Mon, Sep 29, 2008
The Straits Times
By Lorna Tan
It is natural to feel disheartened after a bad experience. Still, even if you are one of the hundreds who lost money in now-worthless structured products linked to failed United States investment bank Lehman Brothers, do not go to the other extreme and lose your faith entirely in investments.
Instead, take a hard look at the risks and potential returns of the underlying assets in your portfolio. It is unwise to put all your money under the pillow and in bank deposits just because they are very secure. Your purchasing power will be reduced by inflation.
A sensible combination of products with varying risks levels can provide good returns. Mr Leong Sze Hian, president of the Society of Financial Service Professionals, suggests that the most effective way to optimise risk is a globally diversified portfolio of different assets like equities, bonds and commodities.
For those who are confused over the potential risk levels of different asset classes, here is a general guide, from the safest to the riskiest sort of investments available.
1 Cash
Pros: This is the most liquid form of financial asset.
Cons: You do not earn any return from holding idle cash. The purchasing value of money diminishes over time because of the effects of inflation.
Best for: Investors are encouraged to keep at least six months' worth of expense money to tide them over rainy days.
Generally, there is no need to keep too much cash because there are other assets like deposits, bonds, stocks and unit trusts that can be liquidated within a short time, with little or no penalty, depending on the prevailing market conditions.
2 Bank deposits
What: Cash that is deposited in banks to earn interest depending on the account type and tenure.
Pros: It is a liquid asset, easily accessible and earns some interest. In Singapore, deposits are relatively safe as depositors are protected by the Deposit Insurance Scheme - administered by the Singapore Deposit Insurance Corporation - which insures each depositor up to $20,000 per institution they bank with. This covers an individual's Singapore-dollar current, savings and fixed deposit accounts.
The scheme provides depositors with peace of mind and they can expect to be compensated within three weeks of an order by the regulator to pay out from the Deposit Insurance Fund.
Cons: Bank deposits in excess of what is insured by the Deposit Insurance Scheme might be lost in a bank run. Also, current bank interest rates, which range from 0.2 to 1 per cent, are unattractive. They are also unable to beat inflation, so the monetary value of deposits will diminish over time.
3 Money market funds
What: A money market fund invests in high-quality short-term instruments and debt securities. The latter are loans sold by firms and governments to borrow money.
Pros: It is a good alternative for investors who are looking for a stable, low-risk instrument with potentially higher returns - ranging between 1 and 2 per cent - than banks' savings deposits. Such funds often have no sales charge, although they come with a low management fee of about 0.5 per cent per year.
Cons: Although most money market securities are considered very low-risk investments, there is a possibility that the borrower will not repay the loan as promised. However, such a default risk becomes non-existent if it is a government bond.
Also, the interest rate earned usually does not exceed inflation.
Best for: You can use it to park money that you want to keep safe and available for spending in as short a time as a few months to as long as several years. Therefore, it is suitable for all age groups, particularly for retirees.
Still, not all money market funds are the same. When shopping for a money market fund, read the fund's prospectus and annual reports. Check to see what kinds of debt instruments the fund invests in.
4 Bonds
What: They are also known as fixed-income instruments. Issuing a bond is one option for a firm to borrow money from individual investors. It is a debt security where the issuer typically offers regular interest payouts and is obliged to repay bond holders the principal at maturity. Bond holders are debt holders. As such, they have priority over shareholders on the company's assets in times of liquidation.
Unlike money market funds, bonds have maturities that exceed 12 months from the date of issue.
Pros: With a range of potential returns from 2 to 5 per cent, bonds give a higher yield than bank deposits and money market funds. They provide regular fixed interest income.
Cons: The returns may not keep pace with inflation. Bonds are also subject to default risk of the issuer.
Best for: As they are considered a relatively safe and low-risk instrument, bonds can help bring stability to an investor's portfolio. The proportion of bonds in a portfolio is dependent on the investor's risk profile. The lower the risk appetite, the higher the percentage of bonds in the portfolio and vice versa. It is common for retirees to hold a higher percentage of bonds in their portfolios, said Ms Irene Ng, investment analyst at Alpha Financial Advisers.
5 Unit trusts
What: When you invest in a unit trust, you are pooling your money together with many other investors. For a fee, a professional fund manager invests this pool of money in bonds, stocks and other instruments to reap returns consistent with the stated investment objectives of the fund. The potential returns vary from 6 per cent to double-digit figures.
Pros: Your investments are managed by professionals. Through unit trusts, you are exposed to a wider pool of equity stocks and gain better diversification.
Cons: Ms Ng cautioned that unit trust investments are not without risks and capital can be lost. The minimum investment amount is low at $1,000.
Best for: It is often recommended for new investors and those who want to gain diversification at lower cost.
6 Equities/Shares
What: Equity investment refers to the buying and holding of company shares. Income from such investments comes in the form of regular payouts and capital gains, when the shares are sold at a profit. When the investment is in a start-up, it is referred to as venture capital investing and is generally understood to have a higher risk than investments in listed firms.
Pros: Equity investors have the potential for higher returns.
Cons: Investing in single company shares is riskier than a unit trust investment because of low diversification.
Best for: Savvy investors who do their homework and monitor the companies they invest in.
7 Complex structured products
What: These are innovative products that offer investors a return that is linked to the performance of some financial instruments such as equities, foreign exchange and derivatives.
Pros: They offer an opportunity to participate in a shared investment view. For example, you may have a bullish view of a market or security.
Cons: Your money is tied up for three to 10 years and the underlying structure is usually difficult to understand. You may lose all your capital.
Best for: Savvy investors who understand the mechanics of the underlying structure and the instruments and are comfortable with the issuer, reference entities and risks.
8 Futures
What: Futures are derivative products - that is, their values are derived from the underlying asset, for example, commodities like coffee, metals and gold, and foreign currencies.
A futures contract is a standardised contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.
Pros: It requires a low outlay with potential for high returns. It is useful for hedging certain risks and carries a low transaction cost.
Cons: It is not meant for everyone as losses can be huge.
Best for: Derivatives are only for professionals and savvy investors.
9 Forex trading
What: The foreign exchange (FX) market refers to the market for currencies. Transactions in this market typically involve one party buying a quantity of one currency in exchange for paying a quantity of another.
Pros: It is a 24-hour market and a forex trader can generate profits in good and bad times, said Ms Ng.
Cons: Constant monitoring of the FX market is required. Due to the high volatility of currencies, it requires intensive research.
Best for: Recommended only for professionals and savvy investors.
10 Hedge funds
What: These are investment funds where the fund managers have a far wider range of investing options available to them than managers of unit trusts.
For instance, hedge funds can try to take advantage of a falling market by selling financial instruments they do not own yet - a technique known as short-selling. They can also borrow money to use as capital, or invest.
Pros: The greater investment flexibility provides an opportunity for exponential returns.
Cons: There is a lack of transparency on what the holdings of the funds are. The performance of hedge funds is highly dependent on the fund managers' strategies.
Best for: High net worth investors who have capital to invest and the ability to withstand losses, said Ms Ng.
Retail investors who want some exposure to hedge funds are advised to invest in a 'fund of hedge funds', which is a hedge fund that invests in other hedge funds, so as to lower their risks. For example, DBS Absolute Return Fund gives investors the opportunity to invest in a portfolio of hedge funds managed by more than 20 specialised hedge fund managers.
Monday, September 29, 2008
Friday, September 26, 2008
Singapore: Population Reaches 4.84 Million
2008-09-26 17:16
Singapore which is encouraging its citizens to have more babies now has about 4.84 million people as at end of last June.
There were 3.64 million Singapore residents and 1.2 million non-residents, according to the latest figures released by the Singapore Statistics Department Friday (26 Sept).
The department said Singapore residents, comprising its citizens and permanent residents, formed 75% of the total population.
The total population for this year grew by 5.5% over the previous year, with the resident population registering a growth rate of 1.7%.
The department said the number of Singapore citizens continued to grow this year which now stood at 3.16 million, about 1.0% higher than the 3.13 million recorded last year.
The number of permanent residents was 0.48 million this year, an increase from 0.45 million last year.
Singapores population has also grown older over the years with the median age of resident population rising from 20 years in 1970 to 37 years this year.
The department said the post-war baby boomers aged 5-24 years old in 1970 had moved to the age group 40-59 years this year.
Over the last decade, the number of persons aged below 15 years decreased to 671,300 this year, from 712,000 in 1998, and this reflected the declining trend in past fertility, the department said.
Correspondingly, there was an increase in the proportion of older residents with those aged 65 and over increasing to 8.7% of the resident population this year, up from 6.8% in 1998.
The Singapore government which is worried over the decline of its local population recently launched a marriage parenthood package that will initiate Singaporeans to get married and marry early, providing child tax relief and giving bonus for babies.
Singapore which is encouraging its citizens to have more babies now has about 4.84 million people as at end of last June.
There were 3.64 million Singapore residents and 1.2 million non-residents, according to the latest figures released by the Singapore Statistics Department Friday (26 Sept).
The department said Singapore residents, comprising its citizens and permanent residents, formed 75% of the total population.
The total population for this year grew by 5.5% over the previous year, with the resident population registering a growth rate of 1.7%.
The department said the number of Singapore citizens continued to grow this year which now stood at 3.16 million, about 1.0% higher than the 3.13 million recorded last year.
The number of permanent residents was 0.48 million this year, an increase from 0.45 million last year.
Singapores population has also grown older over the years with the median age of resident population rising from 20 years in 1970 to 37 years this year.
The department said the post-war baby boomers aged 5-24 years old in 1970 had moved to the age group 40-59 years this year.
Over the last decade, the number of persons aged below 15 years decreased to 671,300 this year, from 712,000 in 1998, and this reflected the declining trend in past fertility, the department said.
Correspondingly, there was an increase in the proportion of older residents with those aged 65 and over increasing to 8.7% of the resident population this year, up from 6.8% in 1998.
The Singapore government which is worried over the decline of its local population recently launched a marriage parenthood package that will initiate Singaporeans to get married and marry early, providing child tax relief and giving bonus for babies.
Monday, September 15, 2008
World May Face `Japan-Like' Economic Stagnation
By Shamim Adam
Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.
``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''
An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.
The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.
`More Severe'
``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''
Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
Emerging Markets
Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.
Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.
``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''
A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.
Natural Resources
``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''
Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.
Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.
Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.
``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''
An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.
The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.
`More Severe'
``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''
Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
Emerging Markets
Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.
Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.
``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''
A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.
Natural Resources
``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''
Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.
Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.
Wednesday, September 10, 2008
4 Stages of Stock Market
1st phase - emerging from recession, coys repair balance sheets, profits down, equity prices down.
2nd phase - profits return, equity prices start to rally. Last the longest. VIX about 15.
3rd phase - spread starts to rise, end of credit bull market but equity prices continue to rise. VIX about 22. Banks underperformed as credit spreads rose. This is a matured bull market phase where major bubbles developed.
4th phase - equity and credit prices both fall together, with falling profit and worsening balance sheets, insolvencies.
2nd phase - profits return, equity prices start to rally. Last the longest. VIX about 15.
3rd phase - spread starts to rise, end of credit bull market but equity prices continue to rise. VIX about 22. Banks underperformed as credit spreads rose. This is a matured bull market phase where major bubbles developed.
4th phase - equity and credit prices both fall together, with falling profit and worsening balance sheets, insolvencies.
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