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Monday, October 25, 2010

Seeking high dividend stocks in Asian markets

This is not just a short-term tactical strategy but one which can also pay off in the long run.

Mon, Oct 25, 2010
The Business Times

By Eric Sandlund

INVESTORS probably don't need reminding of how low deposit rates are.

In Singapore, the average savings rate is 0.14 per cent while 12-month fixed deposits are offering only 0.47 per cent. And it is likely that interest rates will stay at these low levels for a while longer.

A lot depends on what happens in the US. The US economic recovery has been a wobbly one and the US Federal Reserve has signalled that it may embark on more 'quantitative easing' to support the economy.

Quantitative easing encompasses a range of possible policy actions but its main objective is to push down interest rates.

Singapore interest rates are influenced by the actions of the Fed and very low interest rates in the US mean very low interest rates here.

If investors take the current 3 per cent inflation into account, real interest rates are not just low but in fact negative. Not surprisingly, holding cash is unattractive and investors want alternatives.

Related stories:
» 5 things to consider with today's low interest rates
» 3 ways to avoid investing with the herd
An environment flushed with so much liquidity should in theory benefit equity markets but investing in equities this year has been challenging.

Investors have had to cope with large gyrations in the market as sentiment has been switching between 'Risk On' and 'Risk Off'.

Range bound

UBS is not in the 'double-dip' camp but we expect equity markets to be range bound until there are clear signs that the US economy is not entering another recession.

We remain positive on Asia's economic prospects and believe that the region's superior growth and earnings will in due course be reflected in equity prices.

However, until investors are ready to reward growth, we have tactically adopted a defensive strategy of seeking high dividend stocks in our Asian equity positioning.

Dividends are not traditionally a focus of investors in Asia. After all, investors buy Asian equities for growth.

During bull markets, the capital gains are sizeable and dividends are dwarfed.

In a trendless market, dividends are, however, attracting more attention from investors.

As at the end of September this year, the MSCI Singapore index was up 7.2 per cent , with a capital return of 4.5 per cent and dividends contributing 2.7 per cent.

Investing in stocks for their dividends is in fact not just a short-term tactical strategy but one which can also pay off in the long run.

What many investors probably don't realise is how much dividends have contributed to total equity returns over time.

Take the last 10 years. For Singapore, dividends have contributed a 66 per cent of total equity returns while in Hong Kong, the number was even higher, over 80 per cent. For the region as a whole, dividends have accounted for over 40 per cent of total returns in the last 10 years.

Dividends matter so much in Asia because of the high level of volatility of Asian equity markets. Market declines, when they occur, can be so deep that large portions of previous capital gains are often wiped out.

Any investment strategy comes with risk. Buying a stock for its expected dividend payout means taking a risk that the dividends do indeed materialise and cash is actually paid back to shareholders. Dividends are a function of earnings. If earnings decline, dividends will decline.

A company can also choose to do a number of things with its cash. It can reduce its debt level, it can embark on capital spending, it can engage in mergers & acquisitions, or it can pay dividends. A company which cuts its dividends will not infrequently see its share price punished by the market.

A successful dividend strategy really requires two sets of capabilities.

First, for efficiency, you need a quantitative tool to screen for high dividend stocks from the rapidly expanding Asian equity universe.

Equally important is the ability to select the companies which will not disappoint in their dividend payouts. That's the qualitative aspect - experience, skill and hard work.


An added risk with a dividend strategy is that high dividend stocks tend to be concentrated in certain markets and certain sectors. These would typically be the more developed Asian markets of Singapore, Hong Kong and Taiwan and the more defensive sectors such as telecoms and utilities. Like any other portfolio, a dividend focused portfolio should be sufficiently diversified, to balance risk with reward.

Although a dividend strategy is primarily seen as a defensive strategy, it is nevertheless possible for skilled managers to generate alpha over the course of the full cycle and outperform the broader market.

This is because high dividends and growth are not mutually exclusive in Asia. A company can offer both sustainable dividends and capital gains if it does not blindly pursue growth but adopts business strategies which are sustainable. These, you could say, are the true blue chips in Asia.

The writer is head of UBS Investment Management APAC

Gold - The Worst Form Of Investment Over The Last 30 Years

Gold - The Worst Form Of Investment Over The Last 30 Years

By : Charlie Lau Suan Liat

September 2010 saw gold hit an all-time high of over US$1,300 an ounce. Many reasons, ranging from the quantitative easing of debts in US, UK & Japan to expand their central banks’ balance sheets, to the “currency warfare” between the US$ and major Asian currencies, have prompted investments in equities and gold to lock-in weaknesses in currencies. This resulted in gold price being chased up to the all-time high.

For investors looking at short-term gains or speculating in gold, there are reasons to be bullish on this “feel-good metal”. Banks & commodity brokers here in Singapore are already bracing themselves for heavy trading in the bullion futures. As reported by The Straits Times on 30 September 2010, Chief Executive Thomas McMahon of the Singapore Mercantile Exchange mentioned that “BNP Paribas, Citigroup, Credit Suisse, JPMorgan and Standard Chartered are currently expanding their bullion trading desks.”

With JPMorgan’s gold vault being completed at the Freeport near Changi Airport, gold trading wannabes can expect more countries to trade gold in Singapore. The advantages are plenty. More gold are mined in the Australasia regions than in America or Europe. So, keeping the gold safely in nearby Singapore makes sense. Gold futures trades have to be settled in physical gold on due date. Hence, it also makes sense keeping the gold in Singapore than keeping it in London or in New York for the futures settlements.

For the longer term, would gold continue to appreciate in value? To answer this question, we have to qualify how long is long? Then, we have to decide whether or not the rise in gold price would be offset by the depreciation of one’s lock-in currency in the metal.

To start off, let us look at gold’s price 30 years ago in US$ that is locked in S$. In 1979, gold’s high was US$880 an ounce. Now, it is US$1,300. For the last 30 years, gold appreciated US$420 per ounce or 48%. 30 years ago, US$ to S$ was about US$1 to S$2.40. Now, it is US$1 to S$1.31 or minus 45%.

One ounce gold in 1979 @ US$880 @ the rate of S$2.40 cost S$2,112.

One ounce gold in Sep-10 @ US$1,300 @ the rate of S$1.31 cost S$1,703.

After 30 years, net loss in gold would be S$409 or -19%.

One year from now, would gold appreciate in price? Most would agree that with inflation and the weakness of the US$, gold would most likely appreciate in price. As one ounce of gold now is US$1,300, a Singaporean investor would have to pay S$1,703, at the exchange rate of US$1 to S$1.31.

Assuming one year from now, gold price appreciates 10% to US$1,430 (a one-year view from the London Bullion Market Association - The Straits Times, 30 September 2010). Assuming also, one year from now, the US$ versus S$ rate drops 10% - US$1 to S$1.18. One year from now, one ounce of gold would then cost S$1,687, representing a loss of S$16 (the 10% drop in US$/S$ rate and the 10% rise in gold one year from now are subjective and for the purpose of illustration only).

This illustration shows that although gold may appreciate in price, an investor may not necessary make money if the US$ is weak against the lock-in currency.

The cheapest way to invest in gold (in terms of transaction cost) is to open a Gold Passbook Account with United Overseas Bank (hitherto no other bank provides this service). The buy/sell spread is narrowest compared to the gold futures quote. No commission is levied (for details, please check with UOB).

Speculating gold futures or any futures is high-risk gambling with a deposit of as little as 5% collateral or less. Any slight movement in the metal price against the speculator would cause his position to be automatically closed by his broker resulting in the loss of all his collateral.

Friday, October 22, 2010

Risk Comes From Not Knowing What You Are Doing

22 October 2010
By : Chiang Kian Seng

“I heard from my friends that Forex trading is risky”

“Investing in stocks is risky, better to leave my money in fixed deposits”

“I know of someone that got burnt trading in the stock market, better not take the risk”

“Isn’t Forex trading riskier than trading stocks?”, etc.

These are some of the many comments and questions we often get from our students and members of the public who attend our free seminars. The word “risk” always seems to be mentioned in the same breath with the words “investing” or “trading”.

So, let us get a handle on this word, “Risk”. What does it really mean?

Looking up the word in a dictionary, “Risk” is generally defined with regards to investing as follows:

“The quantifiable likelihood of loss or less-than-expected returns”.

In most cases, people associate risk of investing with uncertainty and volatility of the instrument that they are trading or investing in. I think the keyword here is uncertainty. It is often the lack of knowledge and skill that makes trading and investing risky and not the instrument itself.

The Risk Is Not In The Car; It Is The Driver Behind The Wheel

Take driving a car as an example, the car being analogous to the trading or investing instrument. It would be a risky situation if a person decides to drive a car without having undergone any form of training. It is the person’s lack of knowledge and skill that makes the situation risky and not the car. Similarly, if someone wants to trade or invest in a particular instrument but has not undergone any form of training, this person would be assuming a higher risk, and it has nothing to do with the instrument.

To be a good investor and trader, one must first seek knowledge about the instrument that one is going to trade or invest in. It is similar to taking on a new job. First, you must learn what your new role is all about, what kind of tools are there to help you in your everyday routines, what are the skill sets needed to perform your new job properly, etc. After that, once you have acquired the knowledge and learnt the skills required, you still need a period of constant practice to apply your newly acquired knowledge and hone your new skills. It is only after having practised for a sustained period of time before one is able to get the “feel” of the job and perhaps do it with ease and confidence.

Risk Can Be Alleviated With Proper Education & Experience

This is the same process that you must commit to undertake when you decide to invest in any market. First and foremost, you must get yourself educated. It is strange that most parents would not think twice to pay high school fees to send their kids to university, when there is no real guarantee that they will succeed in life after getting their degree. However, when it comes to paying for financial education, where there is a chance they can lose all of the kids’ education funds, many people shy away because of the price. Instead, they would rather risk their hard earned money in a market or instrument that they have little knowledge of, or worse, investing based on rumours or tips from various unverified sources.

Most people are attracted by the myth of quick, easy money from investing or trading but fail to understand that it takes a lot of hard work to be successful. Everyone equates being a doctor or lawyer to earning lots of money. But it is also common understanding that to be a doctor or a lawyer requires one to put in many years of education and practice before one can be successful. Ask anyone about his or her current job and you would most likely get the same response that hard work is the norm. How then can it be different for investing and trading?

“Risk Comes From Not Knowing What You Are Doing” - the title of this article, is also a famous quote from arguably the most prolific investor in history, Warren Buffett. It sounds simplistic, but it epitomises the real meaning of the word “Risk”. Any instrument, be it stocks or forex will be dangerous if you don’t know what you are doing. It is not the instrument but the level of the investor’s understanding of the instrument and the market that determines his risk level. So, do yourself a favour, invest in your financial education before you invest in the markets. I leave you with another quote from Mr. Buffett: “The most important investment you can make is in yourself”.

Chiang Kian Seng, Trainer at FXDS Learning Group Pte Ltd, has more than 3000 hours of experience in trading and investing in Stocks, Forex and CFDs. To learn more about FXDS Learning Group and the financial education courses they offer, please go to

Tuesday, October 12, 2010

Don't follow your heart in the market

Following the market is one of the worst ways to make investment decisions, experts say.

Tue, Oct 12, 2010
my paper

IT'S A well-known fact that investors love "hot" stocks.

They're always interested in learning about the latest market sentiments, which companies other investors are putting their money on, and chasing stocks that are on the upswing.

But following the market is one of the worst ways to make investment decisions, experts say. Investors miss prime buying opportunities and lose out on good returns, especially if they focus only on the short term.

"Value in the long run is determined by (company) fundamentals, while short-term gyrations reflect market participants' psychological weaknesses, such as herding," Georgetown University accounting and finance professor Prem Jain wrote in his latest book, Buffett Beyond Value: Why Warren Buffett Looks To Growth And Management When Investing.

"Knowledge is the best antidote to making wrong decisions," he said.

Such knowledge applies on a variety of fronts: understanding market psychology, examining the intrinsic value of a stock, and identifying your own buying and selling patterns.

Know what drives the market

Prof Jain may have highlighted the importance of fundamentals, but he and other experts would add that fundamentals alone do not drive stock prices - investors' emotions also play a role.

Stock prices often move in wild swings, particularly in the short run, because they are driven to a large extent by emotions and human behaviour.

Fear, greed, attachment, overconfidence, denial and optimism drive the market, often without much basis. Most investors also don't have the self-discipline to overcome these emotions.

Market trends leading to booms and busts do not last forever and will eventually reverse. As historical data shows, there are few warning signs for investors to take heed of before the market moves in the opposite direction.

Investors thus need to learn how to spot when emotions and human behaviour are driving stock prices.

They need to look beyond what others are buying and think of a winning strategy instead.

Commit to a strategy

As investors may well point out, it's easy to talk about behaving rationally, but it's immensely difficult to walk the talk

Essentially, investors need to prepare and pre-commit, argued Mr James Montier, author of The Little Book Of Behavioural Investing: How Not To Be Your Own Worst Enemy.

He pointed out that investors can and do control the process by which they invest: They simply need to remove the drivers of forced decisions from their portfolios.

To do that, they need to do their research in a cold, rational state. They must seek out the intrinsic value of a stock, and then pre-commit to following their own analysis and prepared steps of action.

Firstly, an investor might want to evaluate the fundamentals on a combination of fronts, such as the price-to-earnings ratio of the stock, its track record, how conservatively the company is financed, and what makes the stock likely to be worth more in the future.

Mr Montier also pointed out in his book that it's useful to have a "wish list" of companies you believe to be well-run and have sustainable potential, but are priced too high.

Standing orders can be placed with brokers to buy these stocks if, for some reason, the market brings their prices down to bargain levels.

Still, it might be also a good idea to follow Mr Buffett's core investment principle of investing only within your circle of competence, buying stocks of companies whose businesses you truly understand.

Understand your own investment behaviour

Another notable point highlighted by experts is that investors should focus more on the process of investing, rather than on just the outcome, as there are no magical short cuts to being a good investor.

Investors need to understand their own investment habits, particularly where their weaknesses lie.

And this is best done by putting it all down on paper, said Prof Jain.

He encouraged investors to write down the various investment decisions they made, what types of stocks they bought, pinpoint the reasons behind the decision, and separate all the months the market went up from the months it went down.

This would enable an investor to establish if he is a net buyer or net seller during the various months, and whether he may have a herd mentality.

"Systematic thinking will help you determine what you know or do not know, and help to overcome your psychological biases," said Prof Jain.

"Ultimately, everyone has to make judgment calls, but following a systematic approach will help you know when you are making a judgment call."

Local tycoon blows $100m at the tables

by Conrad Raj 05:55 AM Oct 12, 2010 SINGAPORE

Sources have told Today that a local businessman, who appeared on the latest Forbes list of Singapore's 40 richest people, recently lost a total of $100 million at the two casinos here.

While significant, this is a fraction of his estimated net worth. But he's not the only high-roller to discover that "the house always wins".

Around the same time, sources said, another tycoon from the timber-rich East Malaysian state of Sabah lost $50 million here.

"These guys can well afford the losses," said one high-roller who is a regular at Singapore's two casinos - at Resorts World Sentosa and Marina Bay Sands.

However, while gamblers losing $10 million to $20 million over a few sessions in the rooms reserved for high-rollers are no longer a rare breed, the source said that whispers of these two businessmen parting with a total of $150 million have raised more than a few eyebrows, even among the regulars.

News of these two multi-million-dollar casino losers comes amid an update that local businessman Henry Quek, who lost $26 million during a three-day gambling spree, is said to have settled his debts.

Mr Quek, the managing director of Far Ocean Sea Products, a seafood processing and trading company operating out of Fishery Port Road in Jurong, had initially considered legal action against Resorts World Sentosa for granting him credit too easily.

It is understood that the casino had shaved $6 million off his debt initially and another $3 million after the media reports about the case.

Mr Quek is said to have settled the rest of the outstanding debt. Unlike Mr Quek, the two latest multi-million-dollar losers, who are believed to have put their money at gaming tables of both Resorts World Sentosa and Marina Bay Sands, are said to have absorbed their losses without any complaints.

Against the backdrop of such mega-losses by individual high-rollers, analysts say it is not surprising Mr Sheldon Adelson, chairman of Las Vegas Sands, parent of Marina Bay Sands, predicted that Singapore could, in a few years, overtake Las Vegas as the world's second-largest gaming centre behind Macau.