky depositors were the last straw that brought about the total collapse of financial institutions.
In that period, bank deposits were uninsured and the collapse of the banks caused depositors to lose their savings.
And due to the economic uncertainties, the surviving banks were reluctant to give out new loans.
Another culprit in the 1929 crash was margin financing which caused excessive speculation in the stock market.
Investors needed only to put up 10% capital and borrow the rest from the bank to invest in the stock market.
The collapse of stock prices led to margin calls and further selldowns.
Coming back to the 2008 crash, the banking and credit-market crisis was mainly due to the property boom and subprime bust.
The collapse of subprime loans sparked the credit crunch, which dragged some financial institutions into trouble.
As a result of the securitisation and the creation of innovative financial products like collateralised-debt obligations and credit-default swaps, the collapse of one financial institution had a domino effect, leading to the collapse of other financial institutions.
Now, the pertinent question is whether we are in a long bear market and heading for a depression.
We believe a depression like the one in 1929 may not happen exactly the way it did before.
Given the fast actions taken by central banks around the world, the damage caused by this crisis will be less severe than the one in 1929.
Central banks around the world have been putting in concerted efforts to make sure the global economy will not fall into a depression.
The rescue packages being implemented throughout the world will help stabilise the financial system.
We believe the reduction of interest rates and the increase in money supply will help cushion the impact of the credit crunch.
Besides, deposits placed with most financial institutions are guaranteed by central banks.
Even though the US unemployment rate may rise to 10% from 6.1% currently, it is still far below the peak of 25% hit during the Great Depression.
In the 1929 crash, the Dow Jones Industrial Average took about three years to reach bottom in July 1932 from its peak in September 1929.
From the peak to the trough the Dow lost about 90%.
The Great Depression in the US started in August 1929 and ended only in March 1933.
The stock market started to recover eight months before the US economy ended its depression.
At present, the Dow has already dropped for a year from its peak in October 2007, currently down about 37.5% against its peak of 14,164 points on Oct 9, 2007.
In view of the possible economic recession in most developed countries, we think the Dow will drop further from current levels.
Nevertheless, we believe it will recover much faster and the magnitude of the fall will be far less severe than the one in 1929.
Lastly, we believe the stock market will eventually recover.
At this point, to be more prudent, we may take a “wait and see” approach until things stabilise.
> Ooi Kok Hwa is an investment adviser licensed by Securities Commission and the managing partner of MRR Consulting
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Monday, October 20, 2008
Recession risks
TheStar
The malfunction in the financial systems of the US and Europe is affecting the entire economic system, including international trade as evidenced by the collapse in shipping rates. The validity of their government policies will determine the duration of the crisis.
SUDDENLY, the danger of desolation in the US economy has become the consensus view.
Economists and fund managers there are in unison now in their opinions the US economy would be in deep recession. Just a couple of months ago, much of the opinion was that a recovery was in sight by the middle of next year.
Quite abruptly, hardly anyone now is offering a view of the time to recovery.
Economists are stumped, as financial potholes keep popping up. In “normal” years, economists could forecast economic growth rates to within a decimal point.
At inflection points, however, economists are behind the curve in their forecasts as the business landscape changes too fast.
There is also disagreement as to what’s a recession. The most common definition is a period of at least two consecutive quarters of negative economic growth, which implies it would extend over a period of at least six months.
Economists defend that definition — dubbed a technical recession — as the most apt expression of a contraction of the overall economy. That means it might not be depicted as a recession if the economy does not register two consecutive quarters of negative growth.
The man-in-the-street, scorched in the stock or job market, may disagree with that.
Others may escape unscathed. It’s not always everybody’s recession. Some sectors, for instance, may continue to expand. In the financial crisis of 1998 in Malaysia, for instance, plantations and electronics enjoyed bumper profits.
This, however, looks like a broad-based recession in the US, impairing housing, banking, autos and consumer spending. It also threatens to be the first global recession of this century.
Everyone is watching when and to what extent this would impact on this country.
Data in the fourth quarter or next year, if not earlier, may define the degree of that impact.
In the corporate sector, a 50% decline in economic growth from 6% to 3% would feel like a recession. That’s because companies planted up capacities for 6% economic growth, and a lower growth of 3% could cause their revenue to decline 10% that would result in earnings declining 20% or more.
Currently, forecasts for Malaysia’s growth for 2009 range from about 3.4% to 1% by Macquarie which compared it to the experience of 2001.
In 2000, Malaysia’s economic growth for 2001 was forecast at about 6% but due to the Sept 11 terrorist attack in New York, the actual growth was 0.4%.
Policy risks
At this time of change — not what Barack Obama had in mind — the economic policies set out by governments are critical. They would either shorten and moderate the downturn, or prolong and deepen it.
Policy errors in the aftermath of the 1929 stock market crash infamously led to a long and deep depression.
This is the hour of government leaders. After years when the business sector in the US and Europe was deregulated, it became in effect unregulated, and government leaders now have to steer their economies away from the abyss.
So far, governments in the US and Europe have gone out on a limb to save their banking sector, injecting fresh capital and guaranteeing all deposits. That raises the risks of their sovereign debt and high inflation in later years.
“But what else can they do? If the banking system fails, there’ll be no economy,” a fund manager said.
Last week, Globex, a small Russian retail bank, disallowed withdrawals by depositors after a run on the bank.
It’s surprising the regulators allowed that, as it can lead to a nation-wide loss of confidence — it could be due to the government’s lack of experience in a market economy.
External risks
Asia is again experiencing the outflow of foreign equity funds. While foreign portfolio funds are a destabilising force, no country rejects the foreign funds.
Perhaps, that’s because foreign portfolio funds can destabilise stock markets, but not the banking system or the currency, unless there is massive speculation or manipulation of the currency.
External borrowings are a more potent destabilising force as shown in the current exposure of Iceland and South Korea.
Both countries have huge amounts of external borrowings, surprising in the case of South Korea, considering a similar experience in 1997. In Iceland, even consumer loans were taken in foreign currencies.
A sharp turn in the credit cycle led to questions as to whether they can rollover their foreign debts that were largely taken by their banks.
That uncertainty caused the Iceland krona to plunge 40% and the Korean won 30% since July.
It is to Bank Negara’s credit that the banking system and currency are relatively stable. In the banking system, the loan/deposit ratio is about 75%, which is very healthy.
In the west, the financial system is gradually being patched up, with UBS of Switzerland among the last big banks being rescued by its government last week, and the benchmark London interest rate for loans in dollars making its first weekly decline since July, according to Bloomberg.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
The malfunction in the financial systems of the US and Europe is affecting the entire economic system, including international trade as evidenced by the collapse in shipping rates. The validity of their government policies will determine the duration of the crisis.
SUDDENLY, the danger of desolation in the US economy has become the consensus view.
Economists and fund managers there are in unison now in their opinions the US economy would be in deep recession. Just a couple of months ago, much of the opinion was that a recovery was in sight by the middle of next year.
Quite abruptly, hardly anyone now is offering a view of the time to recovery.
Economists are stumped, as financial potholes keep popping up. In “normal” years, economists could forecast economic growth rates to within a decimal point.
At inflection points, however, economists are behind the curve in their forecasts as the business landscape changes too fast.
There is also disagreement as to what’s a recession. The most common definition is a period of at least two consecutive quarters of negative economic growth, which implies it would extend over a period of at least six months.
Economists defend that definition — dubbed a technical recession — as the most apt expression of a contraction of the overall economy. That means it might not be depicted as a recession if the economy does not register two consecutive quarters of negative growth.
The man-in-the-street, scorched in the stock or job market, may disagree with that.
Others may escape unscathed. It’s not always everybody’s recession. Some sectors, for instance, may continue to expand. In the financial crisis of 1998 in Malaysia, for instance, plantations and electronics enjoyed bumper profits.
This, however, looks like a broad-based recession in the US, impairing housing, banking, autos and consumer spending. It also threatens to be the first global recession of this century.
Everyone is watching when and to what extent this would impact on this country.
Data in the fourth quarter or next year, if not earlier, may define the degree of that impact.
In the corporate sector, a 50% decline in economic growth from 6% to 3% would feel like a recession. That’s because companies planted up capacities for 6% economic growth, and a lower growth of 3% could cause their revenue to decline 10% that would result in earnings declining 20% or more.
Currently, forecasts for Malaysia’s growth for 2009 range from about 3.4% to 1% by Macquarie which compared it to the experience of 2001.
In 2000, Malaysia’s economic growth for 2001 was forecast at about 6% but due to the Sept 11 terrorist attack in New York, the actual growth was 0.4%.
Policy risks
At this time of change — not what Barack Obama had in mind — the economic policies set out by governments are critical. They would either shorten and moderate the downturn, or prolong and deepen it.
Policy errors in the aftermath of the 1929 stock market crash infamously led to a long and deep depression.
This is the hour of government leaders. After years when the business sector in the US and Europe was deregulated, it became in effect unregulated, and government leaders now have to steer their economies away from the abyss.
So far, governments in the US and Europe have gone out on a limb to save their banking sector, injecting fresh capital and guaranteeing all deposits. That raises the risks of their sovereign debt and high inflation in later years.
“But what else can they do? If the banking system fails, there’ll be no economy,” a fund manager said.
Last week, Globex, a small Russian retail bank, disallowed withdrawals by depositors after a run on the bank.
It’s surprising the regulators allowed that, as it can lead to a nation-wide loss of confidence — it could be due to the government’s lack of experience in a market economy.
External risks
Asia is again experiencing the outflow of foreign equity funds. While foreign portfolio funds are a destabilising force, no country rejects the foreign funds.
Perhaps, that’s because foreign portfolio funds can destabilise stock markets, but not the banking system or the currency, unless there is massive speculation or manipulation of the currency.
External borrowings are a more potent destabilising force as shown in the current exposure of Iceland and South Korea.
Both countries have huge amounts of external borrowings, surprising in the case of South Korea, considering a similar experience in 1997. In Iceland, even consumer loans were taken in foreign currencies.
A sharp turn in the credit cycle led to questions as to whether they can rollover their foreign debts that were largely taken by their banks.
That uncertainty caused the Iceland krona to plunge 40% and the Korean won 30% since July.
It is to Bank Negara’s credit that the banking system and currency are relatively stable. In the banking system, the loan/deposit ratio is about 75%, which is very healthy.
In the west, the financial system is gradually being patched up, with UBS of Switzerland among the last big banks being rescued by its government last week, and the benchmark London interest rate for loans in dollars making its first weekly decline since July, according to Bloomberg.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Friday, October 17, 2008
Morgan Stanley: Some hedge funds may fail
BusinessTimes
MORGAN Stanley Chief Executive Officer John Mack said tumbling markets may drive some hedge funds out of business.
“Some of my friends in that community say that by year-end, you’ll see the number of firms in the hedge-fund area shrink, I’ve heard as large as 30 per cent,” Mack, 63, told CNBC yesterday.
As the industry shrinks, “we need to resize our prime brokerage business.”
Morgan Stanley’s prime brokerage business, which lost clients last month after Lehman Brothers Holdings Inc filed for bankruptcy, is winning back some of those clients since gaining a US$9 billion investment from Mitsubishi UFJ Financial Group Inc, Mack said.
“Funds that took some of their money, in some cases all their money, are coming back,” he said. “Without question those people who pulled out are coming back.”
Mack, who lobbied last month to have regulators restrict short selling because he thought the practice was hurting his company’s stock, said he supports it in principle.
A three-week ban on short selling imposed by the Securities and Exchange Commission expired earlier this month.
“I believe in short-selling, I believe in it today, it’s a way that people can express their view on a company,” he said.
He said that in “extreme circumstances” the practice has exacerbated problems in the financial system and “it’s prudent to have some kind of controls.”
More De-Leveraging Ahead
Morgan Stanley, which became the fifth-biggest US bank holding company, is reducing its ratio of assets to equity, known as leverage, as securities ranging from mortgage debt to corporate loans to stocks drop in value.
The firm’s leverage ratio, currently slightly below 20 times, will drop into the “mid-teens,” Mack said in yesterday’s interview.
“There’s more de-leveraging to be done” Mack said of the broader financial community. “People are scared, and when they’re scared they want to go to cash, they want to de- leverage, and they’re doing that.”
Mack said the current financial system crisis is the worst he’s seen. “I’ve never seen anything like this or anything close to this,” he said. “I think we’re in for a rocky road for a while.” - Bloomberg
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
MORGAN Stanley Chief Executive Officer John Mack said tumbling markets may drive some hedge funds out of business.
“Some of my friends in that community say that by year-end, you’ll see the number of firms in the hedge-fund area shrink, I’ve heard as large as 30 per cent,” Mack, 63, told CNBC yesterday.
As the industry shrinks, “we need to resize our prime brokerage business.”
Morgan Stanley’s prime brokerage business, which lost clients last month after Lehman Brothers Holdings Inc filed for bankruptcy, is winning back some of those clients since gaining a US$9 billion investment from Mitsubishi UFJ Financial Group Inc, Mack said.
“Funds that took some of their money, in some cases all their money, are coming back,” he said. “Without question those people who pulled out are coming back.”
Mack, who lobbied last month to have regulators restrict short selling because he thought the practice was hurting his company’s stock, said he supports it in principle.
A three-week ban on short selling imposed by the Securities and Exchange Commission expired earlier this month.
“I believe in short-selling, I believe in it today, it’s a way that people can express their view on a company,” he said.
He said that in “extreme circumstances” the practice has exacerbated problems in the financial system and “it’s prudent to have some kind of controls.”
More De-Leveraging Ahead
Morgan Stanley, which became the fifth-biggest US bank holding company, is reducing its ratio of assets to equity, known as leverage, as securities ranging from mortgage debt to corporate loans to stocks drop in value.
The firm’s leverage ratio, currently slightly below 20 times, will drop into the “mid-teens,” Mack said in yesterday’s interview.
“There’s more de-leveraging to be done” Mack said of the broader financial community. “People are scared, and when they’re scared they want to go to cash, they want to de- leverage, and they’re doing that.”
Mack said the current financial system crisis is the worst he’s seen. “I’ve never seen anything like this or anything close to this,” he said. “I think we’re in for a rocky road for a while.” - Bloomberg
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Fund managers focusing on balance sheets for investments
TheStar
Leverage is an important factor for investors
PETALING JAYA: Fund managers and investors are focusing on balance sheets more than before as earnings growth prospects dim and borrowing risks in companies are magnified.
While investors have always considered balance sheet strength, levels of leverage have become the most important factor to watch for many of them.
While leverage among some of the banks in the West had reached levels of fragility - gearing levels of investment banks were as high as 30 times - banks in this country do not have leverage anywhere near those levels.
As Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose put it: “Banks here have been lending to customers who can afford to repay their loans.”
Leverage is an important factor for investors
PETALING JAYA: Fund managers and investors are focusing on balance sheets more than before as earnings growth prospects dim and borrowing risks in companies are magnified.
While investors have always considered balance sheet strength, levels of leverage have become the most important factor to watch for many of them.
While leverage among some of the banks in the West had reached levels of fragility - gearing levels of investment banks were as high as 30 times - banks in this country do not have leverage anywhere near those levels.
As Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose put it: “Banks here have been lending to customers who can afford to repay their loans.”
Gerald Ambrose
The concerns over the possibility of a global recession have led investors to place primacy in the balance sheet for assurance the companies would survive tough business conditions.
Companies that had issued bonds for working capital and that have to be renewed every five years, might be vulnerable in the cautious lending environment.
This is especially so for companies with balance sheets that are heavily loaded with debt.
The companies that were particularly susceptible would be those in the middle of their capital expenditure (capex) cycle, where the planting up was not completed, said CIMB-Principal Asset Management’s chief investment officer Raymond Tang.
Such companies would be those that have high capex requirements by the nature of their industry.
Trading companies, even though they do not have much capex, could also face cashflow problems. Difficulties could be encountered if their customers stretched the credit period from 90 days to 180 days, he added.
Companies that trade on cash payment terms will not encounter such problems faced by companies that trade on credit terms.
Sectors that trade on cash terms include gaming. Consumer companies with strong cashflow, such as tobacco and beer producers, would have similar attributes, he said.
In the property sector, Ambrose said, companies with weak balance sheets might not be able to hold on to their land bank.
Aberdeen takes large, concentrated positions in a small number of companies.
In the property sector, the asset management company had invested in SP Setia Bhd which had many sources of cashflow from its projects and served a broad market.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Thursday, October 16, 2008
Asian markets fragile, but worst may be over for now
TheEdge
HONG KONG: Concerted action by governments globally to shore up the financial system may have signalled the worst is over for emerging Asia's most battered markets for now, but they are likely to remain volatile given still fragile investor sentiment, a Reuters poll shows.
The poll forecasts gains for South Korean and Indian equities by the end of the year, but it sees little upside for their currencies as weaker trade flows and the countries' respective current account deficits will weigh.
India's benchmark stock index, which has plunged more than 43% so far this year, is poised to recover more than 15% by the end of 2008 from Tuesday's closing level to reach 13,250, according to the poll.
"The valuations are extremely compelling at this point of time," said Rajen Shah, chief investment officer of Angel Broking in Mumbai.
"We see Sensex scaling to 21,000 over three years. Our exports to GDP ratio is relatively lower than countries like China, which implies the global turmoil could impact it less in relative terms," Shah said.
Analysts forecast a 10% gain for South Korea's stock market between Tuesday's close and the end of the year, taking the benchmark Kospi to 1,500 points.
That's well off last year's all-time high of 2,085 points.
Asian equities have picked up this week after European governments pledged bank guarantees and equity stakes in banks at the weekend and the United States followed suit on Tuesday.
While heavy selling in recent weeks offers the chance to scoop up Asian blue chips at reasonable prices, investors will continue to fret about the broader economic impact of the US-led global credit crisis, and a possible global recession, analysts said. "Slower global growth will impact exports across the region," said Patrick Bennett, foreign exchange strategist at Societe Generale in Hong Kong.
The prospect of weakening economic growth next year means there won't be much of a recovery in Asian currencies, if any. The poll forecast the Indian rupee - which hit a record low of 49.3 last week - would be at 47.63 by the end of December. That would be within Tuesday's trading range of 48.09 to 47.59.
The South Korean won, which was trading at 1,233 to the dollar early on Wednesday, is forecast at 1,200 by year-end.
Weakening demand in Western markets for Asian goods is already destroying the idea that Asia can "decouple" from an economic downturn in Europe and the United States. Goldman Sachs this week slashed its forecasts for GDP growth in Asia ex-Japan to 7.6% for this year and 6.7% in 2009, from 7.8% and 7.2% respectively.
While those are growth rates Western nations can only dream of, Asia's financial markets, and fund flows, will be influenced by reduced American and European spending and earning power, analysts say.
Indonesia's large domestic sector offers its economy some protection from a possible global economic slump but it will not be immune. Analysts said their forecasts for Indonesia's equity market had gone out the window as the outlook was too uncertain given the markets large foreign shareholdings and highly volatile foreign fund flows.
"We are concerned that earnings forecasts are way too high, so that raises some concerns," said Tim Rocks, equity strategist at Macquarie in Hong Kong. "Indonesia is not one of our favourite markets." - Reuters
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
HONG KONG: Concerted action by governments globally to shore up the financial system may have signalled the worst is over for emerging Asia's most battered markets for now, but they are likely to remain volatile given still fragile investor sentiment, a Reuters poll shows.
The poll forecasts gains for South Korean and Indian equities by the end of the year, but it sees little upside for their currencies as weaker trade flows and the countries' respective current account deficits will weigh.
India's benchmark stock index, which has plunged more than 43% so far this year, is poised to recover more than 15% by the end of 2008 from Tuesday's closing level to reach 13,250, according to the poll.
"The valuations are extremely compelling at this point of time," said Rajen Shah, chief investment officer of Angel Broking in Mumbai.
"We see Sensex scaling to 21,000 over three years. Our exports to GDP ratio is relatively lower than countries like China, which implies the global turmoil could impact it less in relative terms," Shah said.
Analysts forecast a 10% gain for South Korea's stock market between Tuesday's close and the end of the year, taking the benchmark Kospi to 1,500 points.
That's well off last year's all-time high of 2,085 points.
Asian equities have picked up this week after European governments pledged bank guarantees and equity stakes in banks at the weekend and the United States followed suit on Tuesday.
While heavy selling in recent weeks offers the chance to scoop up Asian blue chips at reasonable prices, investors will continue to fret about the broader economic impact of the US-led global credit crisis, and a possible global recession, analysts said. "Slower global growth will impact exports across the region," said Patrick Bennett, foreign exchange strategist at Societe Generale in Hong Kong.
The prospect of weakening economic growth next year means there won't be much of a recovery in Asian currencies, if any. The poll forecast the Indian rupee - which hit a record low of 49.3 last week - would be at 47.63 by the end of December. That would be within Tuesday's trading range of 48.09 to 47.59.
The South Korean won, which was trading at 1,233 to the dollar early on Wednesday, is forecast at 1,200 by year-end.
Weakening demand in Western markets for Asian goods is already destroying the idea that Asia can "decouple" from an economic downturn in Europe and the United States. Goldman Sachs this week slashed its forecasts for GDP growth in Asia ex-Japan to 7.6% for this year and 6.7% in 2009, from 7.8% and 7.2% respectively.
While those are growth rates Western nations can only dream of, Asia's financial markets, and fund flows, will be influenced by reduced American and European spending and earning power, analysts say.
Indonesia's large domestic sector offers its economy some protection from a possible global economic slump but it will not be immune. Analysts said their forecasts for Indonesia's equity market had gone out the window as the outlook was too uncertain given the markets large foreign shareholdings and highly volatile foreign fund flows.
"We are concerned that earnings forecasts are way too high, so that raises some concerns," said Tim Rocks, equity strategist at Macquarie in Hong Kong. "Indonesia is not one of our favourite markets." - Reuters
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Tuesday, October 14, 2008
Funds investing in Greater China badly hit
TheEdge
PETALING JAYA: Local funds investing in equities in China, Hong Kong and Taiwan were worse hit compared with those investing in local assets over the past one year, in view of a sharper plunge in the China stock market amid global financial turmoil.
The credit crisis stemming from the US has caused a global sell-down and China’s stock markets were the worst hit in Asia year-to-date. This year alone, the Shanghai stock market has fallen about 62%.
Over the past one year, China’s Shanghai Composite Index plunged 65.3%, Shenzhen Composite Index slipped 65.5%, Hong Kong’s Hang Seng Index lost 48.2% and Taiwan Taiex Index fell 46.8%.
In comparison, the Kuala Lumpur Composite Index posted a relatively lower decline of 32.2% from a year ago.
Once a high-flier in the emerging markets, China did not see its performance this year as rosy as it was before. Global investors who were attracted to China’s growth story poured funds into the country only to see their funds’ net asset value (NAV) depleting.
To name a few, the NAV of Public Mutual Bhd’s Public China Select Fund fell 36% over a six-month period to 13.32 sen per unit on Oct 8 from 20.82 sen per unit on April 8. ING China Access Fund fell 34.2% to 33 sen per unit from 50.16 sen per unit over the same period, and Public China Ittikal Fund’s NAV declined by 31.2% to 14.8 sen per unit.
According to data by Lipper Fund, local funds investing in Greater China’s equities saw an average negative return of 38.38% over a one year period up to Sept 26, while those investing in Malaysian equities charted an average negative return of 19.4%.
While unit trust funds did not fare well overall, a fund manager told The Edge Financial Daily that investors should allow themselves a longer investment horizon to see the real return.
“Unless you are willing to take losses, there is no point selling the units now. Perhaps the only thing to do now is to be patient and wait and see,” he said.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
PETALING JAYA: Local funds investing in equities in China, Hong Kong and Taiwan were worse hit compared with those investing in local assets over the past one year, in view of a sharper plunge in the China stock market amid global financial turmoil.
The credit crisis stemming from the US has caused a global sell-down and China’s stock markets were the worst hit in Asia year-to-date. This year alone, the Shanghai stock market has fallen about 62%.
Over the past one year, China’s Shanghai Composite Index plunged 65.3%, Shenzhen Composite Index slipped 65.5%, Hong Kong’s Hang Seng Index lost 48.2% and Taiwan Taiex Index fell 46.8%.
In comparison, the Kuala Lumpur Composite Index posted a relatively lower decline of 32.2% from a year ago.
Once a high-flier in the emerging markets, China did not see its performance this year as rosy as it was before. Global investors who were attracted to China’s growth story poured funds into the country only to see their funds’ net asset value (NAV) depleting.
To name a few, the NAV of Public Mutual Bhd’s Public China Select Fund fell 36% over a six-month period to 13.32 sen per unit on Oct 8 from 20.82 sen per unit on April 8. ING China Access Fund fell 34.2% to 33 sen per unit from 50.16 sen per unit over the same period, and Public China Ittikal Fund’s NAV declined by 31.2% to 14.8 sen per unit.
According to data by Lipper Fund, local funds investing in Greater China’s equities saw an average negative return of 38.38% over a one year period up to Sept 26, while those investing in Malaysian equities charted an average negative return of 19.4%.
While unit trust funds did not fare well overall, a fund manager told The Edge Financial Daily that investors should allow themselves a longer investment horizon to see the real return.
“Unless you are willing to take losses, there is no point selling the units now. Perhaps the only thing to do now is to be patient and wait and see,” he said.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Tuesday, September 23, 2008
Unit trust funds to remain resilient
TheEdge
KUALA LUMPUR: Unit trust funds’ net asset value (NAV) has fallen significantly due to the equity market downturn and volatility, though the industry will remain resilient, said fund experts.
When contacted, Fundsupermart told The Edge Financial Daily that local funds had been affected although they did not have a direct exposure to the United States’ financial crisis.
“Almost all equity funds were down while the returns for fixed income fund were also lower than over the last six months. Based on the 70 funds we sold, equity funds were down 11.9% on average over the last six months, with the majority of them falling in a range of 7% to 17%,” the online unit trust portal said in an email reply.
It said balanced funds dropped on average 7.3% over the last six months, while fixed income funds fared the best, with a declining average of 1.7% with a few managing to turn in a positive return of under 1%.
Fundsupermart said the resilience of fixed-income funds tended to be stronger during such times as investors took “flight to safety” as an option to stay out of equities.
The online portal added that apart from the US turmoil, rising inflation and slowing economic growth had also affected the market. Political instability was also a short-term worry for the Malaysian market.
It noted that volatility was likely to continue, and it was very difficult to time the market bottom but it believed that it was a good opportunity to start accumulating cheap securities by going through the fund investment route.
“Markets will not keep on dropping indefinitely. They will eventually recover. It is better to position for the recovery now in two to three years’ time, as there are attractive bargains to be had now.
“The industry will remain resilient even to market changes such as those we saw over the last two weeks. In fact, it should come out stronger when the worst is over and the dust has settled,” it added.
Fundsupermart said unit trusts would be appreciated as investors would realise the importance of diversification to access global markets and sophisticated sectors or asset classes, rather than risking putting their money into just one investment or stock in light of the vulnerabilities exposed by the fall of Lehman Brothers and AIG.
“With the fall of giants such as AIG and Lehman Brothers, it has shown that no company, no matter how large, is entirely safe. This means that diversifying your holdings is now even more important. Markets will eventually recover, but the casualties from this financial turmoil, however, will not,” it said.
From a purely research point of view though, the online portal felt that equities generally looked more attractive at the moment as they had been sold down severely.
It likes Asian equities in particular due to their current low valuations, with forward price-earnings ratio (PE) of about 11 to 12 times, which is close to levels during the SARS outbreak in 2003.
It is not aware of any large withdrawals from the unit trust industry despite the battered investor confidence and bearish mood.
Meanwhile, HwangDBS Investment Management Bhd chief investment officer David Ng expects near-term volatility to continue in the global equity and fixed-income markets.
He said the fund management house would continue to hold a defensive posture with relatively high cash buffer and may re-deploy assets to work in Malaysia when local politics stabilised.
He added that the local market, particularly involving funds which had exposure in the equity market, was likely to underperform any global recovery unless there was a decisive resolution to the current political impasse.
Citing Bloomberg, Ng said global equity funds in general had fallen by 4.3% in the MSCI Emerging Markets Index.
“For the more aggressive investors, the coming quarter should present excellent opportunities to invest in equity funds. Meanwhile, the fixed-income fund is suitable for the conservative investor,” Ng said.
Kumpulan Sentiasa Cemerlang (KSC) Sdn Bhd director Choong Khuat Hock said some investors had redeemed their unit trust funds and switched to safer money market investments.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
KUALA LUMPUR: Unit trust funds’ net asset value (NAV) has fallen significantly due to the equity market downturn and volatility, though the industry will remain resilient, said fund experts.
When contacted, Fundsupermart told The Edge Financial Daily that local funds had been affected although they did not have a direct exposure to the United States’ financial crisis.
“Almost all equity funds were down while the returns for fixed income fund were also lower than over the last six months. Based on the 70 funds we sold, equity funds were down 11.9% on average over the last six months, with the majority of them falling in a range of 7% to 17%,” the online unit trust portal said in an email reply.
It said balanced funds dropped on average 7.3% over the last six months, while fixed income funds fared the best, with a declining average of 1.7% with a few managing to turn in a positive return of under 1%.
Fundsupermart said the resilience of fixed-income funds tended to be stronger during such times as investors took “flight to safety” as an option to stay out of equities.
The online portal added that apart from the US turmoil, rising inflation and slowing economic growth had also affected the market. Political instability was also a short-term worry for the Malaysian market.
It noted that volatility was likely to continue, and it was very difficult to time the market bottom but it believed that it was a good opportunity to start accumulating cheap securities by going through the fund investment route.
“Markets will not keep on dropping indefinitely. They will eventually recover. It is better to position for the recovery now in two to three years’ time, as there are attractive bargains to be had now.
“The industry will remain resilient even to market changes such as those we saw over the last two weeks. In fact, it should come out stronger when the worst is over and the dust has settled,” it added.
Fundsupermart said unit trusts would be appreciated as investors would realise the importance of diversification to access global markets and sophisticated sectors or asset classes, rather than risking putting their money into just one investment or stock in light of the vulnerabilities exposed by the fall of Lehman Brothers and AIG.
“With the fall of giants such as AIG and Lehman Brothers, it has shown that no company, no matter how large, is entirely safe. This means that diversifying your holdings is now even more important. Markets will eventually recover, but the casualties from this financial turmoil, however, will not,” it said.
From a purely research point of view though, the online portal felt that equities generally looked more attractive at the moment as they had been sold down severely.
It likes Asian equities in particular due to their current low valuations, with forward price-earnings ratio (PE) of about 11 to 12 times, which is close to levels during the SARS outbreak in 2003.
It is not aware of any large withdrawals from the unit trust industry despite the battered investor confidence and bearish mood.
Meanwhile, HwangDBS Investment Management Bhd chief investment officer David Ng expects near-term volatility to continue in the global equity and fixed-income markets.
He said the fund management house would continue to hold a defensive posture with relatively high cash buffer and may re-deploy assets to work in Malaysia when local politics stabilised.
He added that the local market, particularly involving funds which had exposure in the equity market, was likely to underperform any global recovery unless there was a decisive resolution to the current political impasse.
Citing Bloomberg, Ng said global equity funds in general had fallen by 4.3% in the MSCI Emerging Markets Index.
“For the more aggressive investors, the coming quarter should present excellent opportunities to invest in equity funds. Meanwhile, the fixed-income fund is suitable for the conservative investor,” Ng said.
Kumpulan Sentiasa Cemerlang (KSC) Sdn Bhd director Choong Khuat Hock said some investors had redeemed their unit trust funds and switched to safer money market investments.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Friday, September 19, 2008
Reactions of fund managers, analysts to portfolio swap
TheEdge
KUALA LUMPUR: Surprise, confusion and uncertainty.
These are the words used by the investment community to describe the swapping of portfolios between Prime Minister Datuk Seri Abdullah Ahmad Badawi and Deputy Prime Minister Datuk Seri Najib Razak.
As Najib takes on the mantle of Finance Minister as a prelude to his ascension to the premiership, most fund managers and analysts say it is too early to tell whether this will help stabilise a market that has been battered and bruised by political uncertainty and the meltdown on Wall Street.
While some say that it represents an effort to smooth ruffled feathers in a cabinet that is becoming increasingly divided, others say it could be the start of a comprehensive revamp of the current administration.
Abdullah, who now holds the Defence Ministry portfolio, had said that he could step down as prime minister even sooner.
Most fund managers polled by The Edge Financial Daily said that they would only pass judgment if and when the new finance minister makes his first move.
CIO of TA Investment Management Bhd — Choo Swee Kee
It is a rather confusing move. People will question the reason for the switch and the timing of it as well. Since the Umno elections are coming up, there will already be a fine-tuning of the cabinet then.
The main concern about the switch is that it tends to create uncertainty. It seems as if every week the government comes up with policy changes, which makes it difficult for investors to project the future.
Case in point, when the news came out about the swap, the market reacted negatively because investors were confused and unsure. Going forward we hope to see more stability in the government’s policies.
Portfolio manager for Aberdeen Asset Management Sdn Bhd — Abdul Jalil Rashid
It came as quite a surprise. Perhaps it is Badawi’s way of making a clear point that Najib is his successor, and there has been a call within the party for Najib to be given wider responsibility.
I think he has also been made deputy chairman of Khazanah to give him the responsibility over treasury, future government investments and restructuring, and also perhaps to give him a role in shaping the economic policies of the country.
Although Najib has not managed the Finance Ministry portfolio in the past, he has strong support. Tan Sri Nor Mohamed Yakcop is still there. The prime minister’s role has always been more of a strategic one while Nor Mohamed is more of the executor. Similarly, I think we can expect Najib to have the same role.
This is when Najib gets to show everyone what he is capable of — the Finance Ministry makes or breaks you. This is where policies are made and positions are implemented. If he can show he can implement good policies, this will be a confidence and morale booster when he takes on the top job.
But it is still too early to call how it will affect investor sentiment. We can only tell when he starts implementing policies. This is not a major reshuffle, just a swapping of roles. There will probably be more clarity when he (Najib) starts implementing policies, I think he will be closely watched (by investors).
With so much political uncertainty present now, most are just wishing for all of it to end.
Private equity fund director for KSC Sdn Bhd — Choong Khuat Hock
This helps to enhance Najib’s position during the period of transition. It reiterates that the transition is real and it is going to happen given the importance of the position he was given.
However, there has yet to be a reaction from the market as the cloud of uncertainty still remains. The hope is that Najib will come out with more investor friendly and consistent policies, as it is the recent flip-flop of policies that have unnerved investors.
CIO for Phillip Capital Management Sdn Bhd — Ang Kok Heng
There may be a short-term uneasiness in the market as there will be that initial scepticism on whether he is the right candidate. Most people will be more comfortable with someone who is more relevant.
But we will wait and see. It was like Anwar, everyone wasn’t sure at first because he didn’t have any experience in a portfolio that has to do with the economy.
The sooner Najib has a dialogue session with the local fund managers to share his views and suggestions, the easier it will be for everyone to gauge the condition. In terms of foreign investment, there would be a little uncertainty present as there could be the emergence of new policies and new directions.
OSK Research analyst — Chris Ng
Although this move is a sign that the transition is definitely in the works, political uncertainty still weighs heavily on the market. Hopefully this will indicate a smoother transition of power, which will help end the uncertainty.
But it is really hard to say at this point how this switch will affect the market, which means that the outlook over the next few months will continue to be hazy. However, each leader has his or her own style so most are just waiting to see what Najib does first.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
KUALA LUMPUR: Surprise, confusion and uncertainty.
These are the words used by the investment community to describe the swapping of portfolios between Prime Minister Datuk Seri Abdullah Ahmad Badawi and Deputy Prime Minister Datuk Seri Najib Razak.
As Najib takes on the mantle of Finance Minister as a prelude to his ascension to the premiership, most fund managers and analysts say it is too early to tell whether this will help stabilise a market that has been battered and bruised by political uncertainty and the meltdown on Wall Street.
While some say that it represents an effort to smooth ruffled feathers in a cabinet that is becoming increasingly divided, others say it could be the start of a comprehensive revamp of the current administration.
Abdullah, who now holds the Defence Ministry portfolio, had said that he could step down as prime minister even sooner.
Most fund managers polled by The Edge Financial Daily said that they would only pass judgment if and when the new finance minister makes his first move.
CIO of TA Investment Management Bhd — Choo Swee Kee
It is a rather confusing move. People will question the reason for the switch and the timing of it as well. Since the Umno elections are coming up, there will already be a fine-tuning of the cabinet then.
The main concern about the switch is that it tends to create uncertainty. It seems as if every week the government comes up with policy changes, which makes it difficult for investors to project the future.
Case in point, when the news came out about the swap, the market reacted negatively because investors were confused and unsure. Going forward we hope to see more stability in the government’s policies.
Portfolio manager for Aberdeen Asset Management Sdn Bhd — Abdul Jalil Rashid
It came as quite a surprise. Perhaps it is Badawi’s way of making a clear point that Najib is his successor, and there has been a call within the party for Najib to be given wider responsibility.
I think he has also been made deputy chairman of Khazanah to give him the responsibility over treasury, future government investments and restructuring, and also perhaps to give him a role in shaping the economic policies of the country.
Although Najib has not managed the Finance Ministry portfolio in the past, he has strong support. Tan Sri Nor Mohamed Yakcop is still there. The prime minister’s role has always been more of a strategic one while Nor Mohamed is more of the executor. Similarly, I think we can expect Najib to have the same role.
This is when Najib gets to show everyone what he is capable of — the Finance Ministry makes or breaks you. This is where policies are made and positions are implemented. If he can show he can implement good policies, this will be a confidence and morale booster when he takes on the top job.
But it is still too early to call how it will affect investor sentiment. We can only tell when he starts implementing policies. This is not a major reshuffle, just a swapping of roles. There will probably be more clarity when he (Najib) starts implementing policies, I think he will be closely watched (by investors).
With so much political uncertainty present now, most are just wishing for all of it to end.
Private equity fund director for KSC Sdn Bhd — Choong Khuat Hock
This helps to enhance Najib’s position during the period of transition. It reiterates that the transition is real and it is going to happen given the importance of the position he was given.
However, there has yet to be a reaction from the market as the cloud of uncertainty still remains. The hope is that Najib will come out with more investor friendly and consistent policies, as it is the recent flip-flop of policies that have unnerved investors.
CIO for Phillip Capital Management Sdn Bhd — Ang Kok Heng
There may be a short-term uneasiness in the market as there will be that initial scepticism on whether he is the right candidate. Most people will be more comfortable with someone who is more relevant.
But we will wait and see. It was like Anwar, everyone wasn’t sure at first because he didn’t have any experience in a portfolio that has to do with the economy.
The sooner Najib has a dialogue session with the local fund managers to share his views and suggestions, the easier it will be for everyone to gauge the condition. In terms of foreign investment, there would be a little uncertainty present as there could be the emergence of new policies and new directions.
OSK Research analyst — Chris Ng
Although this move is a sign that the transition is definitely in the works, political uncertainty still weighs heavily on the market. Hopefully this will indicate a smoother transition of power, which will help end the uncertainty.
But it is really hard to say at this point how this switch will affect the market, which means that the outlook over the next few months will continue to be hazy. However, each leader has his or her own style so most are just waiting to see what Najib does first.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Monday, September 8, 2008
Asset manager warns of tough times ahead
TheStar
Most firms will experience tight margins in next few quarters
COMPANIES will still feel margin pressures in the next few quarters, as they cope with higher input costs and waning demand.
“This puts everyone in a difficult position to make headway and is unlikely to change in the next few quarters.
“Companies have to go through this period and work for the long term,” Aberdeen Asset Management senior investment manager of global equities Jeremy Whitley told StarBiz recently.
Whitley was one of the speakers at the recently held Second Institutional Investor Series Seminar: Maximising Returns in Uncertain Times organised by the Securities Industry Development Corp (SIDC).
The global investment company has some 12% to 15% of its portfolio in Asian stocks.
Whitley said the fund invested in “sensible” companies with sustainable cashflow and a strong balance sheet.
“We look for companies that are doing sensible things with their cashflow and we keep monitoring the progress,” he said, adding that investors should stay long term and be patient with their investments.
With commodity prices coming off their highs, inflationary pressures may too be unwinding. Whitley, however, cautions on the risk of deflation.
“Deflation is more worrying because once you have deflation, it’s extremely difficult to get rid of,” he said. Deflation happens when prices go down while demand is weak in the economy.
The de-leveraging and unwinding of commodity, housing and financial positions are deflationary pressures that are pushing prices down.
Whitley said Asia’s demand should be stronger to pick up the slack of any recession risk. Until Asian consumers gain more confidence, the region would be unable to decouple itself from the US and the rest of the world.
Nonetheless, Asia would still see decent growth compared with the Anglo-Saxon countries, he added.
SIDC chief executive officer John Zinkin said Asians had a culture of high savings. “The Chinese, for example, believe in holding to what they have,” he said.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose also noted that Malaysia’s savings rate was 37% of gross domestic product. “The confidence level could still be comfortable if the savings rate fell to 25% and this would release about RM200bil into the system.”
Malaysia has the luxury of crude palm oil exports as well as opportunities from the Middle East in sectors like construction, halal food and Islamic finance.
“The issue with Malaysia is the wage structure, which causes brain drain. Talent is leaving the country for more lucrative salaries. You don’t value labour when you don’t pay for it,” he said.
Meanwhile, China may have been attracting foreign investments, thanks to its low cost of labour but it will take them some 20 years to add value, as this will require scientific expertise and innovations.
“Twenty years is not a long time if you consider that the Americans took 80 years to become an industrialised country, Japan 40 years while the South Koreans 25 years,” Zinkin said.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Most firms will experience tight margins in next few quarters
COMPANIES will still feel margin pressures in the next few quarters, as they cope with higher input costs and waning demand.
“This puts everyone in a difficult position to make headway and is unlikely to change in the next few quarters.
“Companies have to go through this period and work for the long term,” Aberdeen Asset Management senior investment manager of global equities Jeremy Whitley told StarBiz recently.
Whitley was one of the speakers at the recently held Second Institutional Investor Series Seminar: Maximising Returns in Uncertain Times organised by the Securities Industry Development Corp (SIDC).
The global investment company has some 12% to 15% of its portfolio in Asian stocks.
Whitley said the fund invested in “sensible” companies with sustainable cashflow and a strong balance sheet.
“We look for companies that are doing sensible things with their cashflow and we keep monitoring the progress,” he said, adding that investors should stay long term and be patient with their investments.
With commodity prices coming off their highs, inflationary pressures may too be unwinding. Whitley, however, cautions on the risk of deflation.
“Deflation is more worrying because once you have deflation, it’s extremely difficult to get rid of,” he said. Deflation happens when prices go down while demand is weak in the economy.
The de-leveraging and unwinding of commodity, housing and financial positions are deflationary pressures that are pushing prices down.
Whitley said Asia’s demand should be stronger to pick up the slack of any recession risk. Until Asian consumers gain more confidence, the region would be unable to decouple itself from the US and the rest of the world.
Nonetheless, Asia would still see decent growth compared with the Anglo-Saxon countries, he added.
SIDC chief executive officer John Zinkin said Asians had a culture of high savings. “The Chinese, for example, believe in holding to what they have,” he said.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose also noted that Malaysia’s savings rate was 37% of gross domestic product. “The confidence level could still be comfortable if the savings rate fell to 25% and this would release about RM200bil into the system.”
Malaysia has the luxury of crude palm oil exports as well as opportunities from the Middle East in sectors like construction, halal food and Islamic finance.
“The issue with Malaysia is the wage structure, which causes brain drain. Talent is leaving the country for more lucrative salaries. You don’t value labour when you don’t pay for it,” he said.
Meanwhile, China may have been attracting foreign investments, thanks to its low cost of labour but it will take them some 20 years to add value, as this will require scientific expertise and innovations.
“Twenty years is not a long time if you consider that the Americans took 80 years to become an industrialised country, Japan 40 years while the South Koreans 25 years,” Zinkin said.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Tuesday, September 2, 2008
Commodities better option
TheStar
COMMODITIES are expected to remain one of the best investments this year amid the global economic slowdown as strong demand will persistently outstrip supply.
World-renowned commodity investment expert Jim Rogers maintained that the bull market in commodities was far from over, despite the current pullback in major commodity prices on recession fears.
He told StarBiz: “While I am a terrible market timer and the single worst investor you ever met, the commodities market can frequently correct 40% to 50% even during a bull market.”
Citing the crude oil bull market in 1999, he said the commodity prices had gone down 40% to 50% during that period.
“Currently, there are still attractive opportunities as most commodities, based on their historic price levels and adjusted-for-inflation, are relatively cheap and below their all-time highs.
“I will continue to look at agriculture commodities like sugar, coffee and cotton as well as base metals like zinc, silver, tin, lead and copper.
“Even if the world economy is going to collapse with everything coming down, I will opt to own wheat and cotton rather than Google or IBM shares!” Rogers said.
In April 2006, Rogers correctly predicted oil would reach US$100 a barrel and gold US$1,000 an ounce. Oil reached a record $142.99 a barrel on June 27.
“Investors should always buy low when things are correcting. It is too bad when most usually don’t take this advice.
“I personally prefer to buy when markets are declining rather than rising,” added.
Rogers’ inaugural visit to Malaysia was under the courtesy of Citibank Bhd, where he was the special speaker at the Citigold Wealth Management Leadership Series.
Rogers had co-founded the Quantum Fund, a global investment group with investment wizard George Soros. Rogers is also known for establishing his own commodity index – Rogers International Commodity Index (RICI) – a composite US dollar based total return index.
This index has risen a whopping 418.51% over the last decade.
On suitable investments for retail investors, Rogers said: “Most studies have shown that index investing is the best in every asset class in every industry.
“Index investing has outperformed active investment managers by 80% most of the time year after year.”
On investment in emerging markets, especially China, Rogers admitted that he had been buying some shares and renminbi and planned to buy more.
On the perception that commodity investment is highly risky compared with stocks, he said: “Many people lost in the dotcom bubble and stocks too over the years. Commodities, in fact, has turned less risky over the past two decades.
“Stocks can go to zero. In the case of natural gas-based Enron, its shares went to zero (after the financial debacle).
“On the other hand, natural gas can never go to zero. It can go down, obviously, but it can never go to zero.”
A study by Yale University indicated that investors could gain 300% more by investing in commodities than in commodity companies, with less volatility and a better inflation hedge.
In his latest book Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market, Rogers was quoted as saying, “History shows that the bull market in commodities will last a long time, meaning the current rally may continue through 2014 to 2022.”
Asked whether the bull run in agriculture-based commodities will be much shorter than metal-based commodities, Rogers said: “With agri commodities, the world is facing a new problem – the inventory of agri-based food products is currently the lowest seen in over 50 to 60 years.
“The world has never experienced such a situation. Even in the 1970 when we had a big bull market in agriculture products, the world still had a high food inventory. This time around, we don’t.”
Furthermore, in the advent of poor weather, the bull market in agriculture products and food could last much longer, he added.
He blamed the current low inventory levels in most agriculture-based commodities to the biofuel hype: “We are burning a lot of agriculture-based food products into our fuel tank. This is something which the world has never done before.”
Rogers said production of biofuel, especially from corn, was a horrible waste of time, money and energy.
“Global food prices have risen due to the biofuel drive,” he said.
But, does that mean biofuel production will stop?
“Unfortunately, no. Biofuel is here to stay at least in the foreseeable future. Politicans simply love it,” Rogers added.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
COMMODITIES are expected to remain one of the best investments this year amid the global economic slowdown as strong demand will persistently outstrip supply.
World-renowned commodity investment expert Jim Rogers maintained that the bull market in commodities was far from over, despite the current pullback in major commodity prices on recession fears.
He told StarBiz: “While I am a terrible market timer and the single worst investor you ever met, the commodities market can frequently correct 40% to 50% even during a bull market.”
Citing the crude oil bull market in 1999, he said the commodity prices had gone down 40% to 50% during that period.
“Currently, there are still attractive opportunities as most commodities, based on their historic price levels and adjusted-for-inflation, are relatively cheap and below their all-time highs.
“I will continue to look at agriculture commodities like sugar, coffee and cotton as well as base metals like zinc, silver, tin, lead and copper.
“Even if the world economy is going to collapse with everything coming down, I will opt to own wheat and cotton rather than Google or IBM shares!” Rogers said.
In April 2006, Rogers correctly predicted oil would reach US$100 a barrel and gold US$1,000 an ounce. Oil reached a record $142.99 a barrel on June 27.
“Investors should always buy low when things are correcting. It is too bad when most usually don’t take this advice.
“I personally prefer to buy when markets are declining rather than rising,” added.
Rogers’ inaugural visit to Malaysia was under the courtesy of Citibank Bhd, where he was the special speaker at the Citigold Wealth Management Leadership Series.
Rogers had co-founded the Quantum Fund, a global investment group with investment wizard George Soros. Rogers is also known for establishing his own commodity index – Rogers International Commodity Index (RICI) – a composite US dollar based total return index.
This index has risen a whopping 418.51% over the last decade.
On suitable investments for retail investors, Rogers said: “Most studies have shown that index investing is the best in every asset class in every industry.
“Index investing has outperformed active investment managers by 80% most of the time year after year.”
On investment in emerging markets, especially China, Rogers admitted that he had been buying some shares and renminbi and planned to buy more.
On the perception that commodity investment is highly risky compared with stocks, he said: “Many people lost in the dotcom bubble and stocks too over the years. Commodities, in fact, has turned less risky over the past two decades.
“Stocks can go to zero. In the case of natural gas-based Enron, its shares went to zero (after the financial debacle).
“On the other hand, natural gas can never go to zero. It can go down, obviously, but it can never go to zero.”
A study by Yale University indicated that investors could gain 300% more by investing in commodities than in commodity companies, with less volatility and a better inflation hedge.
In his latest book Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market, Rogers was quoted as saying, “History shows that the bull market in commodities will last a long time, meaning the current rally may continue through 2014 to 2022.”
Asked whether the bull run in agriculture-based commodities will be much shorter than metal-based commodities, Rogers said: “With agri commodities, the world is facing a new problem – the inventory of agri-based food products is currently the lowest seen in over 50 to 60 years.
“The world has never experienced such a situation. Even in the 1970 when we had a big bull market in agriculture products, the world still had a high food inventory. This time around, we don’t.”
Furthermore, in the advent of poor weather, the bull market in agriculture products and food could last much longer, he added.
He blamed the current low inventory levels in most agriculture-based commodities to the biofuel hype: “We are burning a lot of agriculture-based food products into our fuel tank. This is something which the world has never done before.”
Rogers said production of biofuel, especially from corn, was a horrible waste of time, money and energy.
“Global food prices have risen due to the biofuel drive,” he said.
But, does that mean biofuel production will stop?
“Unfortunately, no. Biofuel is here to stay at least in the foreseeable future. Politicans simply love it,” Rogers added.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
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