Published June 29, 2011
By R SIVANITHY
POOR volume, weak prices and no real interest from the investing public - stockmarket players would by now be familiar with these features that have haunted markets for about three months now. Optimists claim this to be a 'soft patch' - the same term used to describe the current downturn in US and global growth. Once the soft patch is overcome, then the second half will see a recovery take grip and markets rallying, they say.
Is this really the case? Or are there good reasons for investors to think that, this time, things may be different?
First, don't let the Straits Times Index's (STI) modest 4 per cent loss for the year fool you, because the index really owes its relatively lofty position to only a handful of stocks like the banks and those in the Jardine group. The FT ST Real Estate index, in the meantime, is down 8 per cent in 2011, the All-share index has lost just over 7 per cent, and the Catalist index is down 14 per cent.
Anecdotal evidence from dealers is that the current funk the local market finds itself in is among the worst they have ever experienced because not only are the external economics bad, so is local confidence - badly shaken by the frequent uncovering of fresh China-related scandals.
Much of the blame for the downturn rests with Western markets - in particular, the US and Europe. Both are plagued by problems stemming from excessive leverage; Wall Street's were exposed first in 2008 and its banks had to be rescued by a sympathetic central bank that now realises it has run out of ammunition to keep the ball rolling, while Europe's debt problems, on the other hand, are only just starting.
In America's case, officialdom's strategy of pushing up the stock market with free money in the hope that it would create a cascading wealth effect on the broad economy has failed, mainly because Wall Street operates as a closed club - which means the free money went straight into the pockets of the small number of investment banks that caused the 2008 crisis in the first place, with precious few other beneficiaries.
Now that that money has run out, things don't look particularly good: unemployment is above 9 per cent; consumer sentiment and spending in an essentially consumer-driven economy are weak; manufacturing (which was never a strong point) is slipping; public and private debt are still at record levels; and the housing market is still sinking. Federal Reserve chairman Ben Bernanke last week expressed surprise at the weakness, saying he did not have precise reasons why the latest economic numbers have been bad. (To be honest, the only real surprise is that he should be surprised.)
Over in Europe, there are reports that Greece's problems are just the tip of a derivative-laden iceberg. The New York Times last week reported that the gross debt of Portugal, Italy, Ireland, Greece and Spain is US$616 billion, but this figure may be magnified if derivative exposure is taken into account. If so, then the repercussions of multiple defaults could be devastating.
There is also a strong argument that the problem faced by Greece and some of the other debt-laden nations is outright insolvency and not illiquidity. And stating 'there's little defence against another slump' last week, finance professor Nouriel Roubini highlighted Europe's 'large and rising public and private deficits and debt, damaged financial systems that need to be cleaned up and recapitalised, massive loss of competitiveness, lack of economic growth and rising unemployment' as further signs that make a double-dip recession a distinct possibility.
So what should investors do? The obvious answer is to 'go defensive' - that is, switch to high-dividend-paying stocks with solid pedigree such as real estate investment trusts (Reits) and bank-linked preference shares. Beyond that, it may be that when the record books are written on 2011 sometime next year or thereafter, they will show that this was indeed a temporary blip in the long road to recovery.
However, given that the authorities appear to have run out of policy options (as well as ideas), it would probably be advisable for investors to hope for the best but prepare for the worst.
Showing posts with label R SIVANITHY. Show all posts
Showing posts with label R SIVANITHY. Show all posts
Wednesday, June 29, 2011
Thursday, April 14, 2011
Time to raise the bar on CPFIS stocks
Published April 14, 2011
By R SIVANITHY
IT'S disturbing to note that of the 10 China stocks or S-chips suspended from trading on the Singapore Exchange (SGX), four - Falmac, Oriental Century, New Lakeside and China Gaoxian - are investments included under the Central Provident Fund Investment Scheme (CPFIS).
Scanning through the list of shares whose names contain the word 'China' reveals that at least 20 more are permitted CPFIS investments. So it has to be just as disquieting to learn that in order to qualify as a CPFIS stock, only four criteria are employed: the company has to be incorporated in Singapore; it has to be listed on the mainboard (Catalist companies qualify if they were already listed on Sesdaq, Catalist's predecessor); it has to be traded in Sing dollars; and it has to allow CPF investors to attend its meetings.
Finally, it can be of no comfort to local investors who have used their CPF savings to invest in S-chips to read that US regulators earlier this week have set up a task force to investigate fraud in the listing of China companies in the US via reverse takeovers or 'backdoor registrations'.
US Securities & Exchange Commission (SEC) commissioner Luis Aguilar was quoted in news reports as saying there have been over 150 backdoor registrations of Chinese companies since January 2007, and that a number of these companies have been 'vessels of outright fraud', attributing this to the lack of due diligence in reverse mergers, deficiencies in cross-border auditing rules and procedures, as well as the inability to enforce US securities laws in China.
Since investigations into the suspended S-chips here are still ongoing, it would be premature to conclude that the Singapore experience is identical to the US one; however, it would be fair to say there are some disconcerting similarities because the sector here is currently labouring under a shroud of suspicion born of a series of accounting failures and corporate governance lapses over the past two years.
Does all this mean it's time the authorities stop allowing the use of CPF money for S-chip investment? Not quite. It would not be reasonable to conclude that just because a handful of China stocks appear shady, all China stocks are suspect; there are many high-quality investments to be found within the S-chip segment, many of which pay decent dividends and some of which have even been included in the Straits Times Index (STI).
However, the scandals associated with China companies listed outside China have drawn attention to a need to review and tighten the rules for all CPF stocks.
The use of CPF savings for stocks started in 1993 when Singapore Telecom was listed, and a time when the 'Asian Tigers' appeared to be a compelling, long-term manufacturing growth theme that captured the imagination of investors everywhere. Whether or not the scheme has been a success is not known but according to CPF's website, as at September 2007, a not-inconsiderable sum of $4.5 billion was invested in CPFIS stocks. So it appears the use of CPF money for the stock market has proven popular with retail investors.
However, of the four criteria currently used for inclusion in the CPFIS, only one relates to quality, and even that tenuously at best - namely that the stock be listed on the mainboard.
Granted, this is a 'caveat emptor' world we live and invest in, but by now many observers would agree that meeting SGX's listing requirements is hardly an endorsement of quality sufficiently high for investing one's retirement savings.
The authorities should therefore consider raising the CPF bar by taking a case-by-case approach, employing criteria such as quality and reputation of the company's board, its adherence to the Code of Corporate Governance, whether it has a proven and consistent track record of profits and/or dividends, and whether its disclosure record over the years has been acceptable.
Other criteria worth considering are whether the company is widely covered by brokers, the availability of analyst research, liquidity of its shares, and whether it is frequently queried by SGX on odd share price movements.
Whatever the eventual criteria, a tightening of the present rules should be undertaken to ensure maximum safeguarding of people's CPF savings.
By R SIVANITHY
IT'S disturbing to note that of the 10 China stocks or S-chips suspended from trading on the Singapore Exchange (SGX), four - Falmac, Oriental Century, New Lakeside and China Gaoxian - are investments included under the Central Provident Fund Investment Scheme (CPFIS).
Scanning through the list of shares whose names contain the word 'China' reveals that at least 20 more are permitted CPFIS investments. So it has to be just as disquieting to learn that in order to qualify as a CPFIS stock, only four criteria are employed: the company has to be incorporated in Singapore; it has to be listed on the mainboard (Catalist companies qualify if they were already listed on Sesdaq, Catalist's predecessor); it has to be traded in Sing dollars; and it has to allow CPF investors to attend its meetings.
Finally, it can be of no comfort to local investors who have used their CPF savings to invest in S-chips to read that US regulators earlier this week have set up a task force to investigate fraud in the listing of China companies in the US via reverse takeovers or 'backdoor registrations'.
US Securities & Exchange Commission (SEC) commissioner Luis Aguilar was quoted in news reports as saying there have been over 150 backdoor registrations of Chinese companies since January 2007, and that a number of these companies have been 'vessels of outright fraud', attributing this to the lack of due diligence in reverse mergers, deficiencies in cross-border auditing rules and procedures, as well as the inability to enforce US securities laws in China.
Since investigations into the suspended S-chips here are still ongoing, it would be premature to conclude that the Singapore experience is identical to the US one; however, it would be fair to say there are some disconcerting similarities because the sector here is currently labouring under a shroud of suspicion born of a series of accounting failures and corporate governance lapses over the past two years.
Does all this mean it's time the authorities stop allowing the use of CPF money for S-chip investment? Not quite. It would not be reasonable to conclude that just because a handful of China stocks appear shady, all China stocks are suspect; there are many high-quality investments to be found within the S-chip segment, many of which pay decent dividends and some of which have even been included in the Straits Times Index (STI).
However, the scandals associated with China companies listed outside China have drawn attention to a need to review and tighten the rules for all CPF stocks.
The use of CPF savings for stocks started in 1993 when Singapore Telecom was listed, and a time when the 'Asian Tigers' appeared to be a compelling, long-term manufacturing growth theme that captured the imagination of investors everywhere. Whether or not the scheme has been a success is not known but according to CPF's website, as at September 2007, a not-inconsiderable sum of $4.5 billion was invested in CPFIS stocks. So it appears the use of CPF money for the stock market has proven popular with retail investors.
However, of the four criteria currently used for inclusion in the CPFIS, only one relates to quality, and even that tenuously at best - namely that the stock be listed on the mainboard.
Granted, this is a 'caveat emptor' world we live and invest in, but by now many observers would agree that meeting SGX's listing requirements is hardly an endorsement of quality sufficiently high for investing one's retirement savings.
The authorities should therefore consider raising the CPF bar by taking a case-by-case approach, employing criteria such as quality and reputation of the company's board, its adherence to the Code of Corporate Governance, whether it has a proven and consistent track record of profits and/or dividends, and whether its disclosure record over the years has been acceptable.
Other criteria worth considering are whether the company is widely covered by brokers, the availability of analyst research, liquidity of its shares, and whether it is frequently queried by SGX on odd share price movements.
Whatever the eventual criteria, a tightening of the present rules should be undertaken to ensure maximum safeguarding of people's CPF savings.
Subscribe to:
Comments (Atom)