Published February 21, 2011
ANALYSIS
Caution will reign for now but a long bear phase is relatively unlikely
By TEH HOOI LING
(SINGAPORE) ARE we entering a bear market? From its recent peak on Jan 6, 2011 when the Straits Times Index hit 3,279.7 points, the market is now down 5.9 per cent.
The second and third-tier stocks have suffered a bigger drubbing, with the FTSE Straits Times Mid and Small Cap Indices falling by 6.8 per cent and 7 per cent respectively since then.
'While there's no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20 per cent or more over at least a two-month period,' according to the Vanguard Group, an investment management company.
The question is whether the Singapore market, and Asian markets in general, are in danger of seeing that kind of decline.
One big concern now of course is inflation. Last week, the government here raised its inflation forecast for the year by one percentage point to between 3 per cent and 4 per cent. And inflation could hit 5-6 per cent in the first quarter of this year. In the same period last year, the consumer price index grew by just 0.93 per cent.
Over the long term, the fundamentals of Asian economies remain on a firm footing once inflation is contained.
A BT study last week showed a very distinct relationship between three-month STI returns and quarterly inflation rate. Tracking data as far back as 1973, the analysis showed that negative inflation quarters saw the highest average and median STI returns. Returns get progressively smaller, and are the poorest when inflation is at the highest.
Meanwhile, the price-earnings (PE) multiples of the market too are higher when inflation is subdued. They begin to drop significantly once inflation hits 5 per cent and above.
That different inflation levels correspond to different PE levels is also observed by a study done by the Economist. According to the magazine, since 1900, when inflation has been in the one to 4 per cent range, price-earnings ratios on the stock market have averaged between 17 and 19 - in other words, an earnings yield of 5 to 6 per cent. Average PEs when inflation has been in the 4-5 per cent range have been 15. And by the time inflation reaches 6-7 per cent, the PE drops to 11.
Given that a 5-6 per cent inflation rate is expected for the current quarter, it would appear that stocks here are approaching danger zones. At those rates, inflation would exceed the dividend yield of many stocks.
But as the government is targeting a 3 to 4 per cent inflation for the full year, this 'would imply a sharp decline in inflation momentum from Q2 onwards - which may possibly incorporate the impact of significant monetary tightening,' said Citi economist Kit Wei Zheng.
All in all, the local market is set to enter a cautious period for at least the next three months. Not helping is the continued reversal of funds from Asia and other emerging markets into the the US and Japan. But short of another crisis, or major shock, there is a relatively low likelihood of the local and other Asian markets entering a prolonged bear phase.
One can take comfort in the fact that Singapore's market valuations at current levels are not stretched. According to Bloomberg, the STI is currently trading at 12 times PE. However, the earnings outlook is not uniform. StarMine's data showed that analysts are looking at a 13.2 per cent increase in earnings per share (EPS) in Singapore, bringing the price-to-forward earnings ratio in the next 12 months to 12.5 times. Bloomberg's estimate for the STI's EPS this year however is a decline of 15 per cent.
From most accounts, investors should still be looking at growth, rather than declines in corporate earnings this year. And over the long term, the fundamentals of Asian economies remain on a firm footing once inflation is contained.
In the absence of another asset class which can yield enough to make up for the rate at which consumers are losing their purchasing power, equities remain a good place to park spare cash.
At the very least, there are some stocks which can still be had at dividend yields of 7 per cent or more.
Monday, February 21, 2011
Saturday, February 19, 2011
The Gold Label and Genneva
Business Times – 19 Feb 2011
Golden fleece
Two companies that offered gold investment schemes are currently under investigation by the authorities.
By Genevieve Cua
IN THE last few months, netizens and investors have puzzled over a number of so- called gold investment schemes that aim to pay you regular returns. Are they scams? Gold, after all, does not pay any income, so how are the firms able to pay out as much as 24 per cent per annum?
Two firms with such schemes have been put on the Monetary Authority of Singapore’s (MAS) Investor Alert list. The latest on the list is Genneva Pte Ltd.
Late last year, The Gold Label Pte Ltd was put on the list. The company has filed to wind up its operations, reportedly due to cash flow problems. MAS’ Investor Alert list reflects persons who are unregulated, and ‘may have been wrongly perceived as being licensed or authorised by MAS’.
There are similarities in The Gold Label and Genneva. They appear to be Malaysian in origin, or at least have Malaysian directors. Both were investigated by Bank Negara on suspicions of illegal deposit taking and money laundering.
Genneva Sdn Bhd was investigated in 2009. Three of its directors – who are also directors in the Singapore company – will stand trial in April in Kuala Lumpur on charges of alleged money laundering.
Bank Negara’s investigation of The Gold Label started last year, and is ongoing, based on information on Bank Negara’s website.
What exactly is the firms’ investment proposition? Information on The Gold Label isn’t widely available; its Singapore website has been taken down. The firms straddle a fine line between investment and a retail business.
Genneva, for example, has a police licence that enables it to sell second-hand jewellery, gold, and white gold. The fact that customers take home physical gold in the form of bars or coins suggests that the firm isn’t taking a deposit or acting as investment manager.
Here’s how the scheme appears to work: Customers buy gold from Genneva at a fairly substantial premium to the market of about 22 to 25 per cent. This is based on a comparison of prices quoted by Genneva of roughly $75 to $76.50 per gram against the price quoted by UOB and other retail gold dealers of roughly $61.
Genneva tells customers that it sells the gold to them at a so-called ‘discount’ of between 1.5 and 2 per cent. It extends an option to customers: it will buy back the gold after 30 to 36 days or after 90 days depending on the scheme, at the original full purchase price. Those who exercise this get to keep the ‘discount’ of 1.5 to 2 per cent.
Customers may rollover the purchase, and hence they could potentially pocket as much as 18 to 24 per cent a year, from an asset that actually doesn’t pay any yield.
How is this done? Genneva has declined to answer questions for now, citing the pending court case in Malaysia. It adds in an e-mail that it expects a ‘positive outcome’ from the court case.
There are a number of aspects that should cause scepticism. First, the firm illustrates its buyback option on its website in a rather disingenuous fashion. It says customers buy gold at a ‘discounted market price’.
But the truth is customers buy gold at a sizeable premium to the market. The firm also does not explain what it does with the premium that it pockets. Presumably commissions are paid to the sales people.
Its website says it has a ‘proprietary trading platform’ which enables it to ‘adopt an active hedging and leveraging strategy’ that makes the buy-back option possible.
On whether the scheme is Ponzi in nature, The firm’s Malaysian counterpart told a Malaysian paper in 2009 that it is ‘obvious’ that it is not a Ponzi scheme.
What is likely to transpire is that the firm takes the 22 to 25 per cent premium that it gets from customers’ purchases, and after paying off costs and commissions, it could buy and sell options on gold, through which it hedges its exposure.
As long as the gold price rises or is steady, it can continue, and even thrive, as it sources for gold at substantially lower prices on the open market. If gold however drops on a sustained basis, it could face a cash crunch if investors rush to sell back their gold in substantial numbers. This is because it is obligated to buy back the gold from clients at a high price.
Those who enter the scheme are likely to be enamoured of the so-called return, but they face two major risks – price and counterparty risk. As long as gold rises enough to cover their cost, they could sell their Genneva gold in the open market. Over the last year, gold has risen some 26 per cent, based on spot prices.
If gold falls substantially, however, the counterparty risk becomes a material one, as you can recover your cost only if Genneva stays solvent. Those who roll over their purchases must reckon that the potential return far outweighs the risk of loss. Genneva agents tell investors that the worst loss they may suffer is about 20 to 22 per cent, roughly the premium they have paid.
Effectively, Genneva has sold investors a put option along with gold, charging them a premium for it, and sweetening that by sharing some of that premium at the end of the contract period of a month or three months. As the put option writer, Genneva’s risk is potentially unlimited if it has not hedged its exposure.
Rollovers, by the way, incur price risk – that is, you re-purchase the gold at the price Genneva quotes you which is presumably pegged to the market price. If gold rises, as it has over the last year, you end up investing larger amounts.
So, who is Genneva? According to filings with Acra (Accounting and Corporate Regulatory Authority), it was registered as a business in 2008 dealing in gold bullion. It has an issued and paid-up capital of $500,000.
Three shareholders are Malaysian, and they are the same ones who will have to fight money laundering charges in Malaysian court. There is one Singapore shareholder. Attempts to contact him were unsuccessful as he was reportedly travelling or in meetings.
There are clearly more transparent ways to invest in gold, without dealing with a counterparty which could shutter its operations as The Gold Label did.
UOB offers a gold investment account, for instance, where you can hold physical gold and re-sell it to the bank. Those who need not buy physical gold but want a piece of its price action can get it through the SPDR Gold ETF. The latter is exchange listed and is easily traded through a broker.
gen@sph.com.sg
Golden fleece
Two companies that offered gold investment schemes are currently under investigation by the authorities.
By Genevieve Cua
IN THE last few months, netizens and investors have puzzled over a number of so- called gold investment schemes that aim to pay you regular returns. Are they scams? Gold, after all, does not pay any income, so how are the firms able to pay out as much as 24 per cent per annum?
Two firms with such schemes have been put on the Monetary Authority of Singapore’s (MAS) Investor Alert list. The latest on the list is Genneva Pte Ltd.
Late last year, The Gold Label Pte Ltd was put on the list. The company has filed to wind up its operations, reportedly due to cash flow problems. MAS’ Investor Alert list reflects persons who are unregulated, and ‘may have been wrongly perceived as being licensed or authorised by MAS’.
There are similarities in The Gold Label and Genneva. They appear to be Malaysian in origin, or at least have Malaysian directors. Both were investigated by Bank Negara on suspicions of illegal deposit taking and money laundering.
Genneva Sdn Bhd was investigated in 2009. Three of its directors – who are also directors in the Singapore company – will stand trial in April in Kuala Lumpur on charges of alleged money laundering.
Bank Negara’s investigation of The Gold Label started last year, and is ongoing, based on information on Bank Negara’s website.
What exactly is the firms’ investment proposition? Information on The Gold Label isn’t widely available; its Singapore website has been taken down. The firms straddle a fine line between investment and a retail business.
Genneva, for example, has a police licence that enables it to sell second-hand jewellery, gold, and white gold. The fact that customers take home physical gold in the form of bars or coins suggests that the firm isn’t taking a deposit or acting as investment manager.
Here’s how the scheme appears to work: Customers buy gold from Genneva at a fairly substantial premium to the market of about 22 to 25 per cent. This is based on a comparison of prices quoted by Genneva of roughly $75 to $76.50 per gram against the price quoted by UOB and other retail gold dealers of roughly $61.
Genneva tells customers that it sells the gold to them at a so-called ‘discount’ of between 1.5 and 2 per cent. It extends an option to customers: it will buy back the gold after 30 to 36 days or after 90 days depending on the scheme, at the original full purchase price. Those who exercise this get to keep the ‘discount’ of 1.5 to 2 per cent.
Customers may rollover the purchase, and hence they could potentially pocket as much as 18 to 24 per cent a year, from an asset that actually doesn’t pay any yield.
How is this done? Genneva has declined to answer questions for now, citing the pending court case in Malaysia. It adds in an e-mail that it expects a ‘positive outcome’ from the court case.
There are a number of aspects that should cause scepticism. First, the firm illustrates its buyback option on its website in a rather disingenuous fashion. It says customers buy gold at a ‘discounted market price’.
But the truth is customers buy gold at a sizeable premium to the market. The firm also does not explain what it does with the premium that it pockets. Presumably commissions are paid to the sales people.
Its website says it has a ‘proprietary trading platform’ which enables it to ‘adopt an active hedging and leveraging strategy’ that makes the buy-back option possible.
On whether the scheme is Ponzi in nature, The firm’s Malaysian counterpart told a Malaysian paper in 2009 that it is ‘obvious’ that it is not a Ponzi scheme.
What is likely to transpire is that the firm takes the 22 to 25 per cent premium that it gets from customers’ purchases, and after paying off costs and commissions, it could buy and sell options on gold, through which it hedges its exposure.
As long as the gold price rises or is steady, it can continue, and even thrive, as it sources for gold at substantially lower prices on the open market. If gold however drops on a sustained basis, it could face a cash crunch if investors rush to sell back their gold in substantial numbers. This is because it is obligated to buy back the gold from clients at a high price.
Those who enter the scheme are likely to be enamoured of the so-called return, but they face two major risks – price and counterparty risk. As long as gold rises enough to cover their cost, they could sell their Genneva gold in the open market. Over the last year, gold has risen some 26 per cent, based on spot prices.
If gold falls substantially, however, the counterparty risk becomes a material one, as you can recover your cost only if Genneva stays solvent. Those who roll over their purchases must reckon that the potential return far outweighs the risk of loss. Genneva agents tell investors that the worst loss they may suffer is about 20 to 22 per cent, roughly the premium they have paid.
Effectively, Genneva has sold investors a put option along with gold, charging them a premium for it, and sweetening that by sharing some of that premium at the end of the contract period of a month or three months. As the put option writer, Genneva’s risk is potentially unlimited if it has not hedged its exposure.
Rollovers, by the way, incur price risk – that is, you re-purchase the gold at the price Genneva quotes you which is presumably pegged to the market price. If gold rises, as it has over the last year, you end up investing larger amounts.
So, who is Genneva? According to filings with Acra (Accounting and Corporate Regulatory Authority), it was registered as a business in 2008 dealing in gold bullion. It has an issued and paid-up capital of $500,000.
Three shareholders are Malaysian, and they are the same ones who will have to fight money laundering charges in Malaysian court. There is one Singapore shareholder. Attempts to contact him were unsuccessful as he was reportedly travelling or in meetings.
There are clearly more transparent ways to invest in gold, without dealing with a counterparty which could shutter its operations as The Gold Label did.
UOB offers a gold investment account, for instance, where you can hold physical gold and re-sell it to the bank. Those who need not buy physical gold but want a piece of its price action can get it through the SPDR Gold ETF. The latter is exchange listed and is easily traded through a broker.
gen@sph.com.sg
Friday, February 18, 2011
Momentum Trading
When done properly, momentum trading can produce very significant returns in a relatively short period of time.
Momentum trading is identifying, and holding, a fast rising (or falling) stock for a period of time - be in days, weeks, or months. In momentum trading, you are looking for stocks that are trending. Momentum traders use technical analysis to identify stocks that show the characteristics of either an upward or downward trend (to short). Trends can be either short, medium, or long term. Generally, in momentum trading, investors don't enter a trade unless a stock has already started to trend, preferring instead to buy into established trends. However, care is taken not to enter a trend too late, otherwise you will make very little, and could even lose money.
Of course, a stock rarely moves uniformly up or down, even in a trend. It tends to make smaller upward and downward movements within the overall trend. But a stock can also suddenly go down, and the momentum of movement (up or down) can also fizzle out.
Trading in momentum shares is not a 'buy and hold' strategy. Momentum shares are not identified using fundamental analysis, which seeks to measure a stock's intrinsic value. Momentum investors look at a stock's price, and the volume traded, to see whether a trend is occurring, and its' direction. These large movements in the market are often driven by large institutional investors buying or selling off stocks. A momentum trader will buy into a trending stock either right at the start of the trend, or early in the life of the trend. They will exit the trade preferably before the trend reverses - they are not looking to ride out a reversal like a value investor might.
In momentum trading, entry and exit points are often determined beforehand, at least in some momentum systems that use momentum trading within the context of larger cycles (and which have a very high success rate). Momentum traders tend to use the moving average as an exit signal. Taking a short-term average of about 5 days, and a longer-term average of 20 days, when the short-term average crosses below the longer-term average, that is a signal to sell as it usually means the stock is dropping. Different momentum traders use different periods of time to measure the moving average, but that is one possible setup.
Momentum traders might look for potential momentum stocks in the Wall Street Journal's NYSE Biggest Percentage Gainers list, in popular trading chat rooms (for which stocks are generating a lot of buzz), trading alerts (because those stocks may have significant volume traded that day), as well as listening to the news to see which companies are releasing news.
When the market opens, those stocks are watched in relation to the market, to see if they are traded more quickly, with more volume, than the rest of the market. Technical analysis is used, particularly the momentum line, and watching the level 2 screen shows the level of interest in the stock. Of course, there is an easier way.
What Can Go Wrong With Momentum Trading?
Trading is not an exact science, and things can go wrong. Whether it's due to lack of experience, emotions driving your actions, lack of knowledge, lack of mastery, or poor advice, the types of things that can go wrong in the momentum trading system are:
* poor to average stock selection
* you stayed too long, or not long enough, in a trade
* you entered or exited the trade at the wrong time
* poor stop placement
* you had too many stocks and your capital was thus too diversified to see any significant net gains
The most successful momentum traders use a system, and stick to it. It helps eliminate the interference your emotions can generate when a stock is performing well (greed) or badly.
References:
1. istockanalyst.com/article/viewarticle/articleid/3661191
2. investopedia.com/articles/trading/02/090302.asp
Momentum trading is identifying, and holding, a fast rising (or falling) stock for a period of time - be in days, weeks, or months. In momentum trading, you are looking for stocks that are trending. Momentum traders use technical analysis to identify stocks that show the characteristics of either an upward or downward trend (to short). Trends can be either short, medium, or long term. Generally, in momentum trading, investors don't enter a trade unless a stock has already started to trend, preferring instead to buy into established trends. However, care is taken not to enter a trend too late, otherwise you will make very little, and could even lose money.
Of course, a stock rarely moves uniformly up or down, even in a trend. It tends to make smaller upward and downward movements within the overall trend. But a stock can also suddenly go down, and the momentum of movement (up or down) can also fizzle out.
Trading in momentum shares is not a 'buy and hold' strategy. Momentum shares are not identified using fundamental analysis, which seeks to measure a stock's intrinsic value. Momentum investors look at a stock's price, and the volume traded, to see whether a trend is occurring, and its' direction. These large movements in the market are often driven by large institutional investors buying or selling off stocks. A momentum trader will buy into a trending stock either right at the start of the trend, or early in the life of the trend. They will exit the trade preferably before the trend reverses - they are not looking to ride out a reversal like a value investor might.
In momentum trading, entry and exit points are often determined beforehand, at least in some momentum systems that use momentum trading within the context of larger cycles (and which have a very high success rate). Momentum traders tend to use the moving average as an exit signal. Taking a short-term average of about 5 days, and a longer-term average of 20 days, when the short-term average crosses below the longer-term average, that is a signal to sell as it usually means the stock is dropping. Different momentum traders use different periods of time to measure the moving average, but that is one possible setup.
Momentum traders might look for potential momentum stocks in the Wall Street Journal's NYSE Biggest Percentage Gainers list, in popular trading chat rooms (for which stocks are generating a lot of buzz), trading alerts (because those stocks may have significant volume traded that day), as well as listening to the news to see which companies are releasing news.
When the market opens, those stocks are watched in relation to the market, to see if they are traded more quickly, with more volume, than the rest of the market. Technical analysis is used, particularly the momentum line, and watching the level 2 screen shows the level of interest in the stock. Of course, there is an easier way.
What Can Go Wrong With Momentum Trading?
Trading is not an exact science, and things can go wrong. Whether it's due to lack of experience, emotions driving your actions, lack of knowledge, lack of mastery, or poor advice, the types of things that can go wrong in the momentum trading system are:
* poor to average stock selection
* you stayed too long, or not long enough, in a trade
* you entered or exited the trade at the wrong time
* poor stop placement
* you had too many stocks and your capital was thus too diversified to see any significant net gains
The most successful momentum traders use a system, and stick to it. It helps eliminate the interference your emotions can generate when a stock is performing well (greed) or badly.
References:
1. istockanalyst.com/article/viewarticle/articleid/3661191
2. investopedia.com/articles/trading/02/090302.asp
Brace for poor returns as inflation rises
Source: The Business Times
Author: Teh Hooi Ling 18/2/2011
THE inflationary pressures are on! 'Government raises inflation forecast', screamed the headline in The Straits Times yesterday. 'New official projections have confirmed that rising prices will be the key economic issue this year and a major focus for today's Budget,' the news report said. 'The government yesterday raised its inflation forecast for the year by one percentage point to between 3 per cent and 4 per cent.'
The key macroeconomic challenge this year will not be growth, but dealing with emerging cost pressures, said Ravi Menon, Permanent Secretary for Trade and Industry.
Except for seven quarters between the second half of 2007 and the first quarter of 2009, Singapore has managed to keep the growth of its consumer price index (CPI) below 3 per cent since 1995. In Q3 2007, the CPI climbed to 3.17 per cent and rose to hit 7.5 per cent in Q2 of 2008.
But thanks to the global financial crisis, which effectively threw a soaking wet blanket on the overheated prices, the CPI eased to 0.17 per cent by Q2 2009. It was then followed by two quarters of negative growth.
But by Q2 2010, inflation reared its ugly head again as prices climbed more than 3 per cent year-on-year. It rose to just under 4 per cent by the final quarter of last year.
On Thursday, I received an e-mail from a reader asking if I could give him some insight/opinions regarding Singapore's record inflation rates in 2008 and which stocks outperformed during high interest rates and which did poorly.
I downloaded Singapore's inflation numbers since 1973, and the individual stocks' prices at various times when inflation was either rising and falling. I also downloaded the Straits Times Index (STI) as calculated by Datastream since 1973.
First up, I decided to look at how the general market performed during periods of high or low inflation.
Using the quarterly CPI numbers, I matched the quarterly returns of the STI with the CPIs for the corresponding quarters. For example, the CPI for Q1 2001 would be matched with the STI return for that quarter.
The assumption is that there would be monthly inflation numbers being released and the market would have an inkling of where the general price levels are headed. Stock market prices would then adjust accordingly as the quarter progressed.
The numbers that the data churned out showed clearly that inflation is bad for stock prices. I broke down the year-on- year change in CPI into eight groups: those below -1 per cent growth; from -1 to 0 per cent; 0-1; 1-2; 2-3; 3-5; 5-10; and those above 10 per cent.
As you can see from the first chart, the mean and median three-month returns of the STI in general get progressively smaller as inflation rises. For example, between 1973 and now, there were eight quarters when the CPI fell by more than one per cent from a year ago. The average and median return of those eight quarters were 11.2 per cent and 10.7 per cent respectively.
Meanwhile, there were 13 quarters when the CPI fell by between one and zero per cent. The average and median returns for those quarters were 9.9 per cent and 12.2 per cent respectively.
Recent examples of such quarters were the third and last quarter of 2009 when the CPI was -0.37 per cent and -0.73 per cent respectively. The returns for STI in those two quarters were 14.1 per cent and 7.6 per cent.
In Q1 2007, the CPI slid by 0.17 per cent. In that period, the stock market climbed by 8.3 per cent. Once the CPI climbed to the zero to one per cent range, the STI returns fell to about 5 per cent.
Between one and 10 per cent of inflation, market returns fell to between 0.5 and 3 per cent. And on the eight occasions when inflation surged beyond 10 per cent - that happened in the 70s - the average and median return for the STI were -10.3 per cent and -11.4 per cent respectively.
The third chart shows market valuations, as measured by the price-earnings (PE) ratio, getting lower the higher the CPI went. And we are now moving into the 3 to 5 per cent inflation range, when the market PE dropped rather significantly! But the thing is, current market PE wasn't high to begin with.
This phenomenon is observed in other markets as well, and financial economists find it surprising. After all, stocks, as claimed against real assets, should compensate for movements in inflation.
So given the negative relationship between short-term stock returns and inflation, the stock market is not even a partial hedge against inflation. A negative relationship implies that investors whose real wealth is diminished by inflation can expect this effect to be compounded by a lower than average return on the stock market.
The thing is inflation gets factored into nominal interest rates which are used to discount the future cash flows of companies to arrive at their current present value. All things being equal, the higher the discount rate, the lower the net present value of the company.
Of course, in an inflationary environment, companies would also have to contend with higher costs, be they manpower, raw materials or others. But what if the companies have the pricing power and are able to pass the higher costs to consumers?
Well, even if companies are able to maintain their margins, or in the optimistic scenario improve them, the higher discount rate would, in most likelihood, result in companies having lower net present value.
With that understanding, perhaps we can appreciate why funds are reversing out of fast growing Asia which are grappling with inflation, and heading toward the developed markets and to Japan.
Of course, inflation doesn't stay high forever. If prices increased sharply today, next year this time, we will measure the increase from today's higher base and the quantum may not be as high as a result.
And other studies have shown that over the long term, stocks do compensate for inflation. Studies in countries which suffered bouts of high inflation in Latin America also found stocks to yield real positive returns.
Now back to the reader's question: Which stocks did well in 2007/8 when inflation spiked up? Well, that coincided with the global financial crisis, and between end-September 2007 and end-September 2008, only 25 stocks out of 700- plus listed on the Singapore Exchange managed to chalk up positive returns.
The top performing companies during that period were from varied industries: RH Petrogas which deals in electrical equipment; Portek, which is in transport services; FDS Networks in computer services; Transcu in recreational services, ISDN Holdings in business support services; MAP Technology in computer hardware; Riverstone in medical supplies; and Metax Engineering in industrial machinery.
So it would seem that it was company specific news which drove the stock prices. But normally, it is accepted that resource providers would benefit more in an inflationary environment, so too technology and consumer products.
Meanwhile, utility and telecom companies typically are viewed as not having the pricing power to battle inflation and property developers don't generally do well when interest rates rise. Neither do real estate investment trusts which are raking it in now given the benign interest rates.
•The writer is a CFA charterholder
Author: Teh Hooi Ling 18/2/2011
THE inflationary pressures are on! 'Government raises inflation forecast', screamed the headline in The Straits Times yesterday. 'New official projections have confirmed that rising prices will be the key economic issue this year and a major focus for today's Budget,' the news report said. 'The government yesterday raised its inflation forecast for the year by one percentage point to between 3 per cent and 4 per cent.'
The key macroeconomic challenge this year will not be growth, but dealing with emerging cost pressures, said Ravi Menon, Permanent Secretary for Trade and Industry.
Except for seven quarters between the second half of 2007 and the first quarter of 2009, Singapore has managed to keep the growth of its consumer price index (CPI) below 3 per cent since 1995. In Q3 2007, the CPI climbed to 3.17 per cent and rose to hit 7.5 per cent in Q2 of 2008.
But thanks to the global financial crisis, which effectively threw a soaking wet blanket on the overheated prices, the CPI eased to 0.17 per cent by Q2 2009. It was then followed by two quarters of negative growth.
But by Q2 2010, inflation reared its ugly head again as prices climbed more than 3 per cent year-on-year. It rose to just under 4 per cent by the final quarter of last year.
On Thursday, I received an e-mail from a reader asking if I could give him some insight/opinions regarding Singapore's record inflation rates in 2008 and which stocks outperformed during high interest rates and which did poorly.
I downloaded Singapore's inflation numbers since 1973, and the individual stocks' prices at various times when inflation was either rising and falling. I also downloaded the Straits Times Index (STI) as calculated by Datastream since 1973.
First up, I decided to look at how the general market performed during periods of high or low inflation.
Using the quarterly CPI numbers, I matched the quarterly returns of the STI with the CPIs for the corresponding quarters. For example, the CPI for Q1 2001 would be matched with the STI return for that quarter.
The assumption is that there would be monthly inflation numbers being released and the market would have an inkling of where the general price levels are headed. Stock market prices would then adjust accordingly as the quarter progressed.
The numbers that the data churned out showed clearly that inflation is bad for stock prices. I broke down the year-on- year change in CPI into eight groups: those below -1 per cent growth; from -1 to 0 per cent; 0-1; 1-2; 2-3; 3-5; 5-10; and those above 10 per cent.
As you can see from the first chart, the mean and median three-month returns of the STI in general get progressively smaller as inflation rises. For example, between 1973 and now, there were eight quarters when the CPI fell by more than one per cent from a year ago. The average and median return of those eight quarters were 11.2 per cent and 10.7 per cent respectively.
Meanwhile, there were 13 quarters when the CPI fell by between one and zero per cent. The average and median returns for those quarters were 9.9 per cent and 12.2 per cent respectively.
Recent examples of such quarters were the third and last quarter of 2009 when the CPI was -0.37 per cent and -0.73 per cent respectively. The returns for STI in those two quarters were 14.1 per cent and 7.6 per cent.
In Q1 2007, the CPI slid by 0.17 per cent. In that period, the stock market climbed by 8.3 per cent. Once the CPI climbed to the zero to one per cent range, the STI returns fell to about 5 per cent.
Between one and 10 per cent of inflation, market returns fell to between 0.5 and 3 per cent. And on the eight occasions when inflation surged beyond 10 per cent - that happened in the 70s - the average and median return for the STI were -10.3 per cent and -11.4 per cent respectively.
The third chart shows market valuations, as measured by the price-earnings (PE) ratio, getting lower the higher the CPI went. And we are now moving into the 3 to 5 per cent inflation range, when the market PE dropped rather significantly! But the thing is, current market PE wasn't high to begin with.
This phenomenon is observed in other markets as well, and financial economists find it surprising. After all, stocks, as claimed against real assets, should compensate for movements in inflation.
So given the negative relationship between short-term stock returns and inflation, the stock market is not even a partial hedge against inflation. A negative relationship implies that investors whose real wealth is diminished by inflation can expect this effect to be compounded by a lower than average return on the stock market.
The thing is inflation gets factored into nominal interest rates which are used to discount the future cash flows of companies to arrive at their current present value. All things being equal, the higher the discount rate, the lower the net present value of the company.
Of course, in an inflationary environment, companies would also have to contend with higher costs, be they manpower, raw materials or others. But what if the companies have the pricing power and are able to pass the higher costs to consumers?
Well, even if companies are able to maintain their margins, or in the optimistic scenario improve them, the higher discount rate would, in most likelihood, result in companies having lower net present value.
With that understanding, perhaps we can appreciate why funds are reversing out of fast growing Asia which are grappling with inflation, and heading toward the developed markets and to Japan.
Of course, inflation doesn't stay high forever. If prices increased sharply today, next year this time, we will measure the increase from today's higher base and the quantum may not be as high as a result.
And other studies have shown that over the long term, stocks do compensate for inflation. Studies in countries which suffered bouts of high inflation in Latin America also found stocks to yield real positive returns.
Now back to the reader's question: Which stocks did well in 2007/8 when inflation spiked up? Well, that coincided with the global financial crisis, and between end-September 2007 and end-September 2008, only 25 stocks out of 700- plus listed on the Singapore Exchange managed to chalk up positive returns.
The top performing companies during that period were from varied industries: RH Petrogas which deals in electrical equipment; Portek, which is in transport services; FDS Networks in computer services; Transcu in recreational services, ISDN Holdings in business support services; MAP Technology in computer hardware; Riverstone in medical supplies; and Metax Engineering in industrial machinery.
So it would seem that it was company specific news which drove the stock prices. But normally, it is accepted that resource providers would benefit more in an inflationary environment, so too technology and consumer products.
Meanwhile, utility and telecom companies typically are viewed as not having the pricing power to battle inflation and property developers don't generally do well when interest rates rise. Neither do real estate investment trusts which are raking it in now given the benign interest rates.
•The writer is a CFA charterholder
Tuesday, February 15, 2011
了解本性 快乐投资
二月 15th, 2011 by 曹仁超
性格能决定命运吗？曹仁超的答案是肯定的。
在《论性——曹仁超创富智慧书》一书中，他开宗明义地指出，人与人之间其实99%是一样的，唯一的区别就是性格，因此在投资中性格也成了决定成败的关键。
作为曹仁超《创富三部曲》的最后一部，曹仁超通过讲故事的方式在书中分享了他对财富继承、婚姻、两性关系、民族性格、结交朋友等问题的看法，其诙谐的“曹氏”语言以及深刻的观点展现出了他对人生明晰的洞见。
让我记忆尤为深刻的是，他曾说：“女性太容易满足于不俗的现状，一旦拥有多少便很怕失去，宁愿不追求更多美好的东西。而男人的野心永不知止，性格大开大合，赚钱最终目的只为证明自己的能力。”作为女性的我，感叹曹先生居然如此理解女性的心理。
当然，书之要义最终还将落实到资本市场，曹仁超根据自己40年的炒股经验所得出的结论更是体现出了他犀利的思维。
由于性格决定命运，决定一个人的投资组合和策略，所以曹仁超认为投资者如果想要取得成功就必须先了解人性。
无论市况如何，投资者都必须认清自己是一个怎么样的投资者，了解自己的性格容易犯下什么投资大忌，避免一些情绪误区。
曹仁超指出，真正成功的投资者，通常都会花上很长的时间来审视自己，琢磨出自身性格的长处、短处，再参考别人的策略，为自己度身打造一套配合性格的买卖系统，然后持之以恒去执行。
在了解了人性之后，投资者下一步的目标应该是达到忘我的境界，摒除作为“人”的情绪误区。
根据自己的经验和案例，曹仁超指出人有五大情绪误区：一、拒绝承认错误的心理；二、未能适应市场的迅速变化；三、短视；四、高估自己，低估对手；五、以过去经验分析未知之事。
就笔者的理解，如能超越这五大情绪误区，好听一点是投资需要超越自我，难听一点就是要做到“没人性”。曹仁超指出要做到这一点需要运用系统性的投资策略，严守追随趋势、止损不止赚、加涨不加跌、不猜顶、不抄底等纪律。这也是本书的一个结论性总结。
但做到这一点谈何容易，毕竟“江山易改，本性难移”。不过，曹仁超指出投资不论是赚是亏，应该做到be good、be honest和 be happy，即做一个好人、一个诚实的人和一个快乐的人。
据我的理解，这句话的意思就是，今天刚刚买了一只股票，明天无论是涨停还是跌停，都应该把这笔投资忘掉，不应该把资本市场的快乐或者痛苦带到生活中来。
我认为，曹先生的理念应该是投资应该抱着一颗不以物喜、不以己悲的平常心。有时候，幸运和财富喜欢去敲那些快乐的人们的门。
投资不仅是追求财富与高额回报，它同样是对生活方式的一个选择。这也是《财商》周末的投资理念之一。
性格能决定命运吗？曹仁超的答案是肯定的。
在《论性——曹仁超创富智慧书》一书中，他开宗明义地指出，人与人之间其实99%是一样的，唯一的区别就是性格，因此在投资中性格也成了决定成败的关键。
作为曹仁超《创富三部曲》的最后一部，曹仁超通过讲故事的方式在书中分享了他对财富继承、婚姻、两性关系、民族性格、结交朋友等问题的看法，其诙谐的“曹氏”语言以及深刻的观点展现出了他对人生明晰的洞见。
让我记忆尤为深刻的是，他曾说：“女性太容易满足于不俗的现状，一旦拥有多少便很怕失去，宁愿不追求更多美好的东西。而男人的野心永不知止，性格大开大合，赚钱最终目的只为证明自己的能力。”作为女性的我，感叹曹先生居然如此理解女性的心理。
当然，书之要义最终还将落实到资本市场，曹仁超根据自己40年的炒股经验所得出的结论更是体现出了他犀利的思维。
由于性格决定命运，决定一个人的投资组合和策略，所以曹仁超认为投资者如果想要取得成功就必须先了解人性。
无论市况如何，投资者都必须认清自己是一个怎么样的投资者，了解自己的性格容易犯下什么投资大忌，避免一些情绪误区。
曹仁超指出，真正成功的投资者，通常都会花上很长的时间来审视自己，琢磨出自身性格的长处、短处，再参考别人的策略，为自己度身打造一套配合性格的买卖系统，然后持之以恒去执行。
在了解了人性之后，投资者下一步的目标应该是达到忘我的境界，摒除作为“人”的情绪误区。
根据自己的经验和案例，曹仁超指出人有五大情绪误区：一、拒绝承认错误的心理；二、未能适应市场的迅速变化；三、短视；四、高估自己，低估对手；五、以过去经验分析未知之事。
就笔者的理解，如能超越这五大情绪误区，好听一点是投资需要超越自我，难听一点就是要做到“没人性”。曹仁超指出要做到这一点需要运用系统性的投资策略，严守追随趋势、止损不止赚、加涨不加跌、不猜顶、不抄底等纪律。这也是本书的一个结论性总结。
但做到这一点谈何容易，毕竟“江山易改，本性难移”。不过，曹仁超指出投资不论是赚是亏，应该做到be good、be honest和 be happy，即做一个好人、一个诚实的人和一个快乐的人。
据我的理解，这句话的意思就是，今天刚刚买了一只股票，明天无论是涨停还是跌停，都应该把这笔投资忘掉，不应该把资本市场的快乐或者痛苦带到生活中来。
我认为，曹先生的理念应该是投资应该抱着一颗不以物喜、不以己悲的平常心。有时候，幸运和财富喜欢去敲那些快乐的人们的门。
投资不仅是追求财富与高额回报，它同样是对生活方式的一个选择。这也是《财商》周末的投资理念之一。
Monday, February 14, 2011
Momentum and liquidity are still key
Published February 14, 2011
By R SIVANITHY
SENIOR CORRESPONDENT
IT IS a fact of life that when momentum shifts and liquidity drains from a market, no amount of talk about valuations still being cheap or earnings still being compelling, or fundamentals being unchanged, will get people to buy. Ah, for the good old days of 2009 and 2010 when such talk did in fact have its intended effect.
Things were a lot easier back then - all analysts and economists had to do was draw more-or-less straight-line projections on the charts, pick reasonable-sounding target prices (though many were not that reasonable, it has to be said), point to China as the holy grail of economic growth and leave momentum and liquidity to do the rest.
To be honest, there was plenty of justification for taking that easy route - the region was enjoying double-digit growth, liquidity was plentiful and interest rates were low.
Furthermore, the investment banks who brought about 2008's financial crisis were handed billions in US taxpayers' money to play with, so all were well-flushed with cash to pump into equities.
There needn't have been any fear of a crash thanks to explicit guarantees from the US Federal Reserve about billions more in rescue money, so all an international investor had to do was avoid buying Europe while riding the Asian momentum.
Little wonder then that 2010 was dubbed as the year in which it was hard to lose money.
This year though, is shaping up to be a different proposition, as the economic picture gets complicated by rising inflation and interest rates, and in some countries like Australia, with the spectre of stagflation (or stagnant growth amid rising inflation).
Asian central banks, it is now believed, are too far behind the curve in their fight against inflation and are still displaying a reluctance to act swiftly. It is this lack of urgency which is said to be behind much of the sudden disenchantment with emerging Asia.
'The only effective anti-inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone,' wrote Morgan Stanley's Stephen Roach last week.
'The longer this is deferred, the more wrenching the ultimate policy adjustment and its consequences for growth and employment. With inflation - both headline and core - now on an accelerating path, Asian central banks cannot afford to slip too far behind the curve. . . Given the tenuous post-crisis climate, with uncertain demand prospects in the major markets of the developed world, Asia finds itself in a classic policy trap, dragging its feet on monetary tightening.'
(To be honest, the same might well be argued of the US, where interest rates have been zero for about two years and furious money printing has finally managed to put the brakes on a backsliding economy).
In all fairness to Asian central banks, some have been raising interest rates these past months, most notably China, India, Indonesia and Australia, so it isn't as if they're all dithering behind the curve.
And if you were to really think about it, investors are being asked to subscribe to an odd argument that if rates are now quickly raised Asia-wide, this would reassure investors that monetary authorities know what they're doing and therefore bring the bull market back to stocks.
Meanwhile, what of the US, the current safe haven for the world's funds? Thanks to the explicit guarantees from the Fed and a momentum shift of money out of emerging markets back West, the 'cannot-lose' mentality is stronger than ever on Wall Street where stocks have gone up in a straight line over the past six months.
And with the momentum/liquidity shift has come a story being circulated now that after two years of relentless monetary greasing, the recovery is underway (even if the numbers are still inconclusive).
As pointed out in last week's column, this means Asian markets that once used to function as an advance indicator of movements in the West are now clearly decoupled from the US and Europe. The decoupling will probably continue this week, although a short-lived, technical, short-covering bounce can reasonably be expected.
By R SIVANITHY
SENIOR CORRESPONDENT
IT IS a fact of life that when momentum shifts and liquidity drains from a market, no amount of talk about valuations still being cheap or earnings still being compelling, or fundamentals being unchanged, will get people to buy. Ah, for the good old days of 2009 and 2010 when such talk did in fact have its intended effect.
Things were a lot easier back then - all analysts and economists had to do was draw more-or-less straight-line projections on the charts, pick reasonable-sounding target prices (though many were not that reasonable, it has to be said), point to China as the holy grail of economic growth and leave momentum and liquidity to do the rest.
To be honest, there was plenty of justification for taking that easy route - the region was enjoying double-digit growth, liquidity was plentiful and interest rates were low.
Furthermore, the investment banks who brought about 2008's financial crisis were handed billions in US taxpayers' money to play with, so all were well-flushed with cash to pump into equities.
There needn't have been any fear of a crash thanks to explicit guarantees from the US Federal Reserve about billions more in rescue money, so all an international investor had to do was avoid buying Europe while riding the Asian momentum.
Little wonder then that 2010 was dubbed as the year in which it was hard to lose money.
This year though, is shaping up to be a different proposition, as the economic picture gets complicated by rising inflation and interest rates, and in some countries like Australia, with the spectre of stagflation (or stagnant growth amid rising inflation).
Asian central banks, it is now believed, are too far behind the curve in their fight against inflation and are still displaying a reluctance to act swiftly. It is this lack of urgency which is said to be behind much of the sudden disenchantment with emerging Asia.
'The only effective anti-inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone,' wrote Morgan Stanley's Stephen Roach last week.
'The longer this is deferred, the more wrenching the ultimate policy adjustment and its consequences for growth and employment. With inflation - both headline and core - now on an accelerating path, Asian central banks cannot afford to slip too far behind the curve. . . Given the tenuous post-crisis climate, with uncertain demand prospects in the major markets of the developed world, Asia finds itself in a classic policy trap, dragging its feet on monetary tightening.'
(To be honest, the same might well be argued of the US, where interest rates have been zero for about two years and furious money printing has finally managed to put the brakes on a backsliding economy).
In all fairness to Asian central banks, some have been raising interest rates these past months, most notably China, India, Indonesia and Australia, so it isn't as if they're all dithering behind the curve.
And if you were to really think about it, investors are being asked to subscribe to an odd argument that if rates are now quickly raised Asia-wide, this would reassure investors that monetary authorities know what they're doing and therefore bring the bull market back to stocks.
Meanwhile, what of the US, the current safe haven for the world's funds? Thanks to the explicit guarantees from the Fed and a momentum shift of money out of emerging markets back West, the 'cannot-lose' mentality is stronger than ever on Wall Street where stocks have gone up in a straight line over the past six months.
And with the momentum/liquidity shift has come a story being circulated now that after two years of relentless monetary greasing, the recovery is underway (even if the numbers are still inconclusive).
As pointed out in last week's column, this means Asian markets that once used to function as an advance indicator of movements in the West are now clearly decoupled from the US and Europe. The decoupling will probably continue this week, although a short-lived, technical, short-covering bounce can reasonably be expected.
Get acquainted with business trusts
The buying into of this asset class by retail investors is expected to remain slow. -myp
Mon, Feb 14, 2011
My paper
By Reico Wong
THE lacklustre business trust market here has no doubt received a much needed boost with the recent announcement of the expected listing of Asian tycoon Li Ka Shing's Hutchison Port Holdings Trust (HPH Trust) on the Singapore Exchange.
Hutchison's proposal to list its spin-off in Singapore, rather than its Hong Kong home ground, has not only led analysts to be optimistic that the market here will see the emergence of more of such business trusts, but also fuelled hopes that more retail investors will buy into this asset class.
"In a low interest-rate environment like the current one, instruments paying a decent and stable yield with a reasonable risk profile are attractive to investors.
This is a key advantage of real-estate investment trusts (Reits) and business trusts," said Mr George Lee, OCBC Bank's head of group investment banking.
"They also provide investors with an avenue to invest in large capital or infrastructure assets that are not always accessible to smaller investors."
While business trusts as an investment vehicle certainly offer various key advantages, the buying into of this asset class by retail investors is expected to remain slow.
The current six listed non-property- related business trusts - generally dominated by the shipping and infrastructure sectors - have largely been neglected by investors due to a lack of awareness, despite their debut in Singapore back in 2007, according to experts.
Business trusts are essentially run as business enterprises operated by a trustee manager, but with a hybrid structure that combines elements of a company with those of a unit trust.
Investors hold units rather than shares, and provide financing to the trust.
In turn, they receive regular income generated by the operation of the underlying assets.
Experts say investors are generally not familiar with how business trusts should be assessed as a unique asset class.
Mr Suvro Sarkar, an infrastructure and industrials analyst with DBS Vickers Securities, pointed out that the assessment of a business trust's performance is unlike that of normal companies, where the key criterion for judgment is based on price to earnings multiples and earnings growth.
"In the case of business trusts, we would be looking at factors like the quantum and stability of distributions, future income distribution per unit (DPU) growth potential, as well as the proper management of various risks, such as those pertaining to credit, counterparty and funding," he said.
"As long as cash flows are stable and predictable, and growth is decent (inflation plus desired spread), business trust investors should be satisfied."
Business trusts with a diverse source of cash flows, combined with a good track record in managing and investing their assets, are also strongly recommended.
This is especially in the case of trusts with assets that are often subjected to cyclical volatility.
Mr Lee explained that, as the trusts have been positioned as dividend plays, they are obliged to pay out a large portion of operating cash flows as dividends, which often leave little buffer for debt repayment and limited flexibility for capital management.
"High interest payments can also limit the distributable income available to investors, thereby putting DPU at risk," he said.
He added that the challenge for shipping trusts, in particular, is to secure high-quality counterparties and still make a yield-accretive acquisition.
Such difficulties were faced by Rickmers Maritime Trust, First Ship Lease Trust (FSL) and Pacific Shipping Trust (PST) over the last 11/2 years.
Of the three, only PST has truly managed to successfully overcome its troubles, with its share price outperforming market expectations to rise by about 37 per cent in the last year. Meanwhile, Rickmers remained largely flat and FSL was down by about 25 per cent.
Mr Sarkar said that, in general, business trusts' share-price valuations are expected to be higher than those of Reits, providing dividend yields of between 7 per cent and 10 per cent in the near term.
"But capital growth will likely be limited to a maximum of 10 per cent per year, unless the trusts are able to resolve the problem of stretched balance sheets and actually deliver some DPU growth," he said.
DBS has "hold" calls on Rickmers, FSL and CitySpring Infrastructure Trust. It noted that CitySpring had overpaid for acquisitions, and high gearing - at both the asset and group levels - have also led it to raise additional equity to reduce borrowing.
The inherent nature of City- Spring's assets are stable, but the lack of any acquisition or growth story - coupled with regulatory risk over the liberalisation of the City Gas network and an unresolved dispute involving its Australian asset, Basslink - has created an overhang on the share price, said OCBC.
A positive outlook for PST remains, with "buy" calls recommended.
Analysts say PST's balance sheet has improved substantially and that it has the capacity to drive acquisition- led growth.
"PST's three rounds of acquisitions last year should start to contribute from next year onwards.
They have been very conservative in their distribution policy and have the buffer to increase distributions by increasing the payout ratio at their discretion," said DBS.
Overall, the performance of business trusts as an asset class is expected to be relatively stable.
"Better quality sponsors with solid mature assets will be required to list in Singapore to really attract investors," Mr Sarkar added.
Mon, Feb 14, 2011
My paper
By Reico Wong
THE lacklustre business trust market here has no doubt received a much needed boost with the recent announcement of the expected listing of Asian tycoon Li Ka Shing's Hutchison Port Holdings Trust (HPH Trust) on the Singapore Exchange.
Hutchison's proposal to list its spin-off in Singapore, rather than its Hong Kong home ground, has not only led analysts to be optimistic that the market here will see the emergence of more of such business trusts, but also fuelled hopes that more retail investors will buy into this asset class.
"In a low interest-rate environment like the current one, instruments paying a decent and stable yield with a reasonable risk profile are attractive to investors.
This is a key advantage of real-estate investment trusts (Reits) and business trusts," said Mr George Lee, OCBC Bank's head of group investment banking.
"They also provide investors with an avenue to invest in large capital or infrastructure assets that are not always accessible to smaller investors."
While business trusts as an investment vehicle certainly offer various key advantages, the buying into of this asset class by retail investors is expected to remain slow.
The current six listed non-property- related business trusts - generally dominated by the shipping and infrastructure sectors - have largely been neglected by investors due to a lack of awareness, despite their debut in Singapore back in 2007, according to experts.
Business trusts are essentially run as business enterprises operated by a trustee manager, but with a hybrid structure that combines elements of a company with those of a unit trust.
Investors hold units rather than shares, and provide financing to the trust.
In turn, they receive regular income generated by the operation of the underlying assets.
Experts say investors are generally not familiar with how business trusts should be assessed as a unique asset class.
Mr Suvro Sarkar, an infrastructure and industrials analyst with DBS Vickers Securities, pointed out that the assessment of a business trust's performance is unlike that of normal companies, where the key criterion for judgment is based on price to earnings multiples and earnings growth.
"In the case of business trusts, we would be looking at factors like the quantum and stability of distributions, future income distribution per unit (DPU) growth potential, as well as the proper management of various risks, such as those pertaining to credit, counterparty and funding," he said.
"As long as cash flows are stable and predictable, and growth is decent (inflation plus desired spread), business trust investors should be satisfied."
Business trusts with a diverse source of cash flows, combined with a good track record in managing and investing their assets, are also strongly recommended.
This is especially in the case of trusts with assets that are often subjected to cyclical volatility.
Mr Lee explained that, as the trusts have been positioned as dividend plays, they are obliged to pay out a large portion of operating cash flows as dividends, which often leave little buffer for debt repayment and limited flexibility for capital management.
"High interest payments can also limit the distributable income available to investors, thereby putting DPU at risk," he said.
He added that the challenge for shipping trusts, in particular, is to secure high-quality counterparties and still make a yield-accretive acquisition.
Such difficulties were faced by Rickmers Maritime Trust, First Ship Lease Trust (FSL) and Pacific Shipping Trust (PST) over the last 11/2 years.
Of the three, only PST has truly managed to successfully overcome its troubles, with its share price outperforming market expectations to rise by about 37 per cent in the last year. Meanwhile, Rickmers remained largely flat and FSL was down by about 25 per cent.
Mr Sarkar said that, in general, business trusts' share-price valuations are expected to be higher than those of Reits, providing dividend yields of between 7 per cent and 10 per cent in the near term.
"But capital growth will likely be limited to a maximum of 10 per cent per year, unless the trusts are able to resolve the problem of stretched balance sheets and actually deliver some DPU growth," he said.
DBS has "hold" calls on Rickmers, FSL and CitySpring Infrastructure Trust. It noted that CitySpring had overpaid for acquisitions, and high gearing - at both the asset and group levels - have also led it to raise additional equity to reduce borrowing.
The inherent nature of City- Spring's assets are stable, but the lack of any acquisition or growth story - coupled with regulatory risk over the liberalisation of the City Gas network and an unresolved dispute involving its Australian asset, Basslink - has created an overhang on the share price, said OCBC.
A positive outlook for PST remains, with "buy" calls recommended.
Analysts say PST's balance sheet has improved substantially and that it has the capacity to drive acquisition- led growth.
"PST's three rounds of acquisitions last year should start to contribute from next year onwards.
They have been very conservative in their distribution policy and have the buffer to increase distributions by increasing the payout ratio at their discretion," said DBS.
Overall, the performance of business trusts as an asset class is expected to be relatively stable.
"Better quality sponsors with solid mature assets will be required to list in Singapore to really attract investors," Mr Sarkar added.
Tuesday, February 1, 2011
Top 5 regrets people make on their deathbed
By Bonnie Ware(who worked for years nursing the dying)
1. I wish I'd had the courage to live a life true to myself, not the life
others expected of me
This was the most common regret of all. When people realise that their
life is almost over and look back clearly on it, it is easy to see how
many dreams have gone unfulfilled. Most people have had not honoured even
a half of their dreams and had to die knowing that it was due to choices
they had made, or not made.
It is very important to try and honour at least some of your dreams along
the way.
From the moment that you lose your health, it is too late.
Health brings a freedom very few realise, until they no longer have it.
2. I wish I didn't work so hard
This came from every male patient that I nursed. They missed their
children's youth and their partner's companionship. Women also spoke of
this regret. But as most were from an older generation, many of the female
patients had not been breadwinners. All of the men I nursed deeply
regretted spending so much of their lives on the treadmill of a work
existence.
By simplifying your lifestyle and making conscious choices along the way,
it is possible to not need the income that you think you do. And by
creating more space in your life, you become happier and more open to new
opportunities, ones more suited to your new lifestyle.
3. I wish I'd had the courage to express my feelings
Many people suppressed their feelings in order to keep peace with others.
As a result, they settled for a mediocre existence and never became who
they were truly capable of becoming. Many developed illnesses relating to
the bitterness and resentment they carried as a result.
We cannot control the reactions of others. However, although people may
initially react when you change the way you are by speaking honestly,in
the end it raises the relationship to a whole new and healthier level.
Either that or it releases the unhealthy relationship from your life.
Either way, you win.
4. I wish I had stayed in touch with my friends
Often they would not truly realise the full benefits of old friends until
their dying weeks and it was not always possible to track them down. Many
had become so caught up in their own lives that they had let golden
friendships slip by over the years. There were many deep regrets about not
giving friendships the time and effort that they deserved.Everyone misses
their friends when they are dying.
It is common for anyone in a busy lifestyle to let friendships slip.But
when you are faced with your approaching death, the physical details of
life fall away. People do want to get their financial affairs in order if
possible. But it is not money or status that holds the true importance for
them. They want to get things in order more for the benefit of those they
love. Usually though, they are too ill and weary to ever manage this task.
It is all comes down to love and relationships in the end. That is all
that remains in the final weeks,love and relationships.
5. I wish that I had let myself be happier
This is a surprisingly common one. Many did not realise until the end that
happiness is a choice. They had stayed stuck in old patterns and habits.
The so-called 'comfort' of familiarity overflowed into their emotions, as
well as their physical lives.
Fear of change had them pretending to others, and to their selves, that
they were content. When deep within, they longed to laugh properly and
have sillyness in their life again.
When you are on your deathbed, what others think of you is a long way from
your mind.
How wonderful to be able to let go and smile again,long before you are
dying.
http://ohdarling.posterous.com/nurse-reveals-the-top-5-regrets-people-make-o
1. I wish I'd had the courage to live a life true to myself, not the life
others expected of me
This was the most common regret of all. When people realise that their
life is almost over and look back clearly on it, it is easy to see how
many dreams have gone unfulfilled. Most people have had not honoured even
a half of their dreams and had to die knowing that it was due to choices
they had made, or not made.
It is very important to try and honour at least some of your dreams along
the way.
From the moment that you lose your health, it is too late.
Health brings a freedom very few realise, until they no longer have it.
2. I wish I didn't work so hard
This came from every male patient that I nursed. They missed their
children's youth and their partner's companionship. Women also spoke of
this regret. But as most were from an older generation, many of the female
patients had not been breadwinners. All of the men I nursed deeply
regretted spending so much of their lives on the treadmill of a work
existence.
By simplifying your lifestyle and making conscious choices along the way,
it is possible to not need the income that you think you do. And by
creating more space in your life, you become happier and more open to new
opportunities, ones more suited to your new lifestyle.
3. I wish I'd had the courage to express my feelings
Many people suppressed their feelings in order to keep peace with others.
As a result, they settled for a mediocre existence and never became who
they were truly capable of becoming. Many developed illnesses relating to
the bitterness and resentment they carried as a result.
We cannot control the reactions of others. However, although people may
initially react when you change the way you are by speaking honestly,in
the end it raises the relationship to a whole new and healthier level.
Either that or it releases the unhealthy relationship from your life.
Either way, you win.
4. I wish I had stayed in touch with my friends
Often they would not truly realise the full benefits of old friends until
their dying weeks and it was not always possible to track them down. Many
had become so caught up in their own lives that they had let golden
friendships slip by over the years. There were many deep regrets about not
giving friendships the time and effort that they deserved.Everyone misses
their friends when they are dying.
It is common for anyone in a busy lifestyle to let friendships slip.But
when you are faced with your approaching death, the physical details of
life fall away. People do want to get their financial affairs in order if
possible. But it is not money or status that holds the true importance for
them. They want to get things in order more for the benefit of those they
love. Usually though, they are too ill and weary to ever manage this task.
It is all comes down to love and relationships in the end. That is all
that remains in the final weeks,love and relationships.
5. I wish that I had let myself be happier
This is a surprisingly common one. Many did not realise until the end that
happiness is a choice. They had stayed stuck in old patterns and habits.
The so-called 'comfort' of familiarity overflowed into their emotions, as
well as their physical lives.
Fear of change had them pretending to others, and to their selves, that
they were content. When deep within, they longed to laugh properly and
have sillyness in their life again.
When you are on your deathbed, what others think of you is a long way from
your mind.
How wonderful to be able to let go and smile again,long before you are
dying.
http://ohdarling.posterous.com/nurse-reveals-the-top-5-regrets-people-make-o
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