Friday, September 28, 2012
Beware unregulated get-rich-quick schemes
The Business Times
28/09/2012
AN ECONOMIC and financial environment fraught with uncertainty surely makes a fertile ground for investment scams. Add to that all-time low interest rates and rising inflation, and you have restless investors who are easy prey for any number of unregulated investment schemes. Not all schemes, of course, are scams, although many skirt a fine line between the sale of a tangible product such as gold and over-promising returns that are unsubstantiated and ephemeral. Too many investors have come to grief lately, whether it is landbanking, property, wine, multi-level marketing, gold or even the ubiquitous weekend trading seminars that promise to turn your $1,000 into $1 million.
There are already a slew of regulations in place to protect unsophisticated investors. But the ambit of the framework covers only regulated products and advisory firms - and understandably so. Bona fide firms that market investment products will submit themselves and their products to the licensing and regulatory regime. Those that are unlicensed should be viewed with scepticism, and their business models should be even more intensely scrutinised. That is why the Monetary Authority of Singapore publishes its Investor Alert list, which today numbers nearly 150 entities. Even so, in the time that it takes to put an entity on the list, many investors would already have parted with their funds.
It is of course not possible to extend protection to all products and investors. Many persist in investing against their better judgement, and even in the knowledge that a company is on the Investor Alert list. Some, by the standard profile of investible assets and investment experience, may even be classified as sophisticated. Such investors can clearly fend for themselves. But more can be done for the less educated who are typically less wealthy. Greater outreach, for instance, by MoneySense, a national investor education programme, will go a long way towards arming retail investors with the necessary scepticism and confidence to ask tough questions. There should also be controls on advertising by unregulated schemes, with the appropriate disclaimers in large- enough print.
It is ironic that legitimate fund management companies have to comply with very strict restrictions on return forecasts, yet unregulated schemes including courses by trading coaches can claim gravity-defying returns. Most of all, prospective investors in such schemes should be made aware that they fall through the gap in terms of recourse to financial industry mediation schemes. In the event that an unregulated scheme is in default of promised payments or returns, investors' recourse is likely through the courts, which will surely be a costly exercise, if not also futile.
Ultimately, greed is an all-too-human flaw that investors wrestle with. Knowledge can help to temper it, along with a hard look at the consequences of loss.
Tuesday, September 25, 2012
Gold trading firm taken to court by customer
Source: The Business Times
Author: Genevieve Cua
25/9/2012
[SINGAPORE] Genneva Pte Ltd, a gold trading company offering a "buyback" scheme, appears to be in hot water.
At least one customer has recently won an interlocutory judgment against it in the Subordinate Court, pending an assessment of damages. It remains to be seen, however, whether she will recover her claim of about $190,000. Genneva failed to respond to the writ of summons or to contest the case.
The plaintiff, Lee Bee Ghok, is represented by Goh Kok Yeow of De Souza Lim & Goh.
A second writ of summons has also been filed in the Subordinate Court claiming a total sum of roughly $86,000.
A number of other customers are also looking into launching a lawsuit against the firm for its alleged failure to honour its part of the agreement to buy back gold. One group of about 60 customers, representing a total of roughly $10 million in gold purchases, is understood to be consulting lawyers.
Genneva is on the Monetary Authority of Singapore's Investor Alert list of unlicensed entities. Its scheme basically sells gold to customers at a hefty premium of 20-30 per cent. Customers, however, are told that they enjoy a "discount" of about 2 per cent off the headline price.
They are given the option to sell back the gold after a pre-agreed term of one month or three months. The gold can be sold back at the headline price and customers get to pocket the so-called discount. Assuming monthly rollovers, this could mean a return of as much as 24 per cent a year.
Genneva's website lists a price of $96 per gram as at August. This is the equivalent of about $96,000 per kilobar of gold. UOB, which offers gold investment services, sells gold to the public at about $74,500 per kilobar.
Sources said that the firm had also offered a "safekeeping receipt" (SKR) scheme some years ago, where the customer does not take delivery of physical gold. The gold is held by the company for safekeeping, and customers can exercise the option to withdraw via a "sellback".
Genneva director Leow Wee Khong could not be reached. Calls and e-mail to the company were not answered.
More recently, a source said, customers were marketed a scheme similar to SKR, but under a contract linked to a Malaysian company.
BT understands that in the last few months, customers have not been able to sell back their gold. Agents are also owed commissions for up to six or seven months. Customers that BT spoke with managed to make at least one rollover, earning 2 per cent, after which some invested yet more money.
Spot gold price touched a high of US$1,888 per ounce last year. It is now trading at US$1,759.
Customers who bought from Genneva are in a bind because of the high premium paid. Those BT spoke with paid between $91,000 and $93,000 per kilobar. UOB will buy back from the public at about $69,400 based on yesterday's indicative prices.
Some customers are believed to have filed police reports. A police spokesman said: "It is inappropriate to comment on police investigations, if any."
Based on Genneva's latest available filings, 2009 revenue came to $236 million. Assets totalled $67 million and liabilities, $68 million. Paid-up capital came to $500,000. The company was registered in 2008 with four directors, three of whom are Malaysian.
The three Malaysians - Marcus Yee Yuen Seng, Ng Poh Weng and Chin Wai Leong - are also directors of Genneva Sdn Bhd. They are being sued by Bank Negara in Malaysia for alleged illegal deposit taking and alleged offences under anti-money laundering laws. The case is ongoing.
In Singapore, there are four apparently related Genneva companies registered as businesses. Apart from Genneva Pte Ltd, there is also Genneva Remittance, set up ostensibly for remittance services, and Genneva Syariah, described as gold bullion traders and dealers.
In March, Genneva World Pte Ltd was registered also for gold trading. It has six Singaporean directors, one of whom is Mr Leow, the Genneva director.
Customers are concerned that assets of Genneva are being transferred to Genneva World, which is expected to trade on a similar business model. Sources say that some customers have been invited to transfer their contracts to Genneva World, but they are asked to keep 30 per cent of their gold holding with the company.
Genneva's model appears to fall into a grey regulatory area. Because there is typically a physical purchase of gold, the company is not classified as an investment adviser. The so-called discount that customers are extended is also not described as a yield or return.
Meanwhile, on its website, the MAS warns against schemes that dangle high returns, citing gold buyback schemes. It urges customers to question how the returns are generated, and whether the operators are regulated.
Author: Genevieve Cua
25/9/2012
[SINGAPORE] Genneva Pte Ltd, a gold trading company offering a "buyback" scheme, appears to be in hot water.
At least one customer has recently won an interlocutory judgment against it in the Subordinate Court, pending an assessment of damages. It remains to be seen, however, whether she will recover her claim of about $190,000. Genneva failed to respond to the writ of summons or to contest the case.
The plaintiff, Lee Bee Ghok, is represented by Goh Kok Yeow of De Souza Lim & Goh.
A second writ of summons has also been filed in the Subordinate Court claiming a total sum of roughly $86,000.
A number of other customers are also looking into launching a lawsuit against the firm for its alleged failure to honour its part of the agreement to buy back gold. One group of about 60 customers, representing a total of roughly $10 million in gold purchases, is understood to be consulting lawyers.
Genneva is on the Monetary Authority of Singapore's Investor Alert list of unlicensed entities. Its scheme basically sells gold to customers at a hefty premium of 20-30 per cent. Customers, however, are told that they enjoy a "discount" of about 2 per cent off the headline price.
They are given the option to sell back the gold after a pre-agreed term of one month or three months. The gold can be sold back at the headline price and customers get to pocket the so-called discount. Assuming monthly rollovers, this could mean a return of as much as 24 per cent a year.
Genneva's website lists a price of $96 per gram as at August. This is the equivalent of about $96,000 per kilobar of gold. UOB, which offers gold investment services, sells gold to the public at about $74,500 per kilobar.
Sources said that the firm had also offered a "safekeeping receipt" (SKR) scheme some years ago, where the customer does not take delivery of physical gold. The gold is held by the company for safekeeping, and customers can exercise the option to withdraw via a "sellback".
Genneva director Leow Wee Khong could not be reached. Calls and e-mail to the company were not answered.
More recently, a source said, customers were marketed a scheme similar to SKR, but under a contract linked to a Malaysian company.
BT understands that in the last few months, customers have not been able to sell back their gold. Agents are also owed commissions for up to six or seven months. Customers that BT spoke with managed to make at least one rollover, earning 2 per cent, after which some invested yet more money.
Spot gold price touched a high of US$1,888 per ounce last year. It is now trading at US$1,759.
Customers who bought from Genneva are in a bind because of the high premium paid. Those BT spoke with paid between $91,000 and $93,000 per kilobar. UOB will buy back from the public at about $69,400 based on yesterday's indicative prices.
Some customers are believed to have filed police reports. A police spokesman said: "It is inappropriate to comment on police investigations, if any."
Based on Genneva's latest available filings, 2009 revenue came to $236 million. Assets totalled $67 million and liabilities, $68 million. Paid-up capital came to $500,000. The company was registered in 2008 with four directors, three of whom are Malaysian.
The three Malaysians - Marcus Yee Yuen Seng, Ng Poh Weng and Chin Wai Leong - are also directors of Genneva Sdn Bhd. They are being sued by Bank Negara in Malaysia for alleged illegal deposit taking and alleged offences under anti-money laundering laws. The case is ongoing.
In Singapore, there are four apparently related Genneva companies registered as businesses. Apart from Genneva Pte Ltd, there is also Genneva Remittance, set up ostensibly for remittance services, and Genneva Syariah, described as gold bullion traders and dealers.
In March, Genneva World Pte Ltd was registered also for gold trading. It has six Singaporean directors, one of whom is Mr Leow, the Genneva director.
Customers are concerned that assets of Genneva are being transferred to Genneva World, which is expected to trade on a similar business model. Sources say that some customers have been invited to transfer their contracts to Genneva World, but they are asked to keep 30 per cent of their gold holding with the company.
Genneva's model appears to fall into a grey regulatory area. Because there is typically a physical purchase of gold, the company is not classified as an investment adviser. The so-called discount that customers are extended is also not described as a yield or return.
Meanwhile, on its website, the MAS warns against schemes that dangle high returns, citing gold buyback schemes. It urges customers to question how the returns are generated, and whether the operators are regulated.
Wednesday, September 19, 2012
Blacklisted Myanmar tycoon seeks salvation in Singapore
By Jason Szep
YANGON | Wed Sep 19, 2012 12:41pm IST
YANGON (Reuters) - As Myanmar implements reforms and foreign investors jet in, most find precious few ways to make money. There is no stock market. A new foreign investment law is delayed. And the biggest local companies are entangled in U.S. and European sanctions.
Zaw Zaw, one of Myanmar's most powerful businessmen, wants to change that in a complex transaction in Singapore that would blaze a path for foreign investors into a company at the heart of Myanmar's economy - and help Myanmar's sanctions-hit tycoons rebrand themselves.
In an interview in his Yangon office, he said the transaction - a planned S$70 million reverse takeover of Singapore bed linen maker Aussino Group (AUSN.SI) - was moving forward and he expects Singapore regulators to complete a review of his books in three to six months, clearing the way for Aussino's transformation into a Myanmar-backed company harnessed to Zaw Zaw's energy division.
Few tycoons in Myanmar are more powerful than Zaw Zaw, whose holdings range from timber, gems and rubber plantations to construction, luxury resorts, petrol stations and banking.
Annual revenues of $500 million make his Max Myanmar Group a domestic leviathan. But his past friendship with former dictator Than Shwe makes him "a regime crony", according to the U.S. Treasury Department, which blacklisted him under targeted sanctions three years ago.
A 2007 U.S. diplomatic cable described how "Zaw Zaw actively seeks favour with the senior generals".
Washington has suspended some sanctions and embraced Myanmar's leaders but left embargoes in place against businessmen whose companies are accused of helping generals plunder the economy and commit human rights abuses during 49 years of military rule.
Zaw Zaw says he thinks it is a matter of time before business leaders are embraced by the West, too.
"The government is doing very well. They've released political prisoners and their reforms are very good. I don't think sanctions can last for very long."
He expects progress during a visit to the United States by reformist President Thein Sein next week and in a separate U.S. trip that began on Monday by opposition leader Aung San Suu Kyi, the Nobel Peace Prize winner.
But Washington has called for the release of all remaining political prisoners and Myanmar has failed to acquiesce. Although more than 700 have been freed since last year, an amnesty on Monday included only 88 dissidents, say rights groups, leaving several hundred behind bars.
Washington may reward other signs of progress, possibly relaxing a ban on imports of Myanmar-made products, but it is unclear how far they will go. Most analysts expect targeted sanctions on connected tycoons to remain for some time.
That leaves Zaw Zaw at the mercy of regulators in Singapore, where his reverse merger is being watched closely as a potential model for other sanctions-crippled companies in Myanmar.
TIMES HAVE CHANGED
Reverse takeovers give private companies such as Zaw Zaw's Max Myanmar access to international capital markets by merging with a publicly traded shell such as Aussino, which has bled red ink for three straight years. Aussino has been on a Singapore Exchange watchlist since September 6 last year, and will be delisted unless it can turn a profit.
Under the terms of Zaw Zaw's proposed deal announced in June, Aussino will issue new shares to buy Zaw Zaw's Max Strategic Investments, a Singapore-based investment holding company, which will operate his petrol kiosks in Myanmar, providing Zaw Zaw with new tools to finance an expansion of his energy business.
"People can buy our shares."
Such transactions, however, often escape the same intensive regulatory scrutiny faced by companies going public.
Teams of Singaporean regulators and lawyers are scouring through his books at his headquarters in a converted hospital in the commercial capital Yangon, he said. But the deal is no sure bet.
Some bankers harbour doubts that Singapore will approve the plan due to Zaw Zaw's presence on the U.S. government's list of "specially designated nationals". People who appear on the list will have their assets blocked and "U.S. persons are generally prohibited from dealing with them," the Treasury Department says on its website.
Still, investors appear optimistic. Aussino's stock has risen almost 268 percent this year, outperforming a 16 percent gain of Singapore's benchmark Straits Times Index.
Zaw Zaw says times have changed since the military ceded power last year to a semi-civilian government. Many of Myanmar's former military cronies, like Zaw Zaw, are cultivating a new image, promoting charitable work, building ties with Suu Kyi and recalibrating business empires that once depended on a system that reserved lucrative contracts - often in jade mining, timber and tourism - to favoured businessmen.
In Zaw Zaw's office, a glossy 75-page book detailing his company's charitable donations sits on a desk next to the door. He hopes his company can, at some point, issue stock directly to investors in Myanmar, but a local stock exchange is not expected until 2015.
"I am helping this country. I am creating jobs. I am helping people. But still I am under sanctions," he said. "Myanmar needs to be re-branded and we are part of that." (Editing by Robert Birsel)
Monday, September 17, 2012
QE3 lures the smart money back into stocks
The Straits Times
Goh Eng Yeow
17/9/2012
FIRST it was the European Central Bank (ECB) and China. Last week, it was the turn of the United States central bank to do its part to rev up the stalling global economic engine of growth.
US Federal Reserve chairman Ben Bernanke answered the prayer of Wall Street traders by restarting the printing presses to issue US$40 billion (S$49 billion) of fresh money every month to pump-prime the US economy in a strategy known as Quantitative Easing 3 (QE3).
He even went beyond their expectations by not fixing any timeframe to end QE3, which has been perceived by the market as a determination by the Fed to continue printing money for as long as is necessary, until the outlook on the moribund US jobs market improves significantly.
The move sent the bears scurrying to the sidelines.
The smart money reacted by diving back into the market. Citi Investment Research strategist Markus Rosgen said: "In the week ended Sept 12, we saw an inflow of US$12.1 billion into all equity funds. This is the largest weekly inflow for this year so far."
The big inflow into equity funds has been made in anticipation of the US Fed launching QE3, he said.
Traders had also been heartened by the ECB's decision to spend "unlimited amounts" to buy the bonds of deeply indebted European nations, and China's efforts to ramp up its infrastructural spending.
There is one snag though. Even though there was a big flood of money rushing to buy up US and European equities, the queue of investors waiting to snap up Asian equities was considerably shorter.
Mr Rosgen said: "Asia saw a moderate net inflow of US$100 million for the week. China, which attracted US$239 million, and Hong Kong, which had a net inflow of US$89 million, accounted for most of the inflows."
For the week, the Straits Times Index ended 1.96 per cent higher while New York's Dow Jones Industrial Average rose 1.71 per cent.
Still, market pundits are hopeful that Mr Bernanke's move will lure the bulls across the region out of the woodwork.
Mr Shane Oliver, AMP Capital's head of investment strategy, noted QE3 will force other central banks to run easier monetary policy to stop their own currencies from rising, and this should help to boost global growth.
By not having a specific end-date for QE3, the Fed also ensured that investors do not have to worry about the consequences when the end point is reached, as occurred with QE1 and QE2, he added.
On the local front, it is interesting to note that Thai billionaire Charoen Sirivadhanabhakdi chose to launch his $8.8 billion bid on Fraser & Neave the same week that QE3 was unveiled. QE3 may lower his borrowing costs, as the Fed had flagged a low interest rate guidance till mid-2015.
And if he finances his takeover by taking a US dollar loan, there is the prospect that his F&N purchase will be worth a lot more in US dollar terms, if the greenback sinks further against the Singdollar, as the US Fed printing presses swing into action.
Whether Mr Bernanke creates more jobs or not in the US with QE3, his move is likely to spawn more cross-border takeover deals across the region, as shrewd businessmen take advantage of the cheap money he provides to expand their businesses.
engyeow@sph.com.sg
Background story
Traders had also been heartened by the ECB's decision to spend "unlimited amounts" to buy the bonds of deeply indebted European nations, and China's efforts to ramp up its infrastructural spending.
Goh Eng Yeow
17/9/2012
FIRST it was the European Central Bank (ECB) and China. Last week, it was the turn of the United States central bank to do its part to rev up the stalling global economic engine of growth.
US Federal Reserve chairman Ben Bernanke answered the prayer of Wall Street traders by restarting the printing presses to issue US$40 billion (S$49 billion) of fresh money every month to pump-prime the US economy in a strategy known as Quantitative Easing 3 (QE3).
He even went beyond their expectations by not fixing any timeframe to end QE3, which has been perceived by the market as a determination by the Fed to continue printing money for as long as is necessary, until the outlook on the moribund US jobs market improves significantly.
The move sent the bears scurrying to the sidelines.
The smart money reacted by diving back into the market. Citi Investment Research strategist Markus Rosgen said: "In the week ended Sept 12, we saw an inflow of US$12.1 billion into all equity funds. This is the largest weekly inflow for this year so far."
The big inflow into equity funds has been made in anticipation of the US Fed launching QE3, he said.
Traders had also been heartened by the ECB's decision to spend "unlimited amounts" to buy the bonds of deeply indebted European nations, and China's efforts to ramp up its infrastructural spending.
There is one snag though. Even though there was a big flood of money rushing to buy up US and European equities, the queue of investors waiting to snap up Asian equities was considerably shorter.
Mr Rosgen said: "Asia saw a moderate net inflow of US$100 million for the week. China, which attracted US$239 million, and Hong Kong, which had a net inflow of US$89 million, accounted for most of the inflows."
For the week, the Straits Times Index ended 1.96 per cent higher while New York's Dow Jones Industrial Average rose 1.71 per cent.
Still, market pundits are hopeful that Mr Bernanke's move will lure the bulls across the region out of the woodwork.
Mr Shane Oliver, AMP Capital's head of investment strategy, noted QE3 will force other central banks to run easier monetary policy to stop their own currencies from rising, and this should help to boost global growth.
By not having a specific end-date for QE3, the Fed also ensured that investors do not have to worry about the consequences when the end point is reached, as occurred with QE1 and QE2, he added.
On the local front, it is interesting to note that Thai billionaire Charoen Sirivadhanabhakdi chose to launch his $8.8 billion bid on Fraser & Neave the same week that QE3 was unveiled. QE3 may lower his borrowing costs, as the Fed had flagged a low interest rate guidance till mid-2015.
And if he finances his takeover by taking a US dollar loan, there is the prospect that his F&N purchase will be worth a lot more in US dollar terms, if the greenback sinks further against the Singdollar, as the US Fed printing presses swing into action.
Whether Mr Bernanke creates more jobs or not in the US with QE3, his move is likely to spawn more cross-border takeover deals across the region, as shrewd businessmen take advantage of the cheap money he provides to expand their businesses.
engyeow@sph.com.sg
Background story
Traders had also been heartened by the ECB's decision to spend "unlimited amounts" to buy the bonds of deeply indebted European nations, and China's efforts to ramp up its infrastructural spending.
Thursday, September 13, 2012
Asian casino boom aims to lure region's new rich
By Kelvin Chan on September 13, 2012
MACAU (AP) — In the Philippines, a $4-billion casino will soon rise from reclaimed land on Manila Bay. In South Korea, foreign investors are expected to break ground next year on a clutch of casino resorts offshore. And on the eastern edge of Russia, authorities plan a resort zone aimed at drawing Chinese high-rollers.
The projects are part of a casino building boom rolling across Asia, where governments are trying to develop their tourism markets to capture increasingly affluent Asians with a penchant for gambling. They're building glitzy, upscale Las Vegas-style resorts in a bid to copy the runaway success of Asian gambling hubs Macau, which rapidly became the world's biggest casino market after ending a monopoly, and Singapore, where the city-state's first two casinos raked in an estimated $6 billion a year after their 2010 openings.
The casino boom highlights how the gambling industry is being propelled by the region's rapid economic growth, with millions entering the middle class thanks to rising incomes that allow them to spend more on travel and leisure pursuits. But it has also intensified debate over the social ills and perceived economic benefits of the gambling industry.
"Definitely, the success of Macau has set off a chain reaction in what is happening in the region," said Francis Lui, vice chairman of Macau casino operator Galaxy Entertainment Group. "After the success of Macau and Singapore, of course you see more countries now assessing the pros and cons of having gaming as a driving engine for bigger economic growth."
"In the future the region is going to have more casinos."
The fortunes to be made are immense. After Macau ended a four-decade monopoly and allowed in foreign operators such as Las Vegas Sands Corp., Wynn Resorts and MGM Resorts International, the former Portuguese colony on the southern edge of China quickly overtook the Las Vegas Strip as the world's biggest gambling market. The foreign operators helped supercharge growth in Macau — previously known for its aging, seedy, no-frills casinos — by building flashy gambling palaces drawing wealthy mainland Chinese. Last year the city of just 500,000 people raked in $33.5 billion in gambling revenue.
In Singapore, the Marina Bay Sands and Resorts World Sentosa, which together cost more than $10 billion, have put the city on track to becoming the world's second-biggest gambling market.
By 2015, consultants PricewaterhouseCoopers predict the surge in Asian casino revenues will have "fundamentally reshaped the landscape of the global industry" and help Asia edge out the United States as the world's biggest regional market.
PWC forecasts that the Asia-Pacific gambling market will more than double from $34.3 billion in 2010 to $79.3 billion in 2015, surpassing the U.S., which is estimated to grow from $57.5 billion to $73.3 billion in the same period.
A number of projects planned or under way across the region are helping to fulfill that prediction.
Cambodian operator Nagacorp, which runs the only casino in the Southeast Asian city's capital, Phnom Penh, plans to open a $369 million expansion including hotels and shopping later this year. The company operates buses equipped with massage chairs to pick up punters from neighboring Vietnam.
Vietnam will get its first casino-resort next year. Canadian company Asian Coast Development is set to open a five-star MGM-branded beachfront complex in the southeast. It's part of a $4.2 billion tourist development aimed at drawing foreign visitors.
Both countries bar their own citizens from entering casinos.
Even the neglected Russian Pacific port city of Vladivostok, perhaps best known as the eastern terminus for the famed Trans-Siberian Railway, plans to get in on the action. Authorities announced plans in May to invite foreign investors to help develop an entertainment zone with no less than 12 casinos aimed at attracting Chinese and other North Asian visitors. When completed, annual revenues could reach $5.2 billion, according to a forecast by consultants.
In Japan, where legalization has been debated for years, lawmakers have been inching closer to approving casinos as a way to stimulate the economy and boost tourism following last year's devastating tsunami and nuclear disaster.
But not everyone is convinced it's a gamble that will economically benefit Japan, which already allows gambling on horse, boat and bicycle racing as well as slots.
Wednesday, September 12, 2012
Top questions by investors
12 September 2012
Tom Stevenson
One year into the European debt crisis, markets continue to be volatile, creating much uncertainty for investors. Here are some of the top commonly asked questions posed by investors around the region to their financial advisers.
How does the situation in Europe affect investments?
If you were to try to list reasons why stock markets have risen so much over the past three months, a reduction in worries about the euro zone crisis would be right up there. It is not that the sovereign debt crisis has gone away - far from it - but investors have stopped fearing the worst.
To an increasing extent, the likely outcomes have been priced into markets. Europe matters a great deal but it is not the only driver of investment markets though, at times, it has been.
What will happen if Greece falls out of the euro?
Despite what I have just said about the euro zone crisis, if Greece does fall out of the euro, markets will most likely react badly in the short-term and the event itself will be a significant shock to investor sentiment.
Greece is undoubtedly struggling to find the spending cuts that it has signed up to and it has asked for more time to get its books balanced. That might make an exit from the euro sound more likely, but I think the fact that the current grown-up conversation being had about exactly how Greece can get back on an even keel makes it more likely that it will actually stay inside the single currency.
How can I reduce the risk in my portfolio while still achieving my goals?
There's a simple answer: Diversification. None of us can know what lies around the corner and that means that putting all of our eggs in one basket - geographically or between asset classes - is never a good idea.
Having a multi-asset portfolio spread between all regions of the world means you may never shoot the lights out performance-wise but you will avoid catastrophe. And that, coupled with a realistic programme of regular saving, is the best way of hitting your goals.
Should I stay in cash, and how much money should I keep there?
A little bit of cash in a portfolio is always a good idea because it gives you the opportunity to take advantage of market falls. But, that said, too cautious an approach will doom you to watching the real purchasing power of your money eroded by even quite modest rates of inflation.
In the long run, equities and bonds have outperformed cash and I would be amazed if, in future, they did not continue to do so.
What is the right mix of growth and defensive assets in this environment?
Just as a decent mix of assets and geographical exposures makes sense, so too does a combination of growth and value investments, cyclical and defensive assets. Markets can change mood very quickly, as we have seen in the past three months. Being on the sidelines because you felt nervous about the outlook would have been a very expensive mistake in recent weeks.
However, with so many headwinds for the global economy, an overly aggressive stance would also be risky in my opinion.
Should I stay in shares?
Yes, I would definitely stay in shares for the reasons I've already given. But not exclusively so and the proportion you should hold in the various asset classes will depend on a number of factors, not least your age.
The longer you have to invest, the greater should be your exposure to shares, which offer greater potential returns but also the greater likelihood of short-term fluctuations.
And don't forget that retirement age is not the end of the line - with many people these days facing the prospect of a long retirement, having some exposure to income-producing shares even after you stop work can make sense.
Should I reduce my holdings of growth investments?
The past 30 years or so have been a period in which investors have tended to focus on growth investments where returns have been largely driven by capital appreciation. In the great bull market from 1982 to 2000, investors were pretty indifferent to the income offered by most investments, but I think that has changed for the foreseeable future.
In the long run, income has actually provided the lion's share of the total return from most investments and I expect that to continue to be the case. Income-generating investments have many things to commend them over pure growth-oriented investments.
Will the market recover to its 2007 levels?
Depending on the market you are talking about, we are getting back to those levels already. In time, I am sure the answer is "yes" because companies are in pretty good shape and valuations are relatively cheap compared to history.
Recoveries from bear markets can take a long time but the long-term trend of the market throughout all the turmoil of the 20th century was upwards. No one can predict the future but it would be a very bold call to say that the current century would be any different.
Tom Stevenson is the Investment Director of Fidelity Worldwide Investment.
Monday, September 10, 2012
10 Common Misconceptions About Money
By Stacy Johnson
Monday, 10 September 2012
I recently celebrated my 57th birthday, and have arrived at a common conclusion about getting older: It sucks. But there’s one good thing that comes with age – the wisdom that can only come from experience.
Experience helps you understand how life actually works, and how remarkably different life is from the kind you so often see portrayed in commercials, movies, and daydreams.
Prime example? Money. The myths surrounding money are numerous and widely held, especially among the young. It’s a shame, because pursuing myths will lead you astray, waste your time and, taken to extremes, ruin your life.
Here are 10 popular misconceptions about money that experience has taught me are more often fiction than fact…
1. The more money I have, the happier I’ll be.
Let’s ask Howard Hughes, Anna Nicole Smith, John Belushi, Chris Farley, Marilyn Monroe, Michael Jackson, Amy Winehouse, Jimi Hendrix, Janis Joplin, Kurt Cobain, and Elvis about this one. OK, guys, show of hands… did fame and fortune make you happy?
Happiness comes from liking yourself, something completely unrelated to money. Riches buys recognition, too often confused with validation. But respect, especially self-respect, isn’t for sale.
When you’re on your death-bed, will you be thinking about money? If so, your contribution to the gene pool was negligible. Rather than obsessing about money, think about what really makes you happy. Then make only enough money to take part in those activities. Making more is a waste of the only non-renewable resource you have: your time on the planet.
2. A big income will keep me out of debt.
What’s the difference between someone who makes $50,000 a year with a $100,000 mortgage and someone who makes $500,000 a year with a $1 million mortgage? Answer: nothing. Unless they have money set aside for emergencies, they’re both a paycheck away from disaster.
Debt often rises with income. What keeps you out of debt isn’t a high income or net worth. It’s not borrowing money.
3. Millionaires drive fancy cars, wear fancy clothes, and live in fancy houses.
Not according to the folks who did a bunch of research and wrote The Millionaire Next Door. According to their studies, the average American millionaire drives an unexciting American car, lives in the same nondescript house they’ve owned for years, and avoids designer labels. That’s how they became millionaires.
So who’s buying all the designer clothes and Porsches? Many times it’s people who will never become wealthy because they’re swapping tomorrow’s financial freedom for today’s appearance. As I’m fond of saying, life affords you the opportunity to either look rich or be rich, but few live long enough to accomplish both. The younger you decide, the better.
4. The more money I have, the less worries I’ll have.
Balderdash. Money doesn’t end anxiety. It gives you something else to be anxious about: losing your money. Granted, those without enough money to eat or keep a roof over their heads have lots to worry about. But once you have enough money for all your needs and a reasonable number of your desires, the excess will add to your concerns, not alleviate them.
5. Money will help me find love.
In my experience with women, they’re not attracted to money. They are, however, attracted to ambition and intelligence, especially when it presents as humor. Everyone’s attracted to people who are self-confident, non-needy, and able to laugh at themselves.
Like a peacock, wealthy people can easily attract attention. But attention isn’t the same as admiration or affection. And even if it works, do you really want to spend your life with someone so shallow and insecure they were attracted to your money?
6. I’ll have more fun if I have more money.
When I was young, I didn’t have two nickels to rub together, but I had a ton of fun. Today I have lots of nickels – and am happy to report, still having a riot.
There’s no doubt that money can furnish the elements of a good time. But if you need money to have fun, you’re boring. And should you become a billionaire, you’ll still be boring.
7. Money means security.
When you boil it down, a primary purpose of money is to make life more predictable. It allows you to control your environment by being prepared for the unexpected.
While that’s partly true, there’s not enough money in the world to completely control everything. I could have a heart attack and die before I finish writing this, and you could have one before you finish reading it. Accept that we’re all bobbing on a sea of uncertainty, no matter how much money we have.
8. Money will enable me to meet interesting people.
In my experience, you can’t swing a dead cat without hitting interesting people. But if I want to maximize my odds of meeting someone worth knowing, I won’t be heading to the nearest country club.
I’ve met plenty of fun and interesting rich people – but I’ve also met rich people who were vain, myopic, pretentious, and judgmental. They weren’t that way because they were rich. They were that way because they were born rich and as a result never had to overcome adversity.
Overcoming adversity is what makes people interesting, not how much money they have. People without at least a few skeletons in the closet are often shallow as a puddle.
9. I need money to travel, and travel is important.
The world is an interesting place, and being well-traveled makes you interesting. But travel comes in many forms, including the budget variety. If you want to see faraway places, you’ll find a way.
In my book Life or Debt, I conclude by describing the first book I ever read about something I love: sailing. The book was about a couple who built their own sailboat and traveled around the world, working when they needed to and never accumulating more than a few thousand dollars at a time. Their boat had no air conditioning, no refrigerator – not even a radio.
What most people do in the same situation is wait until they have enough money to buy what amounts to a floating condo: a boat that’s luxurious, seaworthy, and far too expensive to ever actually buy. The result is they spend their lives on the dock. What a waste.
10. Money will buy friends.
This is not only untrue, it’s the opposite of what money actually does. I’ve got a super-rich friend or two, and what I’ve observed is that money attracts plenty of hangers-on – but almost no friends.
People with vast wealth or fame can’t trust the motives of those surrounding them (see No. 5 above). That’s why the people they count as true friends are normally either people they knew before they were rich and famous, or people who are equally rich and famous.
There’s the advantage of being judged on your personality versus your net worth: The friends that result actually like you, not what you can do for them.
http://createwealth8888.blogspot.sg/2012/09/10-common-misconceptions-about-money.html?m=1
Monday, 10 September 2012
I recently celebrated my 57th birthday, and have arrived at a common conclusion about getting older: It sucks. But there’s one good thing that comes with age – the wisdom that can only come from experience.
Experience helps you understand how life actually works, and how remarkably different life is from the kind you so often see portrayed in commercials, movies, and daydreams.
Prime example? Money. The myths surrounding money are numerous and widely held, especially among the young. It’s a shame, because pursuing myths will lead you astray, waste your time and, taken to extremes, ruin your life.
Here are 10 popular misconceptions about money that experience has taught me are more often fiction than fact…
1. The more money I have, the happier I’ll be.
Let’s ask Howard Hughes, Anna Nicole Smith, John Belushi, Chris Farley, Marilyn Monroe, Michael Jackson, Amy Winehouse, Jimi Hendrix, Janis Joplin, Kurt Cobain, and Elvis about this one. OK, guys, show of hands… did fame and fortune make you happy?
Happiness comes from liking yourself, something completely unrelated to money. Riches buys recognition, too often confused with validation. But respect, especially self-respect, isn’t for sale.
When you’re on your death-bed, will you be thinking about money? If so, your contribution to the gene pool was negligible. Rather than obsessing about money, think about what really makes you happy. Then make only enough money to take part in those activities. Making more is a waste of the only non-renewable resource you have: your time on the planet.
2. A big income will keep me out of debt.
What’s the difference between someone who makes $50,000 a year with a $100,000 mortgage and someone who makes $500,000 a year with a $1 million mortgage? Answer: nothing. Unless they have money set aside for emergencies, they’re both a paycheck away from disaster.
Debt often rises with income. What keeps you out of debt isn’t a high income or net worth. It’s not borrowing money.
3. Millionaires drive fancy cars, wear fancy clothes, and live in fancy houses.
Not according to the folks who did a bunch of research and wrote The Millionaire Next Door. According to their studies, the average American millionaire drives an unexciting American car, lives in the same nondescript house they’ve owned for years, and avoids designer labels. That’s how they became millionaires.
So who’s buying all the designer clothes and Porsches? Many times it’s people who will never become wealthy because they’re swapping tomorrow’s financial freedom for today’s appearance. As I’m fond of saying, life affords you the opportunity to either look rich or be rich, but few live long enough to accomplish both. The younger you decide, the better.
4. The more money I have, the less worries I’ll have.
Balderdash. Money doesn’t end anxiety. It gives you something else to be anxious about: losing your money. Granted, those without enough money to eat or keep a roof over their heads have lots to worry about. But once you have enough money for all your needs and a reasonable number of your desires, the excess will add to your concerns, not alleviate them.
5. Money will help me find love.
In my experience with women, they’re not attracted to money. They are, however, attracted to ambition and intelligence, especially when it presents as humor. Everyone’s attracted to people who are self-confident, non-needy, and able to laugh at themselves.
Like a peacock, wealthy people can easily attract attention. But attention isn’t the same as admiration or affection. And even if it works, do you really want to spend your life with someone so shallow and insecure they were attracted to your money?
6. I’ll have more fun if I have more money.
When I was young, I didn’t have two nickels to rub together, but I had a ton of fun. Today I have lots of nickels – and am happy to report, still having a riot.
There’s no doubt that money can furnish the elements of a good time. But if you need money to have fun, you’re boring. And should you become a billionaire, you’ll still be boring.
7. Money means security.
When you boil it down, a primary purpose of money is to make life more predictable. It allows you to control your environment by being prepared for the unexpected.
While that’s partly true, there’s not enough money in the world to completely control everything. I could have a heart attack and die before I finish writing this, and you could have one before you finish reading it. Accept that we’re all bobbing on a sea of uncertainty, no matter how much money we have.
8. Money will enable me to meet interesting people.
In my experience, you can’t swing a dead cat without hitting interesting people. But if I want to maximize my odds of meeting someone worth knowing, I won’t be heading to the nearest country club.
I’ve met plenty of fun and interesting rich people – but I’ve also met rich people who were vain, myopic, pretentious, and judgmental. They weren’t that way because they were rich. They were that way because they were born rich and as a result never had to overcome adversity.
Overcoming adversity is what makes people interesting, not how much money they have. People without at least a few skeletons in the closet are often shallow as a puddle.
9. I need money to travel, and travel is important.
The world is an interesting place, and being well-traveled makes you interesting. But travel comes in many forms, including the budget variety. If you want to see faraway places, you’ll find a way.
In my book Life or Debt, I conclude by describing the first book I ever read about something I love: sailing. The book was about a couple who built their own sailboat and traveled around the world, working when they needed to and never accumulating more than a few thousand dollars at a time. Their boat had no air conditioning, no refrigerator – not even a radio.
What most people do in the same situation is wait until they have enough money to buy what amounts to a floating condo: a boat that’s luxurious, seaworthy, and far too expensive to ever actually buy. The result is they spend their lives on the dock. What a waste.
10. Money will buy friends.
This is not only untrue, it’s the opposite of what money actually does. I’ve got a super-rich friend or two, and what I’ve observed is that money attracts plenty of hangers-on – but almost no friends.
People with vast wealth or fame can’t trust the motives of those surrounding them (see No. 5 above). That’s why the people they count as true friends are normally either people they knew before they were rich and famous, or people who are equally rich and famous.
There’s the advantage of being judged on your personality versus your net worth: The friends that result actually like you, not what you can do for them.
http://createwealth8888.blogspot.sg/2012/09/10-common-misconceptions-about-money.html?m=1
Thursday, September 6, 2012
Living in a silent blockbuster
6 September 2012
Alywin Chew
The beauty of silent films lies in the artistry of actors' body language and facial expressions, relying on the poignance of the unspoken to evoke viewers' interpretation of the performance.
In Laurentia Tan, the profoundly deaf heroine, we can draw a parallel.
Following up on her bronze medal win in the Grade 1A Individual Championship Dressage Test on Monday, Tan again captivated the judges at Greenwich Park with a sterling performance in her Individual Freestyle Test yesterday, winning Singapore's first silver medal in the sport with a score of 79.000.
Britain's Sophie Christiansen bagged gold with a score of 84.750 and Helen Kearney of Ireland finished third with 78.450.
Tan's feat makes her the most bemedalled Singapore Paralympian with one silver and three bronzes.
"I'm over the moon, I didn't expect another medal," said the 33-year-old who has cerebral palsy. She had finished third in the same event at the 2008 Beijing Games and did not expect a medal this time round.
"So many people come up to me and say 'wow' and how much I've inspired them."
But it is not her improvement from a bronze to silver that is awe-inspiring.
To begin with, the odds were always going to be against her.
Freestyle dressage requires riders to perform a series of manoeuvres with their horses in harmony with music.
And the fact that Tan can hardly hear Big Ben's chime, much less her own musical choice of Sugarplum Fairy combined with Senorita, makes her achievement even more admirable.
Relying on an assistant who does nothing more than indicate when the music begins and ends, the 33-year-old banks on her impeccable sense of timing and a phenomenal connection with her horse to execute her routine.
To make matters even more compelling, she has only been with her young German gelding Ruben James 2 for a mere 10 months, as compared to most other riders who have had their horses for years. Her previous horse, a gelding named Harvey, has been retired from competition.
And because Ruben James 2 is a leased horse based in Cologne, Germany, training sessions for the London-based Singaporean rider were hardly ideal.
"As compared to Beijing, training for this Paralympics has been very difficult," said Tan's mother, Jannie. "We could only travel to Germany once or twice a month for about a week each time just to train."
Of her daughter's ability to overcome the odds, Jannie added: "Laurentia works hard for what she believes in. Her philosophy to life is 'you don't know what you can achieve until you've tried it'.
"Then of course she puts in hard work, passion and focus. She would never miss training."
Before the Paralympics kicked off on Aug 29, Tan explained during an interview with her alma mater, Oxford Brookes University, that there is no secret to success apart from determination and repetition.
"It is just training; practice ... practice ... and more practice. I have learnt to 'feel', calculate and think positive," she said.
Team manager Monique Heah was initially cagey about Tan's medal chances ahead of yesterday's test, acknowledging that competition today is tougher than ever given the steady rise of interest in the para-equestrian discipline.
"The Europeans are very strong. If you look at the scores before and now, a lot more is required to win a medal today," Heah said on Monday.
But even that, in addition to all other obstacles, could not stop Tan from making Singapore sporting history to cue the end credits to her self-directed, and now critically acclaimed, silent movie on the London Games.
Alywin Chew
The beauty of silent films lies in the artistry of actors' body language and facial expressions, relying on the poignance of the unspoken to evoke viewers' interpretation of the performance.
In Laurentia Tan, the profoundly deaf heroine, we can draw a parallel.
Following up on her bronze medal win in the Grade 1A Individual Championship Dressage Test on Monday, Tan again captivated the judges at Greenwich Park with a sterling performance in her Individual Freestyle Test yesterday, winning Singapore's first silver medal in the sport with a score of 79.000.
Britain's Sophie Christiansen bagged gold with a score of 84.750 and Helen Kearney of Ireland finished third with 78.450.
Tan's feat makes her the most bemedalled Singapore Paralympian with one silver and three bronzes.
"I'm over the moon, I didn't expect another medal," said the 33-year-old who has cerebral palsy. She had finished third in the same event at the 2008 Beijing Games and did not expect a medal this time round.
"So many people come up to me and say 'wow' and how much I've inspired them."
But it is not her improvement from a bronze to silver that is awe-inspiring.
To begin with, the odds were always going to be against her.
Freestyle dressage requires riders to perform a series of manoeuvres with their horses in harmony with music.
And the fact that Tan can hardly hear Big Ben's chime, much less her own musical choice of Sugarplum Fairy combined with Senorita, makes her achievement even more admirable.
Relying on an assistant who does nothing more than indicate when the music begins and ends, the 33-year-old banks on her impeccable sense of timing and a phenomenal connection with her horse to execute her routine.
To make matters even more compelling, she has only been with her young German gelding Ruben James 2 for a mere 10 months, as compared to most other riders who have had their horses for years. Her previous horse, a gelding named Harvey, has been retired from competition.
And because Ruben James 2 is a leased horse based in Cologne, Germany, training sessions for the London-based Singaporean rider were hardly ideal.
"As compared to Beijing, training for this Paralympics has been very difficult," said Tan's mother, Jannie. "We could only travel to Germany once or twice a month for about a week each time just to train."
Of her daughter's ability to overcome the odds, Jannie added: "Laurentia works hard for what she believes in. Her philosophy to life is 'you don't know what you can achieve until you've tried it'.
"Then of course she puts in hard work, passion and focus. She would never miss training."
Before the Paralympics kicked off on Aug 29, Tan explained during an interview with her alma mater, Oxford Brookes University, that there is no secret to success apart from determination and repetition.
"It is just training; practice ... practice ... and more practice. I have learnt to 'feel', calculate and think positive," she said.
Team manager Monique Heah was initially cagey about Tan's medal chances ahead of yesterday's test, acknowledging that competition today is tougher than ever given the steady rise of interest in the para-equestrian discipline.
"The Europeans are very strong. If you look at the scores before and now, a lot more is required to win a medal today," Heah said on Monday.
But even that, in addition to all other obstacles, could not stop Tan from making Singapore sporting history to cue the end credits to her self-directed, and now critically acclaimed, silent movie on the London Games.
S’pore Reits Give World’s Highest Returns
6 Sep ’12
Singapore’s real estate investment trusts (Reits), the best performing in the world this year, are luring investors after a shopping spree for properties across Asia gives them a broader stream of rental income.
The Republic’s US$38 billion Reit market has returned an average 37 per cent in 2012, twice the gains in the US, UK and Japan, according to data compiled by Bloomberg. Australia, the largest Reit market in the Asia-Pacific region with US$86 billion, advanced 24 per cent.
Growth among Singapore Reits was led by asset acquisitions and rental appreciation, with total rental revenue increasing 5.8 per cent annually between 2008 and 2011, according to property broker CBRE Group Inc. In the first half, Singapore Reits were the second most-active purchasers after Japan in Asia, buying assets in Australia, China, Japan, Malaysia and South Korea, and accounting for 33 per cent of acquisitions by the region’s Reits since 2009, CBRE said.
“Singapore remains among the last few AAA-rated economies,” Priyaranjan Kumar, Singapore-based regional director of the capital markets group at broker Cushman & Wakefield, said. “Its real estate market has received unprecedented attention from most investors as it’s seen to offer a good proxy for the increasingly recognised strength of the Asian consumer.”
The gap between their yield and interest rates is double that in Australia, according to data compiled by Bloomberg.
Property trusts in the island-state offer an average 413 basis-point income return premium relative to 10-year government bonds, while in Australia they average 192 basis points, data compiled by Bloomberg showed. A basis point is 0.01 percentage point.
Singapore’s Reits have a dividend yield of 6.46 per cent, according to data compiled by Bloomberg. That compares with 4.93 per cent in Hong Kong and 5.01 per cent in Australia.
Economic growth in the Republic will probably accelerate to 3.9 per cent next year from 2.7 per cent in 2012, the International Monetary Fund forecast in its World Economic Outlook report in April. The advanced economies, including the US and UK, are estimated to expand 2 per cent in 2013.
“The game has changed from capital appreciation to capital preservation,” Tim Gibson, a Singapore-based fund manager for Asia-Pacific property equities at Henderson Global Investors, said.
Singapore boasts the world’s biggest budget surplus relative to economic output, adding to demand for its currency as Europe’s fiscal woes roil global markets, the IMF said.
The Singapore dollar is the best performer this year after the Philippine peso among the 11 most-traded Asian currencies tracked by Bloomberg. Singapore is one of seven nations with AAA ratings and stable outlooks from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
Tax incentives, which include exemptions on foreign income received by Singapore-listed Reits and distributing at least 90 per cent of their income as dividends to unit holders, also helped boost demand.
Singapore offers a pipeline of assets from developers, a fair regulatory environment and a base of international investors and quality sponsors, Jason Kern, Hong Kong-based managing director and head of real estate and lodging advisory for Asia-Pacific at HSBC Holdings Plc, said. A sponsor is a developer with a stake in the Reit and whose properties form the trust’s pipeline of assets to be purchased.
“Coming out of the global financial crisis, investors have focused on transparent, predictable markets with sustainable income profiles,” Cushman’s Mr Kumar said.
Singapore Reits also have a liquid secondary market, low transaction costs and low leverage compared with Japan and other large Reit markets, Mr Kumar added.
Four of the top 10 best-performing Reits with assets of more than US$250 million in the region are from Singapore, according to data compiled by Bloomberg. Including dividend yields, Frasers Commercial Trust has returned 57 per cent this year, AIMS AMP Capital Industrial Reit 48 per cent, and Keppel Land’s K-Reit Asia 46 per cent.
Singapore Reits have outperformed the city-state’s benchmark Straits Times Index, which has climbed 14 per cent this year. The 10-year government bond yield in Singapore was 1.38 per cent as at Aug 29. Adjusted for inflation, Singaporean savers currently receive a negative real return on their savings of 4.79 per cent.
The Reit market in the Asia-Pacific region is worth US$205 billion, more than before the global financial crisis, according to the Asia Pacific Real Estate Association. European Reits are below the levels before the crisis, while North America, the world’s largest Reit market, has seen assets climb 82 per cent from December 2007, the data showed.
Singapore is the region’s third-largest Reit market after Australia and Japan’s US$45 billion, according to Bloomberg data.
Sharp recovery
The real estate market in Singapore recovered sharply after the first quarter of 2009, with prime rents and capital values increasing in excess of 60 per cent over lows during the global financial crisis, according to New York-based Cushman.
Total investment turnover for Asian Reits reached US$7 billion during the first six months of the year, a 14 per cent decline from the second half of 2011, on concerns over the eurozone debt crisis and the weaker outlook for the regional economy, Los Angeles-based CBRE said.
“Although Asian Reits are expected to remain in buying mode, they will likely turn more selective towards future acquisitions, with yield enhancement and insulation from the global economic slowdown emerging as important criteria,” CBRE analysts Ada Choi and Leo Chung wrote in a report on Asia’s Reit market last month.
Earnings growth, or distribution per unit of Singapore Reits, will slow to 4 per cent in the two years ending 2014, with the previous highs of a 13 per cent growth rate between 2006 and 2008 appearing unachievable, Singapore-based analysts, led by Derek Tan, at DBS Group Holdings Ltd. said in an Aug 21 note. Maturing portfolios will add to slowing growth, he said.
The outlook for Singapore’s commercial-leasing segment is becoming more challenging and the funding environment is likely to become more volatile over the next two years, Standard & Poor’s credit analyst Wee Khim Loy said in a note on Aug 2.
A dislocation in the credit markets may cause significant financial stress because the trusts rely on bank funding, the rating company said. Leverage levels of most office Reits could become weak if property values decline by as much as 10 per cent, it said, maintaining a negative outlook for the office segment.
Still, Singapore Reits are well placed to weather tight operating conditions as the trusts have increased their financial flexibility and diversified their funding sources, the rating company said.
There remains ample room for future growth in Reits as prime rents remain 25 per cent to 30 per cent off their peak in the second quarter of 2008, Mr Kumar said. At current yields, Singapore Reits are attractive for investors looking for total returns, he said.
“There are a lot of uncertainties in terms of economic outlook, so investors are actually looking for stability, defensive earnings,” Eddy Loh, a Singapore-based equity strategist for Asia at Barclays plc, said.
“Coupled with the fact that we still have a very low interest rate environment and the dividend yields for some of these Reits can go up 6 per cent to 7 per cent that seems to be very attractive to investors actually.” Mr Loh is advising clients to bet on industrial and retail Reits.
The three-month Singapore Interbank Offered Rate is at an all-time low of just under 0.4 per cent, compared with a peak of 3.56 per cent in 2006, according to data compiled by Bloomberg.
The performance of real estate trusts is prompting a flurry of initial share sales by Reits that may top $2 billion, with as many as six companies planning to list their assets, according to HSBC’s Jason Kern. That’s the most since 2010 when Singapore Reits raised US$4.13 billion, according to data compiled by Bloomberg.
Ascendas Hospitality Trust raised about S$459 million in July, while Far East Organization, Singapore’s biggest closely held developer, drew S$717.6 million in an initial share sale of a hotel trust last month.
“If we think we are five years through a lost decade from a global economic standpoint, then we will see money flowing into Reits as people will continue to chase yields,” Mr Gibson said.
“Unless we see interest rates increasing at any point in time, then that will stop the party, but I don’t think you need to be dancing too close to the door just yet.” – Bloomberg
Source: The Straits Times, 06 September 2012
Wednesday, September 5, 2012
Plans for the ultra-rich are indeed different
5 September 2012
Richard Hartung
"Let me tell you about the very rich," said F Scott Fitzgerald. "They are different from you and me." And one of the biggest differences, surprisingly, is in insurance.
These simple products take on a new twist when the ultra-rich are involved. The average person buys insurance out of fear, one industry expert opined: Fear of high medical expenses, of losing their home in a fire or of their family being bereft when they die. Ultra high net worth individuals (UHNWIs) worth tens of millions, however, have enough money to overcome those fears. They buy insurance for "want" rather than "fear". They want to preserve the family company, or give money to a second family, or leave a legacy.
For something simple such as a car or home insurance, these differences may not matter as much. The only real difference is the amount of coverage for a Corolla or a Lamborghini, or a bungalow instead of an HDB flat.
Even for medical insurance, it is more a matter of amount - if UHNWIs get insurance at all, that is, rather than deciding they can pay their own medical costs and self-insuring. Even Prudential's new medical insurance product, which offers critical illness protection of up to S$3.6 million, may be of less interest for UHNWIs, who are defined as having at least US$30 million (S$37.3 million) in financial assets.
Where coverage gets really interesting is in life insurance. There are specialised products designed to help the wealthy achieve very different goals than insurance for the man in the street.
One goal, for example, could be to leave the family business to the one child who runs it and to use insurance to give an equivalent value in cash to the other children. Another goal could be to provide enough money for a companion to enjoy a nice lifestyle without anyone else knowing about them. Or the UHNWI may want to set up a foundation to donate money to charity after their death.
A life insurance policy lets them achieve these objectives without touching the other assets in their estate. The amount of insurance to achieve these goals can be fairly high, and a single premium policy could cost millions. Whereas an average person pays their single premium up front, private banks are often willing to loan the millions for the premium. And a loan can mean that the policy turns out to be almost free.
Let us suppose, for example, that the UHNWI wants to leave S$25 million to his daughter. A single premium for a S$25 million universal life insurance policy could easily cost about S$6.5 million. The private bank loans the UHNWI 90 per cent, or S$5.85 million, at an interest rate of about 1.6 per cent.
Interest costs of about S$93,000 per year might seem like a lot. If the UHNWI invests the S$5.85 million they did not need to pay and gets a return of just 3 per cent, however, they will receive about S$175,000 per year. For a cost of just S$650,000 for the insurance premium, the UHNWI is getting lots of life insurance and pocketing more than S$80,000 per year in profit.
Along with the relatively low cost, the UHNWI avoids publicity after they die because insurance payments usually do not go through the public disclosure of probate. The money goes where the UHNWI wants, since it is harder for heirs to dispute an insurance payout than a will.
The UHNWI could get money back from the policy's cash value if they really need it. And a key benefit of some of the really big policies is that they come with a concierge service that can help book the UHNWI into the best medical clinics in the world if needed.
Insurance policies for the ultra-rich are rarely talked about outside of specialised insurance companies and private banks, so they might seem like a rarity. With the latest World Ultra Wealth Report from Wealth-X showing that at least 1,350 people in Singapore have more than US$30 million in assets, though, they may be more common than one would expect.
There is also some talk to make such policies available to more people, for lower amounts. And with the latest Capgemini World Wealth Report showing about 91,200 people in Singapore with more than US$1 million of investable assets, there could well be a pool of people interested in these big policies.
Richard Hartung is a financial services consultant who has lived in Singapore for more than 20 years.
Richard Hartung
"Let me tell you about the very rich," said F Scott Fitzgerald. "They are different from you and me." And one of the biggest differences, surprisingly, is in insurance.
These simple products take on a new twist when the ultra-rich are involved. The average person buys insurance out of fear, one industry expert opined: Fear of high medical expenses, of losing their home in a fire or of their family being bereft when they die. Ultra high net worth individuals (UHNWIs) worth tens of millions, however, have enough money to overcome those fears. They buy insurance for "want" rather than "fear". They want to preserve the family company, or give money to a second family, or leave a legacy.
For something simple such as a car or home insurance, these differences may not matter as much. The only real difference is the amount of coverage for a Corolla or a Lamborghini, or a bungalow instead of an HDB flat.
Even for medical insurance, it is more a matter of amount - if UHNWIs get insurance at all, that is, rather than deciding they can pay their own medical costs and self-insuring. Even Prudential's new medical insurance product, which offers critical illness protection of up to S$3.6 million, may be of less interest for UHNWIs, who are defined as having at least US$30 million (S$37.3 million) in financial assets.
Where coverage gets really interesting is in life insurance. There are specialised products designed to help the wealthy achieve very different goals than insurance for the man in the street.
One goal, for example, could be to leave the family business to the one child who runs it and to use insurance to give an equivalent value in cash to the other children. Another goal could be to provide enough money for a companion to enjoy a nice lifestyle without anyone else knowing about them. Or the UHNWI may want to set up a foundation to donate money to charity after their death.
A life insurance policy lets them achieve these objectives without touching the other assets in their estate. The amount of insurance to achieve these goals can be fairly high, and a single premium policy could cost millions. Whereas an average person pays their single premium up front, private banks are often willing to loan the millions for the premium. And a loan can mean that the policy turns out to be almost free.
Let us suppose, for example, that the UHNWI wants to leave S$25 million to his daughter. A single premium for a S$25 million universal life insurance policy could easily cost about S$6.5 million. The private bank loans the UHNWI 90 per cent, or S$5.85 million, at an interest rate of about 1.6 per cent.
Interest costs of about S$93,000 per year might seem like a lot. If the UHNWI invests the S$5.85 million they did not need to pay and gets a return of just 3 per cent, however, they will receive about S$175,000 per year. For a cost of just S$650,000 for the insurance premium, the UHNWI is getting lots of life insurance and pocketing more than S$80,000 per year in profit.
Along with the relatively low cost, the UHNWI avoids publicity after they die because insurance payments usually do not go through the public disclosure of probate. The money goes where the UHNWI wants, since it is harder for heirs to dispute an insurance payout than a will.
The UHNWI could get money back from the policy's cash value if they really need it. And a key benefit of some of the really big policies is that they come with a concierge service that can help book the UHNWI into the best medical clinics in the world if needed.
Insurance policies for the ultra-rich are rarely talked about outside of specialised insurance companies and private banks, so they might seem like a rarity. With the latest World Ultra Wealth Report from Wealth-X showing that at least 1,350 people in Singapore have more than US$30 million in assets, though, they may be more common than one would expect.
There is also some talk to make such policies available to more people, for lower amounts. And with the latest Capgemini World Wealth Report showing about 91,200 people in Singapore with more than US$1 million of investable assets, there could well be a pool of people interested in these big policies.
Richard Hartung is a financial services consultant who has lived in Singapore for more than 20 years.
Monday, September 3, 2012
Structured Warrant
A structured warrant is a financial instrument issued by third-party financial institutions, usually banks. Structured warrants offer investors an alternative avenue to participate in the price performance of an underlying asset at a fraction of the underlying asset price, in both bullish and bearish markets.
Benefits of Trading Structured Warrants
• Leverage – Warrants allow investors to gain exposure to an underlying asset at a fraction of its price. For the same investment outlay, a warrant provides an increased exposure to the underlying asset and this magnify the returns available.
• Limited downside losses – The maximum potential loss is limited o the total amount paid of the warrants, which is a fraction of the underlying asset. Potential gains, however, are unlimited for call warrants.
• Access to diverse markets – Warrants provide investors alternative avenues to participate in local and foreign-listed equities, basket of shares (e.g. ETF) or indices.
• Cash extraction – Investors can free up capital by buying the call warrants instead of the underlying assets and yet maintain an equivalent level of exposure to the underlying assets.
• Portfolio protection - Put warrants can be used to protect against a decline a portfolio’s value. This is known as hedging.
• No margin calls – Unlike other derivatives like Contract for Difference (“CFD”) or Options, warrant investors do not have to make a cash top-up if the underlying assets move adversely.
• Liquidity – All warrants listed on SGX have market makers to provide continuous bid and ask prices. Investors can buy and sell warrants anytime during market hours.
Key Factors that Determine a Warrant Price
The price of a warrant is derived using option pricing models such as the Black-Scholes. There are six factors that affect a warrant price. The effects of each factor on both call and put warrants are detailed below
Key Factors
Change in Warrant Price
Explanation
Call
Put
Underlying Asset Price Increases
↑
↓
An upside movement in the underlying asset makes a call warrant more valuable and a put warrant less valuable.
Exercise Price of Warrant Increases
↓
↑
A high exercise price reduces the probability of a call warrant being exercised and increases the probability of a put warrant being exercised.
Implied Volatility of Underlying Asset Increases
↑
↑
The higher the price fluctuation of the underlying asset, the greater the potential for the structured warrant to trade in-the-money.
Lifespan of Warrant Decreases
↓
↓
The value of a warrant declines as the warrant’s lifespan becomes shorter.
Divided Yield of Underlying Asset Increases
↓
↑
Cash payments on the underlying asset tend to decrease the value of a call warrant because it makes it more attractive to hold the underlying asset than the optionality.
Interest Rates Increases
↑
↓
Interest rates affect a warrant price through the holding costs of buying the underlying assets to hedge the warrants sold. As interest rate increase, the value of the call warrant increases and the value of the put warrant decreases.
Types of Warrants Offered on SGX
Warrants listed on SGX are primarily European-style and may only be exercised on the expiry date. At expiry, the settlement of the warrants is usually made in cash rather than a purchase or sale of the underlying asset.
Types
Call Warrants
Put Warrants
Market View
A Bullish View of the underlying asset
A Bearish View of the underlying asset
Rights of Warrant Holders
Holders have the right, but not the obligation, to buy the underlying assets from the issuer at a predetermined exercise or strike price on the expiry date
Holders have the right, but not the obligation, to sell the underlying assets to the issuer at a predetermined exercise or strike price on the expiry date
Lifespan
Warrants have an average lifespan of 3 to 9 months. Warrants are also offered with longer tenure between 1 to 3 years.
Settlement if warrants expire in-the-money
Cash settled if the settlement price is above the exercise price
Cash settled if the settlement price is below the exercise price
Potential Loss
Total investment outlay
Risks to Consider before Trading Structured Warrants
• Limited lifespan – Unlike the underlying asset, warrants have a limited lifespan and will expire. If they expire at-the-money or out-of-the-money, investors holding onto these warrants will lose their entire investment capital used to purchase the warrants.
• Leverage – Being geared instruments, returns can be magnified if the underlying asset moves in the direction favourable to the warrant-holder’s view. However, losses can also be high if the underlying moves against the warrant-holder’s view.
• Issuer risk – Warrant holders are unsecured creditors of issuers. They have no preferential claim to any assets that an issuer may hold in the event the issuers are unable to fulfill their obligation.
• Currency risk – If the price of the underlying asset is denominated in a foreign currency, investors will be exposed to foreign exchange rate fluctuations.
• Market risk – The market value of a warrant is susceptible to other prevailing market forces including the demand and supply of the warrants.
• Suspension from Trading – Trading of warrants will be halted or suspended if the underlying stock is halted or suspended. Warrants investors will not be able to unwind their positions in such circumstances.
Please visit www.sgx.com/warrants for more information on SGX-listed structured warrants or download the Investor Guide to Structured Warrants.
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