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Sunday, March 31, 2013

Young investors, time is on your side

You can afford to take bigger risks than people with families or who are retiring

31 March 2013
By Joyce Teo

Learning to invest wisely is tough. For a young investor, the investing world may seem like a mind-boggling maze, which is why many shy away from it.

But it pays to start investing early as time is your ally. The young can afford to take bigger risks than those with family responsibilities or who are getting closer to retirement.

Another compelling reason to learn about investing right now is the low interest rates being paid on bank deposits. Rates of below 1 per cent are far outstripped by inflation - and mean your money is losing value.

Yet, for many young people, it may seem like too much trouble to think about now. Wait to accumulate enough savings, you may say. But as you earn more, your spending increases, along with your responsibilities.

Taking the first step is the hardest part. Just remember that it will get easier. To get started, here are some things to consider:

Don't invest all your savings

You may be young with nary a care in the world. Nevertheless, you should set aside a fund for emergencies as you never know when you may need it. Take care of your current needs before you invest for the future, and make sure you first have adequate health insurance.

And then, only invest the amount that you can afford to lose, without losing too much sleep over it. This means you have to understand your financial goals, know your investment horizon and how much risk you can take.

"This is because some investments may be illiquid (cannot be sold easily or exchanged for cash), and volatile," says Mr Abel Lim, executive director of personal financial services at UOB.

Don't be hasty or lazy

You hear your aunty or neighbour talking about that hot stock. It will shoot up in value next week for sure, they confidently predict.

It's all very tempting and all too easy to just buy that stock. But stop yourself.

"Don't listen to rumours and hearsay," says Mr Terence Wong, co-head of research at DMG & Partners Securities.

And, says Mr Tan Shen-Lin, vice-president of OCBC Securities: "Don't blindly follow advice without adequate understanding of the mechanics and risks associated with the stock investment."

Always do your own homework. Find out why a stock may rise, for instance. "Take a course in investing. Understand how stocks are valued," says Mr Wong.

Read books on investing and keep up to date with current affairs. To learn more, you can also join young investor programmes. OCBC Securities, for instance, has the Young Investors Pack programme while Phillips Securities has the Young Investors Group programme.

Do not procrastinate

It's time to get started and no amount is too small. If you do not have a lump sum of, say, $5,000 to spare, start small but be prepared to build it up every month.

Investors can start investing with as little as $100 per month. Find out more about the various products out there. Phillip Securities, for instance, has the Share Builders Plan, which allows investors to buy small bundles of shares for a minimum of $100 a month.

Mr Lim says a good start option for younger investors would be an equity-based unit trust with a focus on income.

"Typically, the underlying equities of these funds are more stable, and possess better risk-reward characteristics compared with fixed income products.

"If the dividend payouts of the fund are reinvested, the power of compounding will accelerate the portfolio returns over time."

Do not lose heart

"Young investors should also recognise that stock investments come with the possibility of losses," says Mr Tan.

Understanding this will help them to manage losses and learn from the experience, he adds.

Remember that markets go up and down. "Investment is not about betting on the next big market mover," says Mr Lim.

"It should be a well thought-out process planned together with a qualified financial consultant to determine your financial goals and the level of risk you can stomach."

Make money 'without actual work'
After tuition centre foray, investment banking is next

Background story


If you are keen on a company's shares, take the time to understand the background of the company before you part with your money.

OCBC Securities' Mr Tan Shen-Lin suggested some questions that you should ask yourself:
 •Is the company making profits?
 •Is the company able to differentiate itself from its competitors?
 •Is the management strong and able to lead the company to greater heights or navigate a challenging economy?
 •Is the company able to repay its debts in a timely manner?
 •How does the company use the profits? Does it pay dividends or reinvest the profits in areas such as research and development?

Investors also need to be aware of the various factors that may affect the share price. For example, the share price of a company that is performing well may be affected by unfavourable economic conditions or forecasts, or interest rate hikes or cuts.

Want to get started on investing? Here are some tips

Published on Mar 30, 2013

Think long-term, learn from experts and beware of being led astray by the herd mentality

By Anita Gabriel Senior Correspondent

Youth, they say, is wasted on the young. Yet, the only ones who believe that are in the winter years of their lives.

But in terms of investing, that well-worn saying couldn't be further from the truth.

Time on one's side, as the young have in spades, is probably the single biggest advantage anyone can have when it comes to investing.

Have a fetish for dividends? Imagine that compounded over a longer horizon.

Need to ride out the bust-boom cycles? It'll be less stomach-churning if you've got time to suffer the slips and slides.

Naturally, more time to plump up the savings means you need to put aside less and still get to see it grow more.

So, it's easy to appreciate the sense in starting out early even as the young ones are busy glamming up for a party night, frolicking on the soccer field or burying their faces in books to add more frills to their resumes.

There's hope. Anecdotal evidence in Singapore suggests that the number of young investors is rising, with most starting out with an average of $10,000 to invest.

The variety of trading platforms introduced by stockbroking houses for young investors further cements the notion that this is a segment that is growing and can't be ignored.

This gadget-savvy generation are also more likely to carry out their trading via online platforms.

Being a novice investor today is much easier than it was a decade ago. Access to information, use of technology and availability of multiple platforms have made it so easy to buy stocks and other asset classes.

The young are more likely to self-trade than their elders, partly motivated by a need to cut costs and partly due to their craving for seamlessness and immediacy in their pursuit of financial freedom.

There is much the older generation can re-learn from the young, such as the joys of spontaneity and the liberating trait, fearlessness.

But here are some takeaways which novice investors can learn from their more experienced counterparts who have logged more investing years.

1 Start early

It doesn't matter how small you start when investing. Just get started. It's like losing weight - you start slow and there seems to be little payoff, then suddenly you start seeing returns.

In Singapore, that means when you're 18 years old, the age at which trading stocks is permitted.

When you start can determine the size of your nest egg.

2 Read and reap

Tap the abundant literature on investing tips by experts.

Robert Kiyosaki's Rich Dad, Poor Dad is a book espousing financial literacy and encouraging one to invest in real assets which generate cash flow as opposed to parking the funds passively in banks. That's a sure way to manage inflation and make money.

Get a healthy dose of motivation from my personal favourite and another best seller, Think And Grow Rich by Napoleon Hill. It is a classic which offers timeless financial advice.

"If you do not see great riches in your imagination, you will never see them in your bank balance," says the American author. Be a "practical dreamer".

How can anyone not like that?

3 Sit it out and dance

Shares fall and rise. That's part of the investing rigmarole, yet many have been put off buying equities because of the painful slumps they've had to endure.

The fearless instincts of the young, tempered, it is to be hoped with a dose of reason, should leave them more open to opportunities - whether in a bull or bear market. Use this to full advantage, if you have time on your side.

Think long-term.

4 Animal spirits

Not all animal spirits are bad. Famed British economist John Maynard Keynes referred to "animal spirits" as a spontaneous urge to action rather than inaction.

If the animal spirit is dimmed and spontaneous optimism falters, he said, enterprise will fade and die.

Nick D'Aloisio, 17, had lots of that. At 15, the London-based boy genius created a smartphone app from the comforts of a desk in his bedroom, a task that enriched him in every sense. Last week, it was reported that he sold the app to Yahoo for a cool £20 million (S$38 million).

In other words, follow your instincts, peppered with fundamental analysis (never one independent of another) to get your money to work.

Other animal instincts such as fear and greed however are not worth succumbing to.

5 Pies aplenty

Why shouldn't you have a finger in many pies?

Fat pies in investing lingo is a sweet phrase. It could translate to plump rewards.

Invest across the various asset classes - stocks, bonds, currencies, commodities, cash - to spread your risk. In drearier terms, diversify. This will allow you to ride out the down cycle in one asset class and bask in the upcycle in another.

6 Resist one impulse

- herd mentality

Market directions are largely dictated by investor behaviour, whether in times of exuberance or jitters. Tailing market behaviour rarely earns one a high win rate.

If Warren Buffett has taught us anything, it's this - scoop up the steady earners. If they're pricey, simply wait - a young charge has more wiggle room to do that than the 83-year-old iconic investor - till they reach an attractive level. Never chase stocks.

Lastly, here's the best part. If you find the whole investment game overwhelming, you don't have to play solo. Don't be afraid to ask. School may not have equipped us for investing but surely it's taught us that.
Dream practically

"If you do not see great riches in your imagination, you will never see them in your bank balance," says the American author Napoleon Hill. Be a "practical dreamer". How can anyone not like that?

As Market Heats Up, Trading Slips Into Shadows

March 31, 2013


Wall Street is embracing its dark side.

As the stock market continues to climb, trading has increasingly migrated from established bourses like the New York Stock Exchange to private platforms, including dark pools, that are largely hidden from public view. The shift is helping big traders hide what they are doing in the markets, and regulators are worried that the development could obscure the true prices of stocks and scare away ordinary investors.

The movement, under way for several years, has gathered force recently. The portion of all stock trading taking place away from the public exchanges hit new highs over the last few weeks, amounting to close to 40 percent on several days, up from an average of 16 percent in 2008, according to Rosenblatt Securities.

The trend has bucked the government’s broad effort in recent years to move more of the financial industry out of the back rooms and into the light. The increasing opacity of stock trading in the United States, long the most transparent place in the financial world, is troubling for investors and regulators.

“We’ve been having a lot of discussions about whether we are reaching a tipping point between lit and unlit markets,” said Thomas Gira, head of market regulation at the Financial Industry Regulatory Authority, the industry-financed regulator.

In March, Australia introduced new rules to limit trading off-exchange, following the lead of Canada, which put regulations in place last fall. In the United States, the Securities and Exchange Commission has so far declined to act.
The concerns are also evident in the industry itself, where a few dark pools have recently been advertising tools that promise to keep out “gaming” and “toxic” trading practices going on in other dark pools.

Dark pools, like public exchanges, give investors a place to connect with buyers and sellers of stock, but the pools are subject to less stringent regulations than public exchanges. Often run by big banks, dark pools do not require buyers and sellers to publicly announce their intention to trade stocks, allowing traders and investors to hide behind a veil that only the operator of the pool can penetrate.
That appeals to a pension fund that wants to buy a million shares of Ford stock, for instance, because it allows the fund to avoid tipping off competitors who could push the price of the stock up.

Investors also have said that they have moved more of their trading into the dark because they have grown more distrustful of the big exchanges like the N.Y.S.E. and the Nasdaq. Those exchanges have been hit by technological mishaps and become dominated by so-called high-frequency traders.

But the biggest factor pushing trading away from the public exchanges is the ongoing decline in volatility in stock prices, traders say. When share prices are rising or falling sharply, investors want to quickly and reliably get their trade done, leading to a preference for the safety of an exchange. In calmer trading, on the other hand, the anonymity of dark pools is more attractive. What’s more, dark pools are generally cheaper to use than an exchange.

Other places besides the 30-plus dark pools are stealing the business of stock exchanges. A handful of firms including Citigroup and Knight Capital pay retail brokers like TD Ameritrade and Scottrade for the opportunity to trade with ordinary retail investors before the orders can reach an exchange, a phenomenon known as internalization. This type of off-exchange trading has also been growing, in part because of the recent revival of interest in the stock market among ordinary investors.

In recent weeks, internalization has accounted for about 60 percent of off-exchange trading and dark pools for about 40 percent.

The complicated structure of the stock markets makes it hard to get reliable numbers on the exact amount of trading going on in the different entities. Some operators of dark pools say that the most widely used numbers misrepresent the amount of trading going on in the dark, and ignore the fact that on public exchanges some types of trading happen out of the public eye.

Dan Mathisson, the operator of the nation’s largest dark pool, Credit Suisse’s CrossFinder, said that American regulators should not introduce new rules just because of the fears surrounding dark pools.

Mr. Mathisson also said that dark pools have not had the technology problems that have done real harm to investors.

Trading in the dark is just one of the facets of the turbocharged stock market that lawmakers have been examining. High-frequency trading has often grabbed the public spotlight. But while high-speed traders have been dialing back their activity, trading in the dark has kept rising.

Canada has been among the most aggressive countries in confronting dark trading, introducing rules last fall that allow trades to take place in dark pools only if brokers are getting customers a significantly better price than is available on the public exchange. Within months, dark pool trading in Canada dropped to about a third of what it was before the rule, according to Rosenblatt Securities.

Regulators and long-term investors fear that the movement away from exchanges will diminish part of what has made the American stock market the envy of the world: the public auction process. In off-exchange trading, investors cannot see what trades are available and as a result are not encouraged to offer a better price.

A recent study by researchers in Australia found that the cost of trading went up for all traders when more trading happened in the dark, backing up an earlier study by an economist at Rutgers, Daniel Weaver.

“If long-term investors are being siphoned off and sent away from the exchanges, there will be less competition and prices will get worse,” said Mr. Weaver.

Because most dark pools and internalizers are operated by banks, Finra, the industry-financed regulator, is also worried that the banks can provide a sneak peek of the trading their customers are doing to their own traders and selected customers. Last September, Finra began gathering information from 15 of the largest dark pools and is now trying to determine whether the banks have improperly shared information about the customers in their dark pools.

“We’ve seen some problematic activity when we’ve looked at” dark pools in trading exams, said Mr. Gira, Finra’s head of market regulation.

Among long-term investors, 67 percent said that they have “trust issues” with dark pools, according to a survey last year by the Tabb Group.

Kevin Cronin, the top trader at the mutual fund provider Invesco, said that to buy and sell stocks in his firm’s mutual funds he has to dedicate an increasing amount of time and money navigating the dark pools. There is too much trading going on there to avoid it, he said.

Last month, Invesco hired a top trader from Mr. Mathisson’s company, Credit Suisse, to keep up with the latest technological developments.

But Mr. Cronin said that he worries as he and other traders escalate the amount of business they are doing out of the public eye.

“It’s just not an efficient market if a fair amount of orders never see the light of day,” he said. “We should all be concerned about this.”

Saturday, March 30, 2013

The 10 cyberspace commandments

Published on Mar 30, 2013

By David Tan For The Straits Times

HAZARD alert. My mind automatically goes through all the potential legal issues when I see a comment on Facebook directed at another individual, or a video on YouTube that draws on musical and cinematographic works created by others.

It is so easy to rant about people and events that have annoyed us on social media. Or to upload photographs of ourselves or our friends on social networking platforms like Instagram. Or to post a negative comment on Twitter. Or to chronicle our loves and pet peeves on a personal blogsite.

But how often do we pause to think about the consequences, especially the legal implications, of our conduct in cyberspace?

The cloak of "online" anonymity in cyberspace emboldens many of us to act in ways we would not when "offline". We are unlikely to confront a work colleague whose behaviour irritates us, but we will more likely criticise the same person on Facebook.

Nude or revealing pictures? Surely we will not show them to friends over dinner in a restaurant. But we might just post a few provocative ones in our Facebook or Tumblr albums.

While netizens generally share an unspoken code of cyber- etiquette, a vast majority are likely unaware of the wide range of legal risks that carry with them personal liability and criminal sanctions.

Below are what I would term the 10 cyberspace commandments, distilled from the common law and myriad legislative provisions in Singapore.

1.Thou shalt not speak ill of another

A court may find you having defamed someone if you published something that causes members of the public to think less of that person, or which exposes that individual to hatred, contempt or ridicule. Even if you are just repeating what someone else has written, it is still defamation. Liability is not based on whether you intent to defame someone: The law is more concerned about the effects of your statements.

In cyberspace, postings on websites, blogs and social networking sites like Facebook may be considered to be "publications" and may potentially be defamatory.

Even tweets on Twitter and to an extent, SMSes and e-mails, may be subject to a defamation suit and hence payment of damages.

Justification, fair comment and qualified privilege are available defences, but one should be careful when making allegations of misconduct, especially against public figures in Singapore.

It is always good practice to verify the source or truth of one's information.

2. Thou shalt think twice before uploading photographs of other people

If you publish or upload photographs of another person in a private setting without authorisation, you may face a lawsuit for invasion of privacy or, as it is known in Singapore, breach of confidence. This is especially so if the other party has reason to expect that you will keep the information or photos private.

3.Thou shalt be respectful of copyright

The law presumes the person who took a photograph to be the author of that creative work; he or she has the exclusive legal right to publish or reproduce it. This rule applies too to composers of a musical work or producers of a movie. An unauthorised posting of a photo, article, music video, film clip or street map on a website or social networking site is likely to be copyright infringement.

Again, there are defences available, like fair dealing, but a good proportion of reposted content online today may not be covered by these defences. A copyright owner can seek an injunction and compensation in a copyright infringement claim in Singapore.

In the online world, the best practice is not to upload, download or circulate content that does not belong to you.

4. Thou shalt not distribute obscene material

Under Section 292 of the Penal Code, it is an offence to download, possess or distribute by electronic means any sexually explicit material - whether book, pamphlet, paper, drawing, painting, representation or figure, video, images, etc. This includes material or data stored in a computer disc.

So think twice before uploading sexually explicit photos or videos of yourself or your girlfriend or boyfriend. If the person in the photo/video is under 16 years old, you could also be charged with sexual exploitation of a child or young person under the Children and Young Persons Act.

5. Thou shalt not misuse a computer

Under the Computer Misuse Act, you can be fined or jailed for accessing a computer to retrieve data or program without permission. It is a crime to hack into someone's computer regardless of whether or not the other party has suffered any harm.

6. Thou shalt not commit a crime against the state

Sedition is often defined as a crime committed against the state. Under the Sedition Act in Singapore, it is an offence to carry out any act that can be considered as having "seditious tendency".

This can be interpreted as a tendency to bring into hatred or contempt or to excite disaffection against the Government or the administration of justice in Singapore, and to raise discontent or disaffection among the citizens or the residents in Singapore.

On online social networking sites, if you single out a particular racial or religious group, custom or practice for ridicule, it may be construed as promoting feelings of ill-will and hostility between different demographic groups.

Similarly, online postings against the Government or the judiciary may be prosecuted under the Sedition Act if they contain a seditious tendency.

7. Thou shalt not threaten racial and religious harmony

The Penal Code imposes fines and jail penalties for words, which include online postings, intended to wound the religious or racial feelings of another individual or to promote feelings of ill-will between different religious and racial groups. The offence carries imprisonment which may extend to three years, or a fine, or both.

8. Thou shalt not disrupt the public order

Anyone who assists or promotes any assembly or procession without a required permit under the Public Order Act may be committing an offence that carries a fine not exceeding $5,000. Repeat offenders face jail too.

Under the same Act, a person who "organises" an illegal assembly or procession can be construed broadly to include anyone who uses online media - for example, through Facebook - to encourage others to attend a gathering, meeting, march or parade, for purposes such as demonstrating support for or opposition to the views or actions of a government or people; or to publicise a cause or campaign; or to mark or commemorate any event.

9. Thou shalt not incite violence

Under the Penal Code, whoever makes or communicates any electronic record that contains any incitement to violence, counsels disobedience to the law or that is likely to lead to any breach of the peace, faces a jail term of up to five years. They can also be fined, or both.

10. Thou shalt not reveal details of government documents or locations

The Official Secrets Act's coverage is wide-ranging, with severe penalties. Be careful not to take photos of certain government premises or documents. The mere capturing of such information or data on one's mobile device is an offence, even if this is not communicated to any person.

Be safe, not sorry

CYBERSPACE is not as unregulated as it appears. Many real-world laws here apply online too. This is not dissimilar to other democratic countries where there is also legislation on hate speech, defamation, and public or national security issues.

The bottom line is, it is better to be safe than sorry.

The next time you want to post something rude, upload a photo or video, take a deep breath and think twice before hitting the "return" key.

The writer is an associate professor at the Faculty of Law, National University of Singapore, and an associate member of the Media Literacy Council.

Barron's: Asian Trader: Be Choosey In Singapore

30 Mar 2013 12:05
By Assif Shameen

Over the past two years, some of Asia's less developed countries such as Thailand, the Philippines, and Indonesia have been its top-performing stock markets; gains have reached as high as 60%. The smallest returns have come from the region's most developed market: Singapore, the world's richest country as measured by gross domestic product per capita.

What's happened? The city-state is adjusting from a high-growth, high-immigration model to a lower-growth template that's more responsive to social pressures, says Melvyn Boey, a strategist at Bank of America Merrill Lynch in Singapore. Generally, that will mean lower corporate profits. And full employment and less immigration will drive up wages. "Domestic-centric players that rely on labor are seeing a double whammy of slower top-line growth and rising costs," says Jit-soon Lim of Nomura. "The market has been weighed down by policy-induced headwinds which have pressured margins and depressed earnings."

Many Singaporean stocks are probably best avoided right now. Earnings growth for the broader market is likely to slow to just 5% this year before rising to about 15% next year. And the market isn't cheap. It trades at 15.5 times this year's earnings and just over 14 times next year's.

Moreover, money from quantitative easing by central banks in the U.S., Europe, and Japan has spilled into asset classes like Singaporean real estate in recent years, says Boey. To prick the property bubble, the government has announced seven rounds of "cooling measures," which have depressed property stocks but hardly moved the needle on inflated real-estate prices, he notes.

As a result, broader plays appealing to foreign investors, like the MSCI Singapore Index Fund (ticker: EWS), may continue to have a hard time keeping pace with benchmarks in lesser-developed areas. The exchange-traded fund did manage a very respectable 13% rise over 2012, but that compares with 29% and 45%, respectively, for its MSCI counterparts in Thailand (THD) and the Philippines (EPHE).

Singapore offers different attractions. "While it may not have the same pace of growth as some of emerging neighbors, Singapore has a stable government, consistent policies with a reliable regulatory framework, and is a well-developed international financial center, all of which help lower the risk profile for investors," says Robert Bruce, head of research for CLSA in Singapore.

Investors who want to participate should avoid real-estate firms, banks, and pure domestic plays. An alternative for foreign money, says Conrad Werner of Macquarie Securities, is Genting Singapore (GENS.Singapore), which runs one of just two local casinos. "They are part of a protected duopoly, a high-margin, high-return business with US$1 billion in annual free cash flow, which requires very little new investment and is sitting on US$3.5 billion in cash," he notes. Excluding cash, the stock sells for 16 times earnings and yet profits should grow 27% a year through 2015, says Werner. He thinks shares can rise over 20% to S$1.85 (US$1.49).

Another possibility not confined to the city-state is Lim's favorite, telco giant Singapore Telecommunications (ST.Singapore). It owns Australia's No. 2 telco and holds stakes in cellular operators in India, Indonesia, and Thailand. It gets 70% of its earnings outside Singapore, has steady growth and a 5% dividend yield, and is trying to sell off less-attractive units. Nomura has a price target of S$4.05 or 13% upside, on the telco.

There are lots of good reasons to invest in Singapore, but be selective.

Wednesday, March 27, 2013

Here are 6 ugly facts about Singaporeans' incomes

Wednesday, 27 March 2013

From Singapore Business Review

There's a downward trend in average monthly incomes.

According to the Singapore Social Health Project 2013 by the National Volunteer & Philanthropy Centre, declining trend in average monthly incomes and the increasing cost of living have made many Singaporeans feel vulnerable, especially those from lower-income families. The inadequacy of CPF for many who are retiring poses a threat to the well-being of the fast ageing population of Singapore.

Singaporeans, especially the lower income, are increasingly finding it difficult to cope with escalating costs. The Gini coefficient has also increased, reflecting greater income inequalities.

The report outlines six points that describe the current trends in Singapore's income security.

1. Real growth in average monthly household income per member increased for all residents in 2012; poor households suffered a decline in incomes. Income security in Singapore declined for the low income between 2010/11 to 2011/12. The lowest 10% are the hardest hit with a decline in wages in 2012.

Gross real median wages across the common occupations listed by the Ministry of Manpower fell in all nine occupation categories from 2007 to 2011.

2. Cost of living has increased, eroding the purchasing power of savings. The inflation rates of 5.8% in 2011 and 4.6% in 2012 were higher than the average inflation rate of 1.9% over the last two decades. The inflation rates exceeded the 4% Central Provident Fund (CPF) interest rates on the Special and Retirement Accounts.

3. Inequality has increased. The Gini coefficient for Singapore increased from 0.473 in 2011 to 0.478 in 2012. It is the second highest in the world according to the Human Development Report among "very high human development countries”.

The share of income among the lower deciles has declined from 2000 to 2010. In 2000, the top 10% had 27.4% of the total share of income of resident employed households. In 2010, this increased to 30% and except the 9th and 10th deciles, all groups have seen a decline in the income share.

4. Indebtedness has increased. Consumer loans have increased from $41.7 billion in 2000 to $179.5 billion in 2011. This is largely contributed by hefty home loans. Also, the total number of main credit cards crossed six million in October 2010 and the rollover balances breached the $4 billion mark in November 2010.

Rollover balances have been growing at an average annual rate of 11.5% from 2009 to 2011.
If the economy performs poorly and real estate prices decline, many individuals will be unable to pay off their debts. The bankruptcy rate has shot up by 28% between 2010 and 2012.

5. Poor retirement adequacy. The 2012 Global Pension Index measuring the strength of retirement income systems ranked Singapore 17th out of 18 countries for the adequacy of its system and 13th in terms of its overall score.

CPF alone is inadequate to meet the retirement needs of the majority of Singaporeans. According to a study, tertiary-educated Singaporeans who entered the workforce in 2010 with a pay of $2,560 and who go on to buy a five-room public housing flat worth about $560,000, would get monthly CPF payments of only 22% of their lastdrawn pay when they retire at age 65.

CPF was found to be adequate only for low income families, provided they do not withdraw money to buy property.

Based on CPF’s retirement estimator, the current Minimum Sum of $139,000 is only sufficient for Singaporeans earning a gross monthly wage of $1,100 or less.

6. Other marginalised groups are at risk of impoverishment. Single parent families, especially those headed by women are at risk of impoverishment due to lower wages and less support from the government. With increasing divorce rates, single-parent families are likely to grow in the future.

The disabled are at particular risk of falling through the cracks due to poor skills, limited employment opportunities and lower wages (if they do get employed), and they become more vulnerable as they age.

Though the employment of the disabled in sheltered work environment has increased over the years, the Enabling Masterplan 2012 recognised that this has not reached sustainable levels yet. Single older women with almost no savings and who may not receive as much family support are also at a greater risk of being marginalised.

The Two Biggest Misconceptions About Gold

March 27, 2013

Well, not exactly. As Gero explains, “Asset managers look for performance – and performance has not been with gold.” This explains why the major stock market rally has presented a serious headwind for gold. As stocks have seriously outperformed bullion, managers moved their money out of bullion and into what was working.

That’s why trends in the gold market can be far more important than any sense of inherent value – meaning that, paradoxically, falling gold prices are bad news for people who are looking to buy in.
Misconception Two: Gold is a Safe Haven That People Should Buy When They’re Worried About the Market

Okay, so if stocks and gold often move in opposite directions, then you should buy gold if you think the market will drop, right?

Sorry, wrong again. Gold, Gero explains, “is a misunderstood safe haven trade. Because the real safe haven for gold has been maintenance of purchasing power.”

In other words, people might scramble to buy gold when they become fearful of inflation, because gold stores value in a way that dollars don’t. But gold isn’t necessarily a “safe haven” in the way that treasury bills or U.S. dollars are. It protects only against inflation – and not against a market downturn. And for that reason, Gero said, “Gold is not meant to be a buffer against stock market moves.”

So now that we’ve got those cleared up – what should the average investor do with gold?

George Gero says retail investors should look to keep about 5% of their portfolio in gold. Since holding bullion will not protect you against a major downward move in stocks, Gero explains, you should just keep enough around to hedge yourself against inflation.

Sunday, March 24, 2013

'I have been blessed with a second chance'

Singapore lawyer declared brain dead wakes up amid calls to pull plug on her

Published on Mar 24, 2013
By K.c. Vijayan

Lawyer Suzanne Chin is convinced that what happened to her four years ago is nothing short of a miracle.

The mother of two was living and working in Hong Kong when she suffered a heart attack, was hospitalised in a coma and declared brain dead.

The head of the intensive care unit, two neurologists and a cardiologist told her husband to prepare for the worst. Soon, he was advised to take her off life support because, simply put, there was no hope.

Then, three days after she was admitted, she woke up from her coma. She recovered within a week and left the hospital. Today, she is living in Singapore, still working as a lawyer, still a wife and mum. She is well, and she is alive.

Chief Justice Sundaresh Menon recalled her remarkable story in a speech earlier this month on euthanasia and assisted dying. When The Sunday Times contacted Ms Chin for her story, she agreed only to answer questions via e-mail.

Her husband, private investor John Alabaster, described what he went through too and said one thing was clear to him throughout their ordeal: "I did not talk to my children about switching off the life support simply because it was not an option for me."

But first, this is what happened to them in April 2009.

April 20 started out as just another morning in their household. The usual scramble to get the children off to school before Ms Chin took off on her usual morning hike with her dog.

But a few minutes after leaving home, she returned. She was in no pain but felt something was amiss. It was after she showered that she felt something was wrong and alerted her husband.

"The last thing I remember was expressly forbidding him from calling an ambulance," she said.

She was taken unconscious to hospital and sent to the ICU. She had no history of heart problems, but had suffered a cardiac arrest.

It was a huge shock for her husband. One day, everything had been normal for the couple, both in their 40s, and their children then aged 12, and seven. The next day, she was in a coma and it looked very bad.

The specialists told Mr Alabaster she had suffered brain stem death and he had to prepare himself for "letting her go". "In their opinion - and they were very firm - there was absolutely no chance of any sort of recovery," he recalled.

The next day, a doctor asked him if he had thought about it because his wife was neurologically lifeless, a valve in her heart had been severely damaged and there was no point keeping her alive.

Things looked "worse than bleak" but he refused to say yes to switching off his wife's life support, even though the doctor had been well intentioned. "But his demeanour when I told him of my decision to reject his opinion was one of patronising incredulity coupled with an unsaid 'oh, you'll come around'," he said.

On the third day, she revived.

Ms Chin opened her eyes to see her husband bending over her, then she realised they were not at home, and noticed the wires and tubes stuck all over her body.

"I realised that I was in a hospital and with tears in his eyes, my husband said that everything was going to be all right," she said. "Within a very few hours, I was able to grasp a marker pen and I was able slowly to converse with the people around me."

What remains vivid is what she described as a recurring vision during the lost days when she was in a coma.

She said: "I saw myself lying on a bed unable to move or speak. A man appeared by my side. He did not seem overtly threatening in any way but something in me sensed that he was not good.

"He told me that if I wanted to move or speak, all I would have to do was to follow him. I demanded that he leave me alone, but he would not go away. Over and over again I repeated this. I also prayed without ceasing.

"After a while, the man faded away. This vision repeated several times, but on what turned out to be the last occasion, the man started to get angry. He threatened to 'take' my daughter if I refused to 'follow' him. Again, I was resolute and unyielding, telling him he had no power over me as I was a child of God.

"It was at that moment that I woke from my coma to see my husband John standing by my bed."

People she has related this to have asked if it might have been a dream. She said: "What is amazing is that this happened at a time when medically, I had been pronounced as being brain dead."

Ms Chin's recovery from first opening her eyes to sitting up with her feet over the side of the bed took just 36 hours.

"Not one doctor who treated me while in hospital or subsequently any specialist that I have seen since, either in Hong Kong or later in Singapore, has been able to account for the speed of my recovery or that I was able to come back from that hopeless position at all," she said.

"There is no doubt that I had suffered massive brain damage resulting in brain stem death. If one looks at the situation rationally and logically, there is no explanation for what happened. I truly believe that this was a miracle from God and that I have been blessed with a second chance."

Ms Chin and her husband said that while both are Christians, neither was committed or active in church at the time.

It was her brother, Dr Alan Chin, a Singapore doctor and a fervent Christian, who flew to Hong Kong, prayed with Mr Alabaster when she appeared the worst and believed that she would pull through.

Dr Chin told The Sunday Times he was shocked to find his sister diagnosed with brain stem death. "My medical training told me there was no hope, but my faith in God said that there was hope in Jesus Christ," he said.

Mr Alabaster recalled mounting pressure from the medical staff treating his wife to "put Suzanne - and ourselves - out of our misery by switching off machines that were keeping her alive." Even when she made an occasional twitch, they quashed his hopes by insisting that it was purely a reflex. Their talk always returned to "saying goodbye" and "letting go".

"I, on the other hand, hopefully and prayerfully saw in these very slight movements a base from which to see further progress," he said. They made him wonder if his brother-in-law could be right, that she would be healed.

What was also distressing was that as news of Ms Chin's sudden illness spread, many of her friends from Hong Kong and elsewhere began arriving at her bedside, and Mr Alabaster knew that from talking to the medical staff, they too expected the worst.

What was hardest for him though, was talking to his daughter and son about their mother.

"I had told them that Mum was sick and in the infirmary - that was understandable to them as they had both been born at the same hospital," he said.

He tried to put up a cheerful front and hoped to slowly break the news that they might lose their mother. But soon friends and family were arriving and he had to tell them she was seriously ill.

But he never told them about switching off the life support.

"It wasn't that it was a choice I did not want to face, it was just not something I could or would ever sanction. The point was not that the person on that bed connected to all those austere machines was my wife.

"It was more fundamental than that... If that machine were to be turned off, all hope would vanish and I only had God and hope to rely on."

Then, as suddenly as she had taken ill, Ms Chin made a recovery that astounded the doctors and nurses. "But their confusion and bafflement was juxtaposed with the amazement, relief and total ecstasy that my children and I were feeling as, by God's grace, we had got our Suzanne back.

"Ten days after the attack she was as good as new. The tear in her heart valve that was so obvious on several ECGs and the ensuing poor heart performance was totally healed. This restoration, I am told, cannot happen without open heart surgery as heart valves do not repair by themselves.

"Suzanne's brain activity was totally back to normal and from that day to this has never had even the slightest relapse."

In the days that followed her recovery, Ms Chin learnt about all that had happened and how her doctors were convinced there was no hope and it would be best to let her die, but her brother was so sure she would live.

She said: "It pains me to think about what my husband, my children, my family and friends went through. It was a tremendously difficult time for all of them. Yet when faced with such a difficult decision, they chose to fight for me. Without their faith, I would not be here today, able to recount this story."

Friday, March 22, 2013

Singapore REITs To Vary Funds On Interest Rates: Southeast Asia

22/03/13 5:30 pm

Singapore’s property trusts, the second-best performers in Asia in the past year, may have to diversify funding sources as they aren’t prepared for an “interest rate shock,” according to Fitch Ratings.

The city’s real estate investment trusts or REITs have been increasing short-term debt with record-low interest rates, according to Johann Kenny, director of corporates at Fitch. They face refinancing risks when borrowing costs rise, and may be pushed to sell assets or shares to boost their funding, he said.

“Singapore REITs are not really well equipped to withstand an interest rate shock,” Kenny said in a phone interview from Sydney yesterday. “When a rating agency looks at a company, we look at the long-run average through the cycle of the interest rate environment and we don’t see the current low interest rates as a sustainable model from a macro-economic perspective.”

Singapore REITs, the biggest fundraisers in the city’s initial public offering market in the past year, had relied on short-term debt to reflect the length of commercial leases, Kenny said. Their funding costs in the past six years don’t reflect the challenges in a “normalized” interest rate scenario, he said.

The REITs raised $3.4 billion (US$2.7 billion), or 68 percent, of the $5 billion of stock sold in Singapore IPOs in the past 12 months, according to data compiled by Bloomberg. The biggest share sale was the $1.6 billion raised by Mapletree Greater China Commercial Trust, a REIT that owns assets including the Festival Walk shopping mall in Hong Kong and an office complex in Beijing. The trust, which was also Asia’s biggest share sale this year, surged 12 percent since its trading debut on 7 March.

Singapore Returns

Singapore REITs posted a one-year total return of 45 percent, trailing Japan’s 63 percent in Asia, according to data compiled by Bloomberg. The measure tracking REITs in Singapore climbed 29 percent in the past year, compared with the 9.3 percent increase in the Singapore benchmark Straits Times Index.

Debt held by Singapore property trusts make up 31 percent of total assets, higher than the ratios for Hong Kong, Taiwan and South Korea, according to data compiled by Bloomberg. Still, it’s lower than the 39 percent for debt held by Australian REITs, or 44 percent for Japanese trusts, the data showed.
 Moody’s Investors Service said it upgraded the ratings for unsecured debt issued by CapitaMall Trust, CapitaCommercial Trust and Ascendas Real Estate Investment Trust.

Refinancing Strength

The measure of secured debt relative to cash and the value of its investment properties’ for 12 Singapore REITs tracked by the rating company fell to 11 percent last year, from 21 percent in 2007, said Jacintha Poh, a Moody’s analyst in Singapore. That may decline to 9 percent by the end of this year, she said.

Another gauge tracking pretax earnings to interest costs also remained stable over the past six years, indicating the REITs are able to weather changes in borrowing costs, Poh said in an interview.
 “The REITs have a track record and what we want to focus on is their strength in refinancing,” Poh said, pointing to the S$5.89 billion of debt and equity raised during the 2008-2009 financial crisis.

Singapore’s REITs have extended the maturity of loans since the financial crisis, when almost 50 percent of their debt was due in 1 1/2 years, according to Vikrant Pandey, a Singapore-based analyst at UOB Kay Hian.

“REITs have diversified their sources of funding and extended debt maturities,” Pandey said. Still, “their basic model is perpetual refinancing of debt – there is no repayment of debt in the REIT model so you have that risk of refinancing.”

Conservative Bias

ARA Asset Management, which manages about $22 billion of assets through property trusts and funds, said it plans to avoid the missteps by some competitors during the financial crisis when they took on too much debt. The company, which has almost no leverage, is seeking to double its assets over the next five years through acquisitions.

“Our strategy is not an aggressive, highly-leveraged, exotic trading investing strategy,” Moses K. Song, chief investment officer at ARA Asset, said in an interview in Singapore on 11 March. “We don’t want our investors to be concerned that management is going around and trying to sort out its own balance sheet issues. If there’s a bias, it’s to be conservative.”

The company’s Fortune REIT is the best performer on the Singapore REIT index in the past year, rising 68 percent, followed by Frasers Commercial Trust. Ascendas India Trust was the only stock on the gauge to drop, falling 1.2 percent.

A total of 30 REITs and property trusts were listed in the city-state with a combined value of S$56 billion, making up 6 percent of the total market capitalization of stocks traded, Lawrence Wong, head of listings at the Singapore Exchange Ltd., said in a statement on 27 February.

“Currently, Singapore REITs have a stable operating environment which won’t change over a 12-month period,” Fitch’s Kenny said. “What we are flagging here is on the leverage and liquidity. Their dependence on bank debt means they don’t really have potential from an interest rate perspective to sustain a massive shock in interest rates.”

Monday, March 18, 2013

Reits with more offshore assets set to be listed here

Ong Chor Hao

LISTINGS of real estate investment trusts (Reits) here are likely to comprise more offshore assets and be of a fairly large size, says the head of Asian real estate at Goldman Sachs (Singapore).

Both are signs and the result of a mature Reit market that is set to remain a dominant hub in Asia, said Michael Smith, a managing director at the bank.

In an interview with The Business Times, after Goldman helped to build the books for Mapletree Greater China Commercial Trust's (MGCCT) listing, Mr Smith said Singapore's strong regulatory framework sets it apart from many other countries.

Particularly, he pointed to the tax transparency enjoyed by Reits in Singapore, which differentiates between investing in the Reit and the developer.

In Hong Kong, where no such tax transparency exists, Reits have not gained the same traction as they have in Singapore, he added. And the trend for S-Reits to list foreign assets is set to be more norm than novelty. "As a consequence of running out of real estate, many of these Reits have to go offshore," Mr Smith said.

He was explaining why MGCCT was able to list a Hong Kong asset in Singapore - which may have seemed counterintuitive. There again, Singapore set itself apart with its pipeline of strong sponsors and the framework to support Reit listings.

"When you've got a sponsor . . . who's prepared to put that much capital to work, take real risk, compete in competitive processes to win assets with a tactical strategy to then list those assets in Singapore, that's a pretty unique thing that really advantages Singapore," Mr Smith said.

This is especially appealing to owners in countries without proper Reit frameworks, such as India, Indonesia or China, where properties may have been trading at below asset value. In contrast, MGCCT with its two foreign properties is trading at a 17 per cent premium.

"So because of the way that it's worked so well, I suspect others will look at this more closely and ask, 'look, can I do this as well? Am I going to get more value for my assets, are people going to value my assets better in the Singapore Reit framework than they currently do?' And with the Mapletree precedent, I think the answer is yes," Mr Smith said.

MGCCT's success also reflects strong interest in Reit listings in Singapore.

There are at least 10-20 parties "looking at doing something", although he believes that investors will be disciplined in what to invest in, given the mature and varied S-Reit market.

"It's famine or feast. Either it works really, really well because it's got the right assets, the right sponsor, the right structure, the right pricing. Or it works really, really bad."

While the Reit market has seen the addition of big names such as MGCCT, Ascendas Hospitality Trust and Far East Hospitality Trust over the past year, there were notable pullouts such as Dynasty Reit and M&L Hospitality Trusts.

Mr Smith sees big Reit listings as being here to stay; he expects a need to raise at least $500 million with assets worth $1-2 billion to draw investor support.

"I think the days when you can list a $100 million Reit IPO or $200 million are probably over."

MGCCT's subscription demand shows that investors have no lack of liquidity and want larger sizes and market capitalisation.

"Otherwise they will just keep staying in the big guys and not come to you."

A side effect of that is potential mergers on the horizon. As smaller players struggle to make accretive acquisitions with their higher yields, they may start trading worse as more big plays come to market and attract interest.

"And when you've got the big Reits trading at 10-20 per cent premiums and the small Reits trading at 20 per cent discounts, as it's happened in other markets, the big will take out the small."

While the Reit market now seems to be riding a high, Mr Smith also warned of potential dangers.

The first is the quality of real estate. The second is that currently low interest rates will eventually go up.

"At that point, Reit prices will fall as yields go up and there's nothing anyone can do about it because they're very interest rate-sensitive," he said.

The third is capital flows. Reits are currently popular with investors who want exposure to real estate but are staying defensive over risk concerns.

For example, if China or Singapore should decide to ease property controls, "there is a lot of momentum money sitting in Reits now which may go into buying China developers or Singapore developers".

For the S-Reit market to retain its leading status, Mr Smith's advice is simple: do more of what has worked to keep barriers to entry high enough so that other markets don't compete.

"And those barriers are really the best regulatory framework and the most sophisticated sponsors going out and buying the right assets, and listing the right Reits."

Sunday, March 17, 2013

Why you should make a will - and how to do it

You don't need a lawyer, but it's good to be well-informed

Published on Mar 17, 2013
By Cheryl Ong

Many Singaporeans put off making a will, yet it can be as simple as picking up a pen and writing it yourself.

The most common misconception is that a lawyer is needed to write a will. But anybody can write one, as long as they are well-informed.

A will is a legal document that gives specific instructions for the distribution of your assets.

Experts recommend that wills be registered with the Insolvency and Public Trustee's Office (IPTO).

If you do not have a will, the state can direct the distribution of your assets according to the Intestate Succession Act.

This lists nine rules dictating how the assets of a deceased non-Muslim citizen can be distributed. They vary according to marital status and if the person is survived by his parents, spouse, children or siblings, said will writer Patrick Chang, who will be speaking on the topic at the 50plus Expo 2013 this Friday.

For example, the assets of the deceased will be split in half between his surviving spouse and children.

But no two families are the same, and one may have differing opinions on the distribution, warns Mr Chang, so it is imperative to make a will to ensure your assets are distributed according to your wishes.

The Sunday Times looks at why you should consider making a will.
 •You don't have to be rich to make a will

There is no sum that is too small for a will. Most of us can easily have a net worth of more than $100,000 if our home, insurance policies and bank accounts are taken into consideration.

It is even more important for the layman to apportion his assets carefully, as family members of the less well-to-do would probably need the money more than the rich.

Mr Chang says: "To the very rich, $2 million can be nothing. But to the ordinary person, sometimes $50,000 is a lot of money."
 •You can help prevent sticky situations

Blood may not necessarily be thicker than water when it comes to distributing an inheritance.

Mr Chang points to cases of families going to court over inheritances, especially in the case of the Intestate Succession Act.

When minors inherit assets, the surviving parent will effectively become a trustee of their money. In such cases, the funds have to be spent for the benefit of the child, and records kept.

"When the child comes of age, he can sue his parent if he feels that it was not utilised properly," says Mr Chang.

Writing a will with specific instructions can help avoid such a scenario. "It's not so much about the amount of assets we own, but the potential complication that can arise from the death, and not having a valid will," he adds.

You don't have to pay an arm and a leg for it

A will can be written for as little as $200 to $300, using a will writer or lawyer. Costs may differ, depending on the complexity of the document.

Mr Chang says this is a small sum compared with the thousands that families spend on lawsuits over a disputed inheritance.
 •You are not too young to write a will

Anyone over 21 can make a will.

Mr Chang cites his youngest client - a 25-year-old who made a will to ensure her parents would be provided for.

"Under the intestacy rules, 50 per cent of her assets would go to her spouse and 50 per cent to her child, leaving nothing for her surviving parents. She wrote the will to make that special provision for her parents," he notes.

Even a single person with deceased parents can make a will if he would like to leave specific instructions on distributing assets among his siblings.
 •It's not all about money

You can also appoint your executor in a will, which is particularly important in the case of people with elderly parents, as the legal process of obtaining the apportioned assets can be complicated.

Things can be simplified if an executor is appointed to assist with the procedures.

Your will can also extend to making your funeral arrangements.

"Some of us may want to be buried, instead of cremated. This can be stated in your will," says Mr Chang. But be sure to inform the executor of your request before appointing him in a will, he adds.
 •More than one will

A will can always change as you amass more wealth. But if you do amend your will, be sure to register it with the IPTO each time to ensure the updated version is enforced.
 •There are limitations

Not all our assets can be distributed.

Mr Chang notes that money in our Central Provident Fund cannot be included in a will.

Property held in joint tenancy is also excluded, as the surviving owner has the legal right to take full possession. Other excluded assets are cash in joint savings accounts, and insurance monies with a nominated beneficiary.

How to read a firm like a book

Published on Mar 17, 2013
By Alvin Foo

Investors can glean valuable information about a company by learning what to look for in its financial statement

Making sense of a listed company's financial statement may seem like rocket science to some investors, especially if trawling through pages of numbers and corporate jargon is not your cup of tea.

Yet these public documents contain nuggets of information which could be crucial to the making or breaking of your stock investments.

They offer key insights into a company's financial well-being and possible future performance.

"Financial statements provide investors with a scorecard of a company's financial health," said DBS group research analyst Ho Pei Hwa.

"It's also important to look at the historical performances of the company."

Typically, financial statements comprise three key components - the income statement, balance sheet and cash flow statement.

The income statement reveals how much a company earned and spent, the balance sheet unveils what a company owns and owes, while the cash flow statement shows the money stream moving in and out of a company.

Equity and accounting experts list the top 10 items to note when reading these statements, and how to identify red flags.

1 Profit

The chief attention-grabbing figure in the sea of numbers is usually net profit, or what a company earns after accounting for costs.

Typically, this is the first port of call which market experts head to.

"Sales and net profit as well as growth are probably the sexiest lines that capture our eyes when we first look into a company's financial statements," said DBS' Ms Ho.

This is before diving into the margins and other cost items, she added.

Investors should find out whether net profit - also known as earnings - meets market expectations and identify possible reasons.

They should also look out for one-off items, such as a sale of assets or a debt write-off, which could result in abnormal earnings, said remisier Wang Han Hui.

These items should be excluded to ascertain the company's core profits, he added.

2 Revenue

Another major number is revenue, or the total amount of money received by the company for goods sold or services provided.

"The ultimate long-term driver of growth for a company is its revenues, and hence this is the key item to focus on," said Mr Hartmut Issel, head of Asia-Pacific wealth management research at UBS.

Comparing this number to historical figures will show if the company is winning or losing market share.

Investors may also look at the company's revenues by segment to identify the performance of various business units, said Ernst & Young assurance partner Yee Woon Yim.

How a company recognises revenue may differ from sector to sector.

"For example, companies that are involved in long-term contracts such as construction of buildings and ships tend to recognise revenue as and when the construction progresses," said PricewaterhouseCoopers (PwC) partner Kok Moi Lre.

3 Dividends

Investors will be most keen to see the proposed dividend, if there is one, and especially if they are shareholders, as it shows the attractiveness of the company in paying out regular returns. They should also look at the consistency of the dividend payout and the firm's ability to continue paying the dividend, said Mr Wang.

DBS' Ms Ho said: "A mature company's willingness and ability to pay steady dividends over time, better still to increase them, provides good clues about its fundamentals."

A dividend cut could signal the need to conserve funds or an inability to maintain its past dividend track record, said OCBC investment research head Carmen Lee.

One keenly followed ratio is dividend yield, which is the dividend distribution a share divided by the stock's current price. This is especially so for sectors such as real estate investment trusts and telcos.

Investors should compare this yield for a company to that of its peers in the industry.

4 Debt

Key questions investors should consider are whether debt is rising, what it is being used for, and whether the company is able to afford its interest expenses.

"Higher debt is not necessarily a bad sign, especially if additional debt is being deployed to clearly identified growing business or funding its business expansion," said OCBC's Ms Lee.

Investors should also look out for interest cover - a measure of a company's creditworthiness - to ensure that its debt service ability is healthy, said Ernst & Young's Mr Yee.

A closely watched figure by analysts is the gearing ratio, the ratio between a company's borrowed funds and its capital or assets. The higher this ratio, the more risk the company is exposed to.

5 Cash flow

Cash is king, especially during turbulent times.

Hence, a company's cash flow statement is crucial, as it reveals how a company spends its money and where its liquidity comes from.

"Sometimes, a company fails not because of a bad product it sells; rather it's because it does not manage its cash flow well," said PwC's Ms Kok.

A significant segment to watch is cash flows from operating activities.

"It tells us whether the business is generating enough positive cash flows to fund its capital expenditure and investment, repayment of bank loans, and have enough to pay dividends," Ms Kok said.

6 Valuation ratios

Investors should use the data contained in the financial statements to compute two widely used ratios used to measure a company's stock value.

The first is the price-to-earnings (PE) ratio - the ratio of the company's stock price to its earnings per share. A high PE suggests that investors are expecting sharper earnings growth in the future compared to companies with a lower PE.

"It is necessary to compare PE ratios relative to other companies within the same industry," said DBS' Ms Ho.

The second is the price-to-book value, which is the ratio of the company's stock price to its book value, that is, what the company is said to be worth overall.

If a company is trading at less than its book value, it normally means either the market believes the asset value is overstated or the company is earning a very poor return on its assets.

"It's a tried-and-tested method for finding low-priced stocks that the market has neglected," Ms Ho added.

7 Costs

A surge in some costs could erode a company's competitiveness and point to a rocky road ahead.

"A rise in sales and marketing cost will give a hint towards increasing competition, which in turn leads to pressure on profit margins," said UBS' Mr Issel.

A sudden increase in operating costs could signal hiccups in a company's processes or a change in industry trends.

8 Outlook

Financial statements typically contain views from the management concerning its earnings prospects.

This usually provides a general indication of how the management expects the company and industry to perform.

"One should also look into the outlook commentary for a basic understanding of the company's outlook, but more research on a company's growth prospects and industry trend is absolutely critical," said DBS' Ms Ho.

Some firms may also issue profit warnings, an early indication that its earnings in the coming quarter will decline.

9 Changes to senior management

Sound corporate governance is a key indicator of a healthy company.

Thus, investors should be alert to changes in the senior management, such as the chief executive officer and chairman.

"Regular resignations of key executives could point to unclear strategies for the company or that the company could be headed for more troubles," said OCBC's Ms Lee.

A frequent change in the chief financial officer should raise alarm bells, especially for a company with a short track record of operations and listing history, noted DBS' Ms Ho.

10 Auditors' report

The auditors' report is an essential part of every financial statement, as it indicates the auditor's opinion following its evaluation of the company.

It is closely watched for warning signs.

OCBC's Ms Lee said: "A change in auditors or an adverse opinion report from auditors could also be indications of troubles ahead."

Auditors may issue a red flag over a company's future by indicating that it may not continue as a going concern, which means that the company could soon be dissolved or become bankrupt.

Saturday, March 16, 2013

Getting more of life by living with less

An Internet millionaire leaves to live with less stuff and is happier for it

Published on Mar 16, 2013
By Graham Hill

I live in a 420 sq ft studio. I sleep in a bed that folds down from the wall. I have six dress shirts. I have 10 shallow bowls that I use for salads and main dishes. When people come over for dinner, I pull out my extendable dining room table. I don't have a single CD or DVD and I have 10 per cent of the books I once did.

I have come a long way from the life I had in the late 1990s, when, flush with cash from an Internet start-up sale, I had a giant house crammed with stuff - electronics, cars, appliances and gadgets.

Somehow, this stuff ended up running my life, or a lot of it; the things I consumed ended up consuming me.

My circumstances are unusual (not everyone gets an Internet windfall before turning 30), but my relationship with material things isn't.

We live in a world of surfeit stuff, of big-box stores and 24-hour online shopping opportunities. Members of every socioeconomic bracket can and do deluge themselves with products.

There isn't any indication that any of these things makes anyone any happier; in fact it seems the reverse may be true.

For me, it took 15 years, a great love and a lot of travel to get rid of all the inessential things I had collected and live a bigger, better, richer life with less.

It started in 1998 in Seattle, when my partner and I sold our Internet consultancy company, Sitewerks, for more money than I thought I'd earn in a lifetime.

To celebrate, I bought a four-storey, 3,600sq ft, turn-of-the-century house in Seattle's happening Capitol Hill neighbourhood and, in a frenzy of consumption, bought a brand new sectional couch (my first ever), a pair of US$300 sunglasses, a ton of gadgets, such as an MobilePlayer (one of the first portable digital music players) and an audiophile-worthy five-disc CD player.

And, of course, a black turbocharged Volvo. With a remote starter!

I was working hard for Sitewerks' new parent company, Bowne, and didn't have the time to finish getting everything I needed for my house. So I hired a guy named Seven, who said he had been Courtney Love's assistant, to be my personal shopper.

He went to furniture, appliance and electronics stores and took Polaroids of things he thought I might like to fill the house; I'd shuffle through the pictures and proceed on a virtual shopping spree.

My success and the things it bought quickly changed from novel to normal.

Soon I was numb to it all. The new Nokia phone didn't excite me or satisfy me.

It didn't take long before I started to wonder why my theoretically upgraded life didn't feel any better and why I felt more anxious than before.

My life was unnecessarily complicated.

There were lawns to mow, gutters to clear, floors to vacuum, roommates to manage (it seemed nuts to have such a big, empty house), a car to insure, wash, refuel, repair and register and tech to set up and keep working.

To top it all off, I had to keep Seven busy. And, really, a personal shopper? Who had I become? My house and my things were my new employers for a job I had never applied for.

It got worse.

Soon after we sold our company, I moved east to work in Bowne's office in New York, where I rented a 1,900 sq ft SoHo loft that befit my station as a tech entrepreneur. The new pad needed furniture, houseware, electronics, etc - which took more time and energy to manage.

And because the place was so big, I felt obliged to get roommates - who required more time and more energy to manage.

I still had the Seattle house, so I found myself worrying about two homes. When I decided to stay in New York, it cost a fortune and took months of cross-country trips - and big headaches - to close on the Seattle house and get rid of all the things inside.

I'm lucky, obviously; not everyone gets a windfall from a tech start-up sale. But I'm not the only one whose life is cluttered with excess belongings.

Enormous consumption has global, environmental and social consequences.

For at least 335 consecutive months, the average temperature of the globe has exceeded the average in the 20th century.

As a recent report for Congress explained, this temperature increase, as well as acidifying oceans, melting glaciers and Arctic Sea ice are "primarily driven by human activity".

Many experts believe consumerism and all that it entails - from the extraction of resources to manufacturing to waste disposal - play a big part in pushing our planet to the brink.

And as we saw with Foxconn and the recent Beijing smog scare, many of the affordable products we buy depend on cheap, often exploitative overseas labour and lax environmental regulations.

Does all this endless consumption result in measurably increased happiness?

In a recent study, Northwestern University psychologist Galen V. Bodenhausen linked consumption with aberrant, anti-social behaviour. He found that "irrespective of personality, in situations that activate a consumer mindset, people show the same sorts of problematic patterns in well-being, including negative affect and social disengagement".

I don't know that the gadgets I was collecting in my loft were part of an aberrant or anti-social behaviour plan during the first months I lived in SoHo. But I was just going along, starting some start-ups that never quite started up when I met Olga, an Andorran beauty, and fell hard. My relationship with stuff quickly came apart.

I followed her to Barcelona when her visa expired and we lived in a tiny flat, totally content and in love before we realised that nothing was holding us in Spain. We packed a few pieces of clothes, some toiletries and a couple of laptops and hit the road. We lived in Bangkok, Buenos Aires and Toronto with many stops in between.

A compulsive entrepreneur, I worked all the time and started new companies from an office that fit in my solar backpack. I created some do-gooder companies such as We Are Happy To Serve You, which makes a reusable, ceramic version of the iconic New York City Anthora coffee cup and, an environmental design blog that I later sold to Discovery Communications.

My life was full of love and adventure and work I cared about. I felt free and I didn't miss the car and gadgets and house; instead I felt as if I had quit a dead-end job.

The relationship with Olga eventually ended, but my life never looked the same.

I live smaller and travel lighter. I have more time and money. Aside from my travel habit - which I try to keep in check by minimising trips, combining trips and purchasing carbon offsets - I feel better that my carbon footprint is significantly smaller than in my previous supersized life.

Intuitively, we know that the best stuff in life isn't stuff at all, and that relationships, experiences and meaningful work are the staples of a happy life.

I like material things as much as anyone. I studied product design in school. I am into gadgets, clothing and all kinds of things.

But my experiences show that after a certain point, material objects have a tendency to crowd out the emotional needs they are meant to support.

I wouldn't trade a second spent wandering the streets of Bangkok with Olga for anything I've owned. Often, material objects take up mental as well as physical space.

I'm still a serial entrepreneur and my latest venture is to design thoughtfully constructed small homes that support our lives, not the other way around. Like the 420 sq ft space I live in, the houses I design contain less stuff and make it easier for owners to live within their means and to limit their environmental footprint.

My apartment sleeps four people comfortably; I frequently have dinner parties for 12. My space is well-built, affordable and as functional as living spaces twice the size. As the guy who started, I sleep better knowing I'm not using more resources than I need. I have less - and enjoy more.

My space is small. My life is big.

Graham Hill is the founder of and

Wednesday, March 13, 2013

Investing in Reits: there's no free lunch

Published March 13, 2013

Investors should check that Reit fundamentals are sound and the pricing reasonable

Bobby Jayaraman
Investors should check that Reit fundamentals are sound and the pricing reasonable

REITS are all the rage now. It seems there is an initial public offering (IPO) for a new Reit/business trust every other month, the latest one being that of Mapletree Greater China Commercial Trust (MGCCT), which, predictably, had a strong debut in SGX last week.

Amid this euphoria, it is easy for investors to get caught up with yield investing without doing their homework and understanding fully what they are investing in.

My intent here is to take a critical look at this new IPO and raise some fundamental questions for the investor to think about.

Sponsor motivation

First off, it should be noted that MGCCT is not a typical Reit, in the sense that it consists of just two mixed use assets - Festival Walk, a mall in Hong Kong with some office space, and Gateway Plaza, an office building in Beijing with some retail space.

From an investor's perspective, it is really just one asset - Festival Walk, which makes up 75 per cent of the asset value and gross revenue of the Reit. One cannot help but wonder why Mapletree had to go through the trouble of listing a Reit just to sell a single large asset.

The implication for investors is that their fortunes are tied to the fate of Festival Walk. Given such a high concentration risk, investors had better be sure that they have a good sense of the future earning power of this mall - or they could be in for some nasty surprises down the road.

Festival Walk was a rather quick flip by Mapletree. It had bought it from Swire Pacific, one of Hong Kong's leading conglomerates, in July 2011 for HK$18.8 billion (S$3 billion) and injected it into MGCCT 18 months later for around HK$20.7 billion, making a profit of around 10 per cent.

It fared much better with Gateway Plaza, its office property which was acquired by Mapletree India China Fund in February 2010 from a Hong Kong-listed Reit for 2.9 billion yuan (S$580 million) and injected it into MGCCT for five billion yuan. This was a more than 70 per cent gain in three years.

Gateway Plaza is now the subject of a lawsuit detailed in the prospectus. As it is, Reit investors have to face enough uncertainties regarding the property cycle, they can surely do without the added headache of a lawsuit.

Anyway, the sponsor has certainly made good returns on these assets. What about investors buying into MGCCT at IPO levels? Will they be rewarded over the medium-long term?

Quality of assets

To understand this better, let us first dig a bit deeper into the quality of the assets, that is, the long-term earning power of an asset under different economic conditions.

Let us start with Festival Walk, a mall built in 1998 in an upscale suburb of Kowloon. This asset is slightly larger than Ion Orchard, well connected and upscale. It is patronised mostly by local shoppers, with tourists making up only 18 per cent of sales last year, said the prospectus.

The shops there include luxury brands such as Rolex, Bally, Piaget and Armani. Investors would thus need to be convinced of the attractiveness of such a positioning, in which the mall will not benefit much from the onslaught of millions of mainland Chinese tourists who go to malls in the tourist areas of Central or Tsim Sha Tsui; the earnings of Festival Walk will also not be as stable as those of suburban "necessity malls" owned by Link Reit (a Hong Kong-listed Reit).

How has the mall performed over the years? The prospectus says its revenues have been resilient through economic cycles. A graph showing Festival Walk's gross revenue (without citing a source for the data) and retail sales growth since 1999 supports this.

However, the manager, citing a host of reasons, is unable to provide detailed historical statements of financial performance for the past three years as mandated by SGX.

An investor is free to draw his own conclusions. I would personally like to see verifiable hard data on net property income (NPI), rather than high-level gross revenue and sales numbers, which can be increased in a variety of ways without benefiting the bottom line, such as by spending heavily on marketing and promotion to attract tenants.

Another important point to note is that the mall's lease expires in 2047, or in just another 34 years, similar to that of many industrial properties in Singapore. Investors need to form a view on whether the dividends are in fact part capital repayment.

Finally, the mall was built in 1998, and would need to be refurbished in a major way if it is to remain competitive with newer centres. This would require heavy capital expenditure.

Let us move on to Gateway Plaza in Beijing. The office building is in a good location with high-quality tenants, but with no direct access to a subway station. The nearest one is a 700m walk away - quite a disadvantage for a prime office building, in my view.

The office sector in general is highly volatile and the Beijing office sector more than bears this out.

After hitting a trough in 2009, office rents in Beijing have doubled over the past three years. They are now the third highest in Asia after Hong Kong and Tokyo, and command close to a 50 per cent premium over Shanghai.

The Beijing office market today seems to show similarities to the roaring early 2008 Singapore office market. The problem is that office rentals cannot go sky-high. Today's cost-focused companies show great resistance to paying high rentals and have the option of moving to less centralised locations. Sooner or later, supply comes up to match, and frequently exceed, demand.

Given these realities, investors need to decide what the upside is in this stage of the office cycle. The sponsor certainly got the timing right buying in during early 2010, just when the market was turning, and selling after rentals had doubled. Investors hoping for increased rentals and capital gains from these levels may not be as fortunate.

Gateway Plaza is also on a short lease, with just 40 years remaining.


Leverage plays a key role in determining a Reit's level of risk, distribution yield and valuation.

As at IPO, MGCCT had S$4.3 billion in assets (the combined valuation of Festival Walk and Gateway Plaza) and S$1.78 billion in debt (net of S$132 million in cash). That gives it a gearing of close to 42 per cent.

Given the reliance of the Reit on cash flows from mostly one asset and currency risk - the Hong Kong dollar has depreciated close to 20 per cent against the Singapore dollar in the past three years - the gearing looks to be on the higher side.

As a comparison, S-Reits have no currency risk, a more diversified pool of assets and a track record going back several years. As at end December last year, CMT had a gearing of 36.7 per cent; CCT's gearing was 30.1 per cent, and FCT's, 30.1 per cent.

In today's environment of ample and low cost funding, debt levels have taken a back seat to dividend yields, but smart Reit investors would do well to remember that the credit taps are extremely volatile and Reits that are dependent on high debt levels and low cost funding to generate returns will pay heavily when the credit cycle turns against them.


Festival Walk and Gateway Plaza have been injected into the Reit at S$4.3 billion. However, there is not much information in the 700-page prospectus on the basis for these numbers.

The valuation reports mention that they use an income capitalisation approach and discounted cash flow (DCF) analysis to value the assets. There are also plenty of standard clauses and disclaimers in the report, but important information such as the capitalisation rates used, the year for which net income is capitalised and the discount rate used for DCF valuations is missing.

More than a decade ago, Singapore's first Reit CMT put out a 300-page IPO prospectus including this information clearly in a table. It looks like while the IPO prospectuses have been gaining bulk over the years, the quality of meaningful information is decreasing.

Going through the prospectus, it appears that the key operating number is the "projection year 13/14" NPI of S$185.7 million. Dividing this NPI by the asset valuation of S$4.3 billion gives us a property yield of 4.3 per cent. The distribution yield of 5.6 per cent at IPO price is higher than the property yield due to the 42 per cent leverage used.

Over the past couple of years, commercial property cap rates have been compressing all over Asia, with top retail spaces in Hong Kong even trading at cap rates of less than 2.5 per cent.

Investors, however, need to decide whether today's benign interest rate and credit environment will continue and if such levels of valuation provide a sufficient margin of safety over the long term.

The sponsor makes some optimistic projections on rental increases in the coming years without providing a clear rationale.

Investors would do well to test the reality of these projections under conservative scenarios.

Management fee structure

One of the major attractions of MGCCT, going by the press coverage, is the DPU-based fee model rather than the traditional asset based fee structure that most S-Reits use.

There are certainly major drawbacks to an asset based fee model that a DPU-based model avoids. However, it does not mean that a DPU-based fee model completely aligns management and unit holder interests. For starters, investors should keep a close eye on the leverage and debt maturities. Why?

In today's credit environment, one can borrow at around 2 per cent and make even a 3 per cent cap rate acquisition yield accretive, thereby increasing DPUs and generating higher fees for the Reit manager. The increased DPUs for the investor, however, come at the expense of higher leverage. (MAS rules allow up to 60 per cent gearing if a credit rating is disclosed.)

This method gets even more attractive if short-term debt is used instead of long-term debt due to its much lower cost. Though this would mean having to frequently roll over debt.

Any Reit that employs such methods can earn high fees through increasing DPUs, but set itself up for disaster owing to a deteriorating capital structure.

This is not to suggest that MGCCT or other Reits will behave in such a way. The point is that no fee structure is fool-proof. Ultimately, whether a Reit ends up creating long-term value for unit holders depends on the quality and integrity of its manager.


Investing in Reits is no different from investing in any other asset class. The fundamentals need to be sound and the pricing should be reasonable. Investors get a relatively high yield from Reits because they take on the asset price risk.

The writer is a private investor and author of the local bestseller 'Building wealth through Reits'. He can be reached at

Tuesday, March 12, 2013

Gold Sales From Soros Reveal 12-Year Bull Run Decay: Commodities

 By Nicholas Larkin & Debarati Roy - 2013-03-12

Gold’s worst start to a year in a quarter century and the biggest sales by investors on record are increasing concern that bullion’s longest rally since the end of World War I is ending.

Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003, data compiled by Bloomberg show. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013 and billionaire George Soros reduced his stake in the biggest ETP by 55 percent in the last quarter. Prices are within 5 percent of a bear market after the longest run of monthly losses since 1997.

Hedge funds are now their least bullish since 2007 as economies accelerate and Federal Reserve policy makers review stimulus. Bullion as much as doubled after central banks, led by the Fed, started buying more than $3.5 trillion of debt from December 2008 to restore growth. With global equities at a four- year high and the dollar near its strongest in seven months, eight of 13 analysts surveyed by Bloomberg said they expect lower average gold prices in 2014 than this year.

“There is a belief that the world economy is improving,” said John Toohey, a San Antonio, Texas-based vice president of equity investments at USAA Investments, which manages more than $54 billion of assets. “We are especially seeing the signs in U.S. and that may at some point lead to higher interest rates. It seems as if the fast money is moving out of gold.”

Worst Start
Gold slid 5.6 percent to $1,581.55 an ounce in London this year by yesterday’s close, the worst start since 1988. It traded at $1,595.71 today and averaged a record $1,669 last year. The Standard & Poor’s GSCI gauge of 24 commodities rose 1.1 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities gained 6.4 percent. Treasuries lost 1.1 percent, a Bank of America Corp. index shows.

Goldman Sachs Group Inc. reduced its three-month forecast by 12 percent to $1,615 on Feb. 25 and expects $1,550 in a year. Gold is “significantly overvalued” and unlikely to return to its September 2011 record of $1,921.15, Credit Suisse said Feb. 1. The bank, along with Barclays Plc, Societe Generale SA, Natixis SA, BNP Paribas SA, ABN Amro Bank NV, Danske Bank A/S and TD Securities Inc., is predicting lower average prices next year than in 2013.

About $6.8 trillion was added to the value of global equities since November as China accelerated for the first time in two years. Economists surveyed by Bloomberg expect U.S. growth to gain every quarter this year and the International Monetary Fund predicts global expansion will climb to 3.5 percent in 2013 from 3.2 percent in 2012. U.S. unemployment fell to a four-year low of 7.7 percent last month, as job growth surged from automakers to builders to retailers.

‘Asset Bubble’
Soros Fund Management LLC, founded by the 82-year-old who called bullion the “ultimate asset bubble” in 2010, owned about $97 million of metal through the SPDR Gold Trust as of Dec. 31, a regulatory filing showed last month. Louis Moore Bacon’s Moore Capital Management LP sold its stake in the SPDR fund, valued then at $16 million, and cut holdings in the Sprott Physical Gold Trust by 53 percent to $12.1 million in the fourth quarter. Spokesmen for both investors declined to comment.

John Paulson, the largest SPDR investor, kept his holding unchanged last quarter, his filing showed. The stake is now valued at $3.4 billion. New York-based Paulson & Co.’s investors can choose between gold-and dollar-denominated versions of most of its funds. The 57-year-old told clients March 6 that his Gold Fund fell 26 percent this year. Stefan Prelog, a spokesman, declined to comment.

Mario Draghi
Central bank asset buying won’t end any time soon and concern about currency debasement combined with rising expectations for inflation will spur demand for gold, Morgan Stanley said in a Feb. 25 report. The median estimate of the 13 analysts surveyed by Bloomberg is for a record annual average of $1,700 in 2013, falling to $1,638 in 2014.

Bank of Japan Governor-designate Haruhiko Kuroda said last week the central bank should bring forward open-ended asset purchases scheduled to start next year. European Central Bank President Mario Draghi said March 7 that officials discussed cutting borrowing costs further. Gold usually earns returns only through price gains, increasing its allure at a time of record- low interest rates.
“Just because it feels that the economy is improving does not necessarily mean that is actually happening,” said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “We could continue to see governments trying to boost growth.”

Gold Council
Bullion isn’t declining for all investors, amid mounting rhetoric over currency wars. Gold priced in yen rose 5.7 percent this year and in British pounds advanced 4.1 percent.

Central banks added 534.6 tons to reserves last year, the most since 1964, in part to diversify their currency holdings, according to the London-based World Gold Council. Barclays forecasts 300 tons of buying in 2013 and the same in 2014. Lower prices and improving economies may boost jewelry purchases, the biggest source of demand, with the bank predicting a 3.2 percent gain this year, from an 8.2 percent drop in 2012.

The slump in gold is curbing profit for those extracting the metal, in some cases from as deep as 2.4 miles underground. As bullion almost quadrupled since 2003, mining costs jumped more than fivefold, data compiled by New York-based Kenneth Hoffman and other analysts at Bloomberg Industries show. For as many as 11 of the world’s biggest miners, production costs averaged $991 an ounce in the first nine months of 2012.

Future Production
The 30-member Philadelphia Stock Exchange Gold and Silver Index, including Freeport-McMoRan Copper & Gold Inc. (FCX), fell 17 percent this year, extending retreats of 8.3 percent in 2012 and 20 percent in 2011. Mining companies have so far held off locking in prices by selling future production, with Barclays anticipating net hedging of 20 tons this year and 35 tons in 2014. Annual production is about 2,700 tons.

Options traders are increasing bets on more declines. Puts that profit should the SPDR Gold Trust (GLD) fall 10 percent cost 2.1 points more than calls betting on a 10 percent rally, according to three-month options data compiled by Bloomberg. The price relationship known as skew reached a record 3.3 points Feb. 21. Combined ETP holdings stand at 2,479.9 tons, from a peak of 2,632.5 tons in December.

Hedge funds are 84 percent less bullish on gold than they were the month before prices reached a record in September 2011. Speculators held a net-long position of 39,631 futures and options in the week ended March 5, the fewest since July 2007, U.S. Commodity Futures Trading Commission data show.

The U.S. Mint sold 753,000 ounces of American Eagle gold coins last year, 25 percent less than in 2011, data on its website show. Coin and bar sales from Australia’s Perth Mint fell 17 percent last year, the company said March 6.

“People are seeing less need for gold,” said Michael Mullaney, the chief investment officer at Fiduciary Trust in Boston, which manages $9.5 billion of assets. “The end of loose money supply is making gold less attractive.”