In Europe, Britain May Face Largest Debt Hurdle
By LANDON THOMAS Jr.
Published: May 24, 2010
LONDON — As governments from Greece to Portugal to Spain try to sell markets on their budget-cutting zeal, the country that may face the biggest hurdle is Britain.
Propelled by a robust economy that finally collapsed in 2008, Britain’s spending boom was the most expansive in Europe, producing a welter of shiny hospitals, school buildings and highways, along with a cadre of well-paid public sector officials.
Now the new government must unwind not so much the debt incurred from two years of economic stimulus efforts, but more broadly, the structural deficits built up over more than a decade of expanded health care, education and pension commitments.
Prime Minister David Cameron has talked boldly of closing a British budget deficit now equal to 11 percent of its gross domestic product. But he also has said that he will allow health spending to outpace inflation, continuing a trend started by the Labour government that has doubled the cost of the government’s elephantine National Health Service since 2000.
It is this apparent disconnect between the promises of politicians and the harsh demands of investors for immediate and across the board spending cuts that is at the root of the financial crisis in Europe today.
Even after the nearly $1 trillion rescue package arranged by European Union leaders to shore up the weaker euro zone members, financial markets have gyrated as fears build that debt-plagued nations lack the will to stand up to powerful unions and pare back once generous welfare programs.
“You need a martyr to cut this type of deficit,” said Andrew Lilico, chief economist at Policy Exchange, a right-leaning London research group, who has argued that quick and immediate spending cuts would actually hasten economic recovery rather than derail it.
“You need someone to say, ‘I will do the right thing and everyone will hate me.’ ”
According to a recent analysis by Citigroup, Britain’s structural deficit — meaning the part of the budget gap that will not close even when the economy improves — was 9.2 percent of G.D.P. last year, ranking third in the world behind rapidly aging Japan and almost bankrupt Greece.
As is the case with other countries in Europe, like Spain, Greece and Ireland, Britain has a deficit that has grown mostly because of a decade of rising government outlays that seemed reasonable at the time, but rested heavily on rising tax revenue that disappeared when the bubble burst.
In a recent report, the International Monetary Fund warned that the countries that would have to make the biggest sacrifices in spending cuts and tax increases to return to precrisis levels of indebtedness — Britain, France, Ireland, Spain and the United States — also face the biggest increase in spending demands. These are driven by the rising number of the elderly, thus making the cuts all the harder to impose.
“All developed economies now have in-built structural components in their government deficits due to having pension and health systems and aging populations,” said Edward Hugh, an independent economist based in Barcelona. “And these costs will go up by the year.”
The British chancellor of the Exchequer, George Osborne, who has long urged the Conservative Party to trim the deficit, said on Monday that he would push through £6 billion ($8.65 billion) in spending cuts.
Though decidedly modest when compared with a budget deficit estimated to be about £178 billion, the cuts represent an effort to convince skittish markets that Mr. Cameron’s team is committed to fiscal restraint.
The latest menu of restrictions, freezes and spending reversals also represents an effort to convince the public that Britain must be in tune with the budget-cutting in Greece, Portugal, Spain and other parts of Europe.
“The years of public sector plenty are over,” Mr. Osborne said. “The more decisively we act, the more quickly we can come through these tough times.”
Mr. Cameron has fulminated publicly about cutting public sector pay and decreed that members of Parliament themselves take a 5 percent pay cut.
But it remains unclear whether he can force significant savings in what has become in many respects a public sector aristocracy of elite civil servants, heads of national railroads and top officials of obscure agencies, like the National Policing Improvement Agency and the Horserace Betting Levy Board. The heads of those two agencies, for example, were paid salaries last year that exceed Mr. Cameron’s pay of £197,000 (about $284,000) — £211,831 and £220,665, respectively.
Among the highest paid have been administrators and doctors within the country’s government-financed National Health Service, which has become its own separate economy with its 1.7 million employees and £100 billion plus budget.
For example, David Taube, a doctor, administrator and medical director for five hospitals comprising the Imperial College Healthcare N.H.S. Trust, was paid £260,000 (about $375,000) at the exchange rates last year. That is also more than the prime minister received.
According to the TaxPayers’ Alliance, an advocacy group for spending cuts, the highest-paid 805 government employees in Britain received a 5.4 percent pay increase last year, with the average official taking in £209,224.
Whether it be the £1.3 million paid to the chief executive of the Royal Mail, the £267,000 for the head of information technology in the Department for Work and Pensions, or the £270,000 earned this year by the chief executive of the Guy’s and St. Thomas Hospitals in London, the galloping pay of public sector workers in Britain has become a major component of the structural deficit and shows little sign of letting up.
“We have been doing this for five years now, and the numbers just get bigger and bigger,” said John O’Connell, an analyst at the TaxPayers’ Alliance.
Starting in 2000, the Labour government made it a priority to improve the N.H.S.’s lackluster reputation and invested billions in bricks and mortar as well as the salaries of its growing ranks of doctors and administrators.
Health care spending in Britain soared to 9 percent of G.D.P. from 3 percent. The image of the service has been transformed from one that exemplified drab inefficiencies of the British state to what is now hailed as a world archetype, even by Conservative politicians like Mr. Cameron.
As for Dr. Taube, a spokeswoman for the Imperial College Healthcare N.H.S. Trust said that he was a leading renal clinician and that the bulk of his salary, £180,000 to £185,000, came from his clinical work. He was paid an additional £75,000 to £80,000 for his administrative duties.
Now the new government must wrestle with whether it can restrain such pay and spending and at what political cost.
http://www.nytimes.com/2010/05/25/business/global/25debt.html?src=me&ref=business
Wednesday 26 May 2010
Wall Street Slips and Then Recovers
By CHRISTINE HAUSER
Published: May 25, 2010
Wall Street traveled a long way on Tuesday, but the journey was circular.
Uncertainty in Europe and Asia spilled over into the American market Tuesday, pushing stocks lower for most of the day and stirring concerns that the debt crisis could stall a recovery.
The Dow tumbled at the opening and languished below 10,000 until the last half hour, when shares staged a comeback. At one point, the major indexes were down more than 2 percent losses.
The Dow ended mostly flat, down 0.2 percent, or 22.82 points, at 10,043.75. The Standard & Poor’s 500-stock index was 0.38 points, 0.04 percent, higher at 1,074.03. The Nasdaq slipped 2.60 points, or 0.1 percent, at 2,210.95.
The drop followed equity markets in Asia and Europe, where most major markets were down at least 2 percent.
As investors had feared for months, the uncertainty over the sovereign debt crisis in Europe exacerbated concerns about the health of the global economy.
“If there was a doubt about it, there isn’t any more,” said Marc Chandler, the global head of currency strategy for Brown Brothers Harriman & Company.
“The European debt crisis is not simply a Greek phenomenon,” he said in a research note.
Fiscal troubles have circulated in Greece, reached Spain, where the central bank has taken over a failing lender, and hit home in Portugal, which has taken steps to make cuts. The government in Italy was also announcing spending cuts.
Germany, which last week banned some forms of financial market speculation in banning naked short-selling, went further Tuesday, proposing a law that would broaden restrictions on instruments investors use to bet against stocks, bonds and currencies.
As the American markets tumbled, investors fled equities for the relative safety of United States securities, pushing the benchmark 10-year Treasury note lower to 3.14 percent, its lowest level in a year.
The president of the St. Louis Federal Reserve Bank, James B. Bullard, said in a speech in London that he did not think the current situation would lead to a repeat of the financial crisis seen after the collapse of Lehman Brothers in 2008.
The United States “may actually be an unwitting beneficiary of the crisis in Europe, much as it was during the Asian currency crisis of the late 1990s.”
“This is because of the flight to safety effect that pushes yields lower in the U.S.,” he said. “Of course the U.S. also has its own fiscal problems that must be directly addressed in a timely manner if the nation is to maintain credibility in international financial markets.”
He also addressed concerns that the crisis could lead to a recession, saying it would probably fall short of becoming “a worldwide recessionary shock,” partly because governments are working to contain the risks. “In most cases,” Mr. Bullard said, “there is little reason to think that such events by themselves have the power to trigger global recessions.”
“Of course, it is always possible that ‘this time will be different’ and maybe it will be,” he said
There were also renewed tensions on the Korean Peninsula.
President Lee Myung-bak of South Korea said Tuesday that he would redesignate North Korea as his country’s archenemy, as the South Korean and American militaries announced plans for major naval exercises.
Asian indexes closed lower as a result.
Adrian Cronje, chief investment officer of Balentine, said however, that problems on the Korean peninsula aside, the fiscal troubles in Europe were overriding confidence.
Mr. Cronje said markets needed more than the nearly $1 trillion European support package to restore confidence. Instead, he said, investors are looking for a credible plan for sustainable public finances in Europe.
“What is happening now is people are starting to wake up to the fact that this stands a chance of derailing the robust economy,” Mr. Cronje said.
The euro continued to weaken on Tuesday, falling to $1.2347 from $1.2371 late Monday.
“The fundamental fallout of all this is an increasing risk of recession again in the U.S. and global economies,” said Allen Sinai, president and chief global economist of Decision Economics Inc.
“The way the U.S. is getting hit at the moment is sneaking in via the stock market. It is like water flooding the house; water seeps, finds a way.”
Domestic economic indicators were watched closely for any sign that events in the Euro-zone were having an impact on the United States, said James O’Sullivan, chief economist for MF Global.
The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday showed a 0.5 percent drop in March compared to February, a sign that the housing market was weakening despite low mortgage rates and government tax credits.
But more important than the March housing statistics were more current figures showing consumer confidence rose this month, Mr. Sullivan said,
The Conference Board index of consumer confidence rose to 63.3 in May, from 57.7 in April, according to a report released Tuesday.
“The decent rise in U.S. consumer confidence in May suggests that the turmoil in financial markets and lower house prices have yet to have an impact on the real economy,” said Paul Dales, United States economist for Capital Economics.
Interbank lending is coming under increasing pressure. Conditions in the credit markets deteriorated further on Tuesday, with the London interbank offered rate, or Libor, for three-month dollar loans rising for a 12th consecutive day, to 0.53625 percent from 0.50969 percent Monday. It was the Libor’s highest rate since late July 2009.
Bettina Wassener, David Jolly and Sewell Chan contributed reporting.
http://www.nytimes.com/2010/05/26/business/26markets.html?src=me&ref=business
Published: May 25, 2010
Wall Street traveled a long way on Tuesday, but the journey was circular.
Uncertainty in Europe and Asia spilled over into the American market Tuesday, pushing stocks lower for most of the day and stirring concerns that the debt crisis could stall a recovery.
The Dow tumbled at the opening and languished below 10,000 until the last half hour, when shares staged a comeback. At one point, the major indexes were down more than 2 percent losses.
The Dow ended mostly flat, down 0.2 percent, or 22.82 points, at 10,043.75. The Standard & Poor’s 500-stock index was 0.38 points, 0.04 percent, higher at 1,074.03. The Nasdaq slipped 2.60 points, or 0.1 percent, at 2,210.95.
The drop followed equity markets in Asia and Europe, where most major markets were down at least 2 percent.
As investors had feared for months, the uncertainty over the sovereign debt crisis in Europe exacerbated concerns about the health of the global economy.
“If there was a doubt about it, there isn’t any more,” said Marc Chandler, the global head of currency strategy for Brown Brothers Harriman & Company.
“The European debt crisis is not simply a Greek phenomenon,” he said in a research note.
Fiscal troubles have circulated in Greece, reached Spain, where the central bank has taken over a failing lender, and hit home in Portugal, which has taken steps to make cuts. The government in Italy was also announcing spending cuts.
Germany, which last week banned some forms of financial market speculation in banning naked short-selling, went further Tuesday, proposing a law that would broaden restrictions on instruments investors use to bet against stocks, bonds and currencies.
As the American markets tumbled, investors fled equities for the relative safety of United States securities, pushing the benchmark 10-year Treasury note lower to 3.14 percent, its lowest level in a year.
The president of the St. Louis Federal Reserve Bank, James B. Bullard, said in a speech in London that he did not think the current situation would lead to a repeat of the financial crisis seen after the collapse of Lehman Brothers in 2008.
The United States “may actually be an unwitting beneficiary of the crisis in Europe, much as it was during the Asian currency crisis of the late 1990s.”
“This is because of the flight to safety effect that pushes yields lower in the U.S.,” he said. “Of course the U.S. also has its own fiscal problems that must be directly addressed in a timely manner if the nation is to maintain credibility in international financial markets.”
He also addressed concerns that the crisis could lead to a recession, saying it would probably fall short of becoming “a worldwide recessionary shock,” partly because governments are working to contain the risks. “In most cases,” Mr. Bullard said, “there is little reason to think that such events by themselves have the power to trigger global recessions.”
“Of course, it is always possible that ‘this time will be different’ and maybe it will be,” he said
There were also renewed tensions on the Korean Peninsula.
President Lee Myung-bak of South Korea said Tuesday that he would redesignate North Korea as his country’s archenemy, as the South Korean and American militaries announced plans for major naval exercises.
Asian indexes closed lower as a result.
Adrian Cronje, chief investment officer of Balentine, said however, that problems on the Korean peninsula aside, the fiscal troubles in Europe were overriding confidence.
Mr. Cronje said markets needed more than the nearly $1 trillion European support package to restore confidence. Instead, he said, investors are looking for a credible plan for sustainable public finances in Europe.
“What is happening now is people are starting to wake up to the fact that this stands a chance of derailing the robust economy,” Mr. Cronje said.
The euro continued to weaken on Tuesday, falling to $1.2347 from $1.2371 late Monday.
“The fundamental fallout of all this is an increasing risk of recession again in the U.S. and global economies,” said Allen Sinai, president and chief global economist of Decision Economics Inc.
“The way the U.S. is getting hit at the moment is sneaking in via the stock market. It is like water flooding the house; water seeps, finds a way.”
Domestic economic indicators were watched closely for any sign that events in the Euro-zone were having an impact on the United States, said James O’Sullivan, chief economist for MF Global.
The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday showed a 0.5 percent drop in March compared to February, a sign that the housing market was weakening despite low mortgage rates and government tax credits.
But more important than the March housing statistics were more current figures showing consumer confidence rose this month, Mr. Sullivan said,
The Conference Board index of consumer confidence rose to 63.3 in May, from 57.7 in April, according to a report released Tuesday.
“The decent rise in U.S. consumer confidence in May suggests that the turmoil in financial markets and lower house prices have yet to have an impact on the real economy,” said Paul Dales, United States economist for Capital Economics.
Interbank lending is coming under increasing pressure. Conditions in the credit markets deteriorated further on Tuesday, with the London interbank offered rate, or Libor, for three-month dollar loans rising for a 12th consecutive day, to 0.53625 percent from 0.50969 percent Monday. It was the Libor’s highest rate since late July 2009.
Bettina Wassener, David Jolly and Sewell Chan contributed reporting.
http://www.nytimes.com/2010/05/26/business/26markets.html?src=me&ref=business
The New Touch-Face of Vending Machines
The New Touch-Face of Vending Machines
By STEPHANIE ROSENBLOOM
At a hotel in Abu Dhabi, a cash machine dispenses gold. Futuristic vending machines are proliferating, selling high-end products, and not for small change
Tuesday 25 May 2010
A quick look at Coastal (25.5.2010)
A quick look at Coastal (25.5.2010)
http://spreadsheets.google.com/pub?key=taWOgEdJSr517zWzGn9LnQA&output=html
FBM KLCI falls for eighth day running
FBM KLCI falls for eighth day running
Written by Surin Murugiah
Tuesday, 25 May 2010 10:40
KUALA LUMPUR: The FBM KLCI extended its losses for the eighth straight day on Tuesday, May 25, dragged by losses at key blue chips and banking counters.
On Wall Street, stocks slid on Monday, May 24, driving the Dow to its lowest level since Feb 10 as fresh signs of Europe's banking problems emerged, according to Reuters.
Concerns about Europe's banking system continued to weigh on markets, after the Bank of Spain took over a small savings bank, CajaSur, over the weekend, increasing anxiety among investors worried about debt problems spreading throughout financial markets, according to Reuters.
The Dow Jones industrial average dropped 126.82 points, or 1.24%, to 10,066.57. The Standard & Poor's 500 Index slipped 14.04 points, or 1.29%, to 1,073.65. The Nasdaq Composite Index fell 15.49 points, or 0.69%, to 2,213.55.
At mid-morning Tuesday,
Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients advised them to remain vigilant of a potential damaging and sustained bear trend in the coming months.
He said the euro zone crisis and the Dow Jones and European equity market malaise would persist, and it was best for investors to turn defensive and remain in over 90% cash at least.
"Recent price movements and global volatility suggest that investors should shy away from the FBM KLCI.
"We advise clients to sell and step aside for the next few months, as we believe that the market might revisit 801.27 and possibly 626.50 in the longer term," he said in a note Tuesday.
At 10am, the FBM KLCI fell 10.93 points to 1,262.76, dragged by losses at key blue chips including CIMB, Genting, PPB and Tanjong.
Losers thumped gainers by 322 to 62, while 143 counters traded unchanged. Volume was thin with 108.61 million shares valued at RM173.58 million.
Among the major losers in early trade, DiGi fell 42 sen to RM22.48, PPB Group down 32 sen to RM15.88, KLK 20 sen to RM15.60, Genting and Hartalega down 13 sen each to RM6.41 and RM7.60, while Tanjong fell 12 sen to RM17.34.
Among banking stocks, Hong Leong Bank lost 11 sen to RM8.44, and CIMB, Public Bank and Maybank fell six sen each to RM6.76, RM11.46 and RM7.19, respectively.
Meanwhile, Sime and IOI Corp lost eight sen each to RM7.73 and RM4.80, respectively.
Gainers included Petronas Gas that added 13 sen to RM9.79, HELP up 11 sen to RM2.34 and UEM Land up one sen to RM1.34.
CIMB, IOI Corp, UEM Land, Genting and Berjaya Corp were among the most actively traded counters.
http://www.theedgemalaysia.com/business-news/166709-fbm-klci-falls-for-eighth-day-running-.html
Written by Surin Murugiah
Tuesday, 25 May 2010 10:40
KUALA LUMPUR: The FBM KLCI extended its losses for the eighth straight day on Tuesday, May 25, dragged by losses at key blue chips and banking counters.
On Wall Street, stocks slid on Monday, May 24, driving the Dow to its lowest level since Feb 10 as fresh signs of Europe's banking problems emerged, according to Reuters.
Concerns about Europe's banking system continued to weigh on markets, after the Bank of Spain took over a small savings bank, CajaSur, over the weekend, increasing anxiety among investors worried about debt problems spreading throughout financial markets, according to Reuters.
The Dow Jones industrial average dropped 126.82 points, or 1.24%, to 10,066.57. The Standard & Poor's 500 Index slipped 14.04 points, or 1.29%, to 1,073.65. The Nasdaq Composite Index fell 15.49 points, or 0.69%, to 2,213.55.
At mid-morning Tuesday,
- Japan's Nikkei 225 fell 2.37% to 9,526.67,
- South Korea's Kospi lost 2.63% to 1,562.73,
- Taiwan's TAIEX Index fell 2.02% to 7,175.14,
- Singapore's Straits Times Index fell 1.12% to 2,693.29,
- Shanghai's Composite Index down 0.86% to 2,650.20 while
- Hong Kong's Hang Seng Index opened 1.8% lower at 19,317.14.
Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients advised them to remain vigilant of a potential damaging and sustained bear trend in the coming months.
He said the euro zone crisis and the Dow Jones and European equity market malaise would persist, and it was best for investors to turn defensive and remain in over 90% cash at least.
"Recent price movements and global volatility suggest that investors should shy away from the FBM KLCI.
"We advise clients to sell and step aside for the next few months, as we believe that the market might revisit 801.27 and possibly 626.50 in the longer term," he said in a note Tuesday.
At 10am, the FBM KLCI fell 10.93 points to 1,262.76, dragged by losses at key blue chips including CIMB, Genting, PPB and Tanjong.
Losers thumped gainers by 322 to 62, while 143 counters traded unchanged. Volume was thin with 108.61 million shares valued at RM173.58 million.
Among the major losers in early trade, DiGi fell 42 sen to RM22.48, PPB Group down 32 sen to RM15.88, KLK 20 sen to RM15.60, Genting and Hartalega down 13 sen each to RM6.41 and RM7.60, while Tanjong fell 12 sen to RM17.34.
Among banking stocks, Hong Leong Bank lost 11 sen to RM8.44, and CIMB, Public Bank and Maybank fell six sen each to RM6.76, RM11.46 and RM7.19, respectively.
Meanwhile, Sime and IOI Corp lost eight sen each to RM7.73 and RM4.80, respectively.
Gainers included Petronas Gas that added 13 sen to RM9.79, HELP up 11 sen to RM2.34 and UEM Land up one sen to RM1.34.
CIMB, IOI Corp, UEM Land, Genting and Berjaya Corp were among the most actively traded counters.
http://www.theedgemalaysia.com/business-news/166709-fbm-klci-falls-for-eighth-day-running-.html
A quick look at Petdag (25.5.2010)
A quick look at Petdag (25.5.2010)
http://spreadsheets.google.com/pub?key=tJvGV-4QVGoRFu1hPL2GHDA&output=html
A quick look at Parkson (25.5.2010)
A quick look at Parkson (25.5.2010)
http://spreadsheets.google.com/pub?key=tXVsOu0LzdXykg2thm_IQrA&output=html
Shares tumble as all the bears come out
Shares tumble as all the bears come out
May 25, 2010 - 4:15PM
Australian shares tumbled today, hitting fresh nine-month lows as investors remain spooked by euro-zone instability, while rising tensions on the Korean peninsula also discouraged buyers.
The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3, its lowest close since August. The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.
At home, all the major sub-indexes were down, with energy shares off 3.9 per cent, materials down 3.7 per cent and financials slumping 3 per cent.
The Aussie dollar also resumed its retreat, dropping nearly 2 US cents to sink to 81.3 US cents.
About $150 billion has been wiped from the market this month, with the All Ordinaries off 11 per cent so far - the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.
Europe's fumbling response to a debt crisis in Greece and bulging deficits in other euro-zone countries has unnerved markets, and the central bank takeover of a small Spanish lender at the weekend stoked the latest fears of a wider meltdown.
Across the region, other major markets were also sharply lower. South Korea's Kospi Index was down 4.3 per cent after a report said North Korea ordered its military to prepare for war last week. Japan's Nikkei 225 was off 2.7 per cent, with the benchmark indexes in Hong Kong and Singapore both down more 2 per cent.
“It appears that every single bear in Asia is emerging from its caves. It’s the complete reversal of what we’re seeing yesterday,” said Arab Bank Australia treasury dealer David Scutt. “Banks are being smacked. Commodity producers are being smacked. An all-around bad day for the markets.”
Also, short-term banks bill futures were selling off, Mr Scutt said.
"This is another sign that markets are wary of another liquidity crisis forming and mirrors the increase in Libor rates seen overnight in London."
Libor, the three-month US dollar London interbank offered rate - a key measure of the health of the credit markets - rose to 0.5 per cent overnight, the highest since July 2009. The increase suggests that there is growing caution among banks about lending to each other. Libor hit 3.6 per cent at the end of 2008, during the height of the financial crisis.
“Worryingly, the same feature was seen in the months leading up to and following the collapse of Lehman Brothers in 2008.”
Blue chips tumble
The world’s biggest miner, BHP Billiton, fell $1.52, or 4 per cent, to $36.28 and rival Rio Tinto dropped $2.45, or 3.8 per cent, to $61.70.
Iron ore miner Fortescue renewed its criticism of the government’s mining super profits tax plans and said it is likely to delay plans to start paying dividends due to the proposed tax, warning investors its shares could fall further as a result.
The shares duly extended early losses, to finish down 28 cents, or 7.5 per cent at $3.44.
The four major banks closed lower also.Commonwealth Bank was off $1.92, or 3.7 per cent, at $50.31 and Westpac declined 90 cents, or 3.9 per cent, to $22.26. ANZ closed down 56 cents, or 2.6 per cent, at $21.34 and National Australia Bank was 80 cents, or 3.3 per cent, lower at $23.76.
In the energy sector, Oil Search had dipped 26 cents to $5.25, Woodside was down $1.46, or 3.4 per cent, at $41.37 and Santos gave up 54 cents, or 4.4 per cent, to $11.75.
Flight Centre bucks trend
Flight Centre shares rosed 2.9 per cent to $16.80 after the travel firm upgraded its profit guidance for 2010 to a pretax profit of $190 million to $200 million, up from forecasts of $160 million to $180 million.
Healthscope saw its shares slip 1.9 per cent to $5.15, after private equity firm Blackstone Group joined a group bidding $US1.5 billion for the hospital operator, a source familiar with the situation said.
Minara Resources fell 4.5 cents, or 6.3 per cent, to 66.50 cents after it said it is looking offshore to more desirable tax jurisdictions.
Transurban declined 11 cents, or 2.5 cents, to $4.30 after the Takeovers Panel has refused to make interim orders sought to stop a rights issue by the toll roads operator.
Agribusiness and real estate group Ruralco Holdings was steady at $2.50 after it said it expected a solid full year financial result after boosting first half net profit by 23 per cent.
The most traded stock by volume was Australian Mines, with 222.32 million shares changing hands for $222,328 thousand. The stock was steady at 0.1 of a cent.
Preliminary national turnover was 2.26 billion shares worth $5.91 billion, with 250 stocks up, 867 down and 256 unchanged.
Losses 'overdone'
The Australian market has fallen 14 percent from its recent peak in April as the European worries, the Australian dollar's fall and a planned mining tax whacked sentiment.
"It is definitely overdone, the forward P/E of the market is 10 times which is extraordinarily low," said E.L. & C. Baillieu director Richard Morrow.
The long-term average forward price/earnings ratio for Australian stocks is around 14 times.
"People are staring down the barrel at this horrendous tax and everything has gone into abeyance ahead of that," he said.
http://www.smh.com.au/business/markets/shares-tumble-as-all-the-bears-come-out-20100525-w8i2.html
May 25, 2010 - 4:15PM
Australian shares tumbled today, hitting fresh nine-month lows as investors remain spooked by euro-zone instability, while rising tensions on the Korean peninsula also discouraged buyers.
The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3, its lowest close since August. The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.
At home, all the major sub-indexes were down, with energy shares off 3.9 per cent, materials down 3.7 per cent and financials slumping 3 per cent.
The Aussie dollar also resumed its retreat, dropping nearly 2 US cents to sink to 81.3 US cents.
About $150 billion has been wiped from the market this month, with the All Ordinaries off 11 per cent so far - the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.
Europe's fumbling response to a debt crisis in Greece and bulging deficits in other euro-zone countries has unnerved markets, and the central bank takeover of a small Spanish lender at the weekend stoked the latest fears of a wider meltdown.
Across the region, other major markets were also sharply lower. South Korea's Kospi Index was down 4.3 per cent after a report said North Korea ordered its military to prepare for war last week. Japan's Nikkei 225 was off 2.7 per cent, with the benchmark indexes in Hong Kong and Singapore both down more 2 per cent.
“It appears that every single bear in Asia is emerging from its caves. It’s the complete reversal of what we’re seeing yesterday,” said Arab Bank Australia treasury dealer David Scutt. “Banks are being smacked. Commodity producers are being smacked. An all-around bad day for the markets.”
Also, short-term banks bill futures were selling off, Mr Scutt said.
"This is another sign that markets are wary of another liquidity crisis forming and mirrors the increase in Libor rates seen overnight in London."
Libor, the three-month US dollar London interbank offered rate - a key measure of the health of the credit markets - rose to 0.5 per cent overnight, the highest since July 2009. The increase suggests that there is growing caution among banks about lending to each other. Libor hit 3.6 per cent at the end of 2008, during the height of the financial crisis.
“Worryingly, the same feature was seen in the months leading up to and following the collapse of Lehman Brothers in 2008.”
Blue chips tumble
The world’s biggest miner, BHP Billiton, fell $1.52, or 4 per cent, to $36.28 and rival Rio Tinto dropped $2.45, or 3.8 per cent, to $61.70.
Iron ore miner Fortescue renewed its criticism of the government’s mining super profits tax plans and said it is likely to delay plans to start paying dividends due to the proposed tax, warning investors its shares could fall further as a result.
The shares duly extended early losses, to finish down 28 cents, or 7.5 per cent at $3.44.
The four major banks closed lower also.Commonwealth Bank was off $1.92, or 3.7 per cent, at $50.31 and Westpac declined 90 cents, or 3.9 per cent, to $22.26. ANZ closed down 56 cents, or 2.6 per cent, at $21.34 and National Australia Bank was 80 cents, or 3.3 per cent, lower at $23.76.
In the energy sector, Oil Search had dipped 26 cents to $5.25, Woodside was down $1.46, or 3.4 per cent, at $41.37 and Santos gave up 54 cents, or 4.4 per cent, to $11.75.
Flight Centre bucks trend
Flight Centre shares rosed 2.9 per cent to $16.80 after the travel firm upgraded its profit guidance for 2010 to a pretax profit of $190 million to $200 million, up from forecasts of $160 million to $180 million.
Healthscope saw its shares slip 1.9 per cent to $5.15, after private equity firm Blackstone Group joined a group bidding $US1.5 billion for the hospital operator, a source familiar with the situation said.
Minara Resources fell 4.5 cents, or 6.3 per cent, to 66.50 cents after it said it is looking offshore to more desirable tax jurisdictions.
Transurban declined 11 cents, or 2.5 cents, to $4.30 after the Takeovers Panel has refused to make interim orders sought to stop a rights issue by the toll roads operator.
Agribusiness and real estate group Ruralco Holdings was steady at $2.50 after it said it expected a solid full year financial result after boosting first half net profit by 23 per cent.
The most traded stock by volume was Australian Mines, with 222.32 million shares changing hands for $222,328 thousand. The stock was steady at 0.1 of a cent.
Preliminary national turnover was 2.26 billion shares worth $5.91 billion, with 250 stocks up, 867 down and 256 unchanged.
Losses 'overdone'
The Australian market has fallen 14 percent from its recent peak in April as the European worries, the Australian dollar's fall and a planned mining tax whacked sentiment.
"It is definitely overdone, the forward P/E of the market is 10 times which is extraordinarily low," said E.L. & C. Baillieu director Richard Morrow.
The long-term average forward price/earnings ratio for Australian stocks is around 14 times.
"People are staring down the barrel at this horrendous tax and everything has gone into abeyance ahead of that," he said.
http://www.smh.com.au/business/markets/shares-tumble-as-all-the-bears-come-out-20100525-w8i2.html
A quick look at KLCC Property (24.5.2010)
A quick look at KLCC Property (24.5.2010)
http://spreadsheets.google.com/pub?key=tNyYnPuP_011FQrdQxNx_AQ&output=html
How Do Real Estate Investment Trusts Grow?
How Do Real Estate Investment Trusts Grow?
One argument that might be made against real estate investment trusts is that, because they are required by the government to pay out at least 90% of net income to their shareholders, they don't have the cash from retained earnings to expand their businesses.
However, good REIT management teams have found ways to raise the money they need.
When speaking of this, even non-retail REITs make use of a retail industry term -- same store sales. That is, the more sales that can be generated by the same store, the more profitable it. The more rent and other revenue that can be raised from the same property, the profitable it is and the more cash it generates for the company.
This can include raising rents on existing occupants, upgrading properties to higher-level occupants and reducing vacancy rates. It can include upgrading or expanding the property.
Retail REITs, especially shopping malls, usually have percentage-rent clauses in their leases. This means that the mall gets a percentage of the store's revenue above a certain preset level. The more successful the store, the higher rent it pays. Keep that in mind the next time you hear a commercial for a shopping mall on the radio -- the mall wants you to come and shop there because the more money their individual stores make, the more rent the mall receives.
Some REIT leases include periodic rent bumps that are fixed amounts or based on an index of inflation such as the Consumer Price Index.
Some mall and other types of REITs save on expenses by getting occupants to pay for common needs such as security, advertising, and janitorial services. This is known as expense sharing or cost recovery.
Overall, the more cash the real estate investment REIT can raise through its operations, the higher its internal rate of return or IRR.
Obviously, the Higher a Company's Internal Rate of Return is, the Better for its Investors
Of course, the stronger the real estate trust company is to begin with, the more able it is able to raise additional money.
The REIT Real Estate Investment Trust can use the additional cash to purchase additional properties, or even to purchase entire private real estate companies, or even other REITs.
The goal is to find opportunities to make an additional internal rate of return that's higher than the company's cost of equity capital. The difference between the cost of capital and the FFO a company can earn from the property is called the spread.
Strong Real Estate Investment Trusts have picked up great properties at bargain basement prices following local and national real estate market collapses. Eventually demand picks up again, and the REIT is making money off the properties.
Some REITs are Able to Expand by Developing New Properties in their Specialization and Local Geographic Area
Of course, this depends on their ability to raise the necessary capital to fund the development until it begin making money.
Of course, such development projects come with the risk of cost overruns on the construction, the demand for the space may be reduced during the development period (perhaps a recession has just started), and the risk that interest rates rise during the construction period.
Some real estate companies have formed joint ventures (JVs) with institutions to develop, acquire and manage properties. The REIT provides the skills and experience to acquire, develop and manage the commercial properties. The institutions provide the capital. Both can benefit.
With the passage of the REIT Modernization Act, these trusts have been allowed to engage in real estate-related businesses.
REIT trust investors should look for management teams who are aggressively seeking to increase both Funds From Operations and Internal Rates of Return.
http://www.incomeinvesthome.com/growth/reit/equity/growth.htm
Related: Understanding REITS
Investing in Real Estate Investment Trusts (REITs)
http://www.pimco.com/LeftNav/Bond+Basics/2006/REIT+Basics.htm
Real Estate Investing through REITS
http://beginnersinvest.about.com/od/reit/a/aa101404.htm
Understanding Risks before Investing in REITS
http://findarticles.com/p/articles/mi_m0JQR/is_3_14/ai_30366025/
One argument that might be made against real estate investment trusts is that, because they are required by the government to pay out at least 90% of net income to their shareholders, they don't have the cash from retained earnings to expand their businesses.
However, good REIT management teams have found ways to raise the money they need.
- Sometimes they raise money by selling additional shares of stock, including preferred stock.
- They can borrow money from the debt markets through issuing unsecured notes and debentures -- bonds.
- They can do private placement offerings.
- They can sell poor performing properties and reinvesting the proceeds in more profitable real estate.
- Good REIT management also seek ways to raise additional cash from their existing businesses, by raising rents and reducing expenses *this includes reducing overhead.). This increases their Funds From Operations (FFO).
When speaking of this, even non-retail REITs make use of a retail industry term -- same store sales. That is, the more sales that can be generated by the same store, the more profitable it. The more rent and other revenue that can be raised from the same property, the profitable it is and the more cash it generates for the company.
This can include raising rents on existing occupants, upgrading properties to higher-level occupants and reducing vacancy rates. It can include upgrading or expanding the property.
Retail REITs, especially shopping malls, usually have percentage-rent clauses in their leases. This means that the mall gets a percentage of the store's revenue above a certain preset level. The more successful the store, the higher rent it pays. Keep that in mind the next time you hear a commercial for a shopping mall on the radio -- the mall wants you to come and shop there because the more money their individual stores make, the more rent the mall receives.
Some REIT leases include periodic rent bumps that are fixed amounts or based on an index of inflation such as the Consumer Price Index.
Some mall and other types of REITs save on expenses by getting occupants to pay for common needs such as security, advertising, and janitorial services. This is known as expense sharing or cost recovery.
Overall, the more cash the real estate investment REIT can raise through its operations, the higher its internal rate of return or IRR.
Obviously, the Higher a Company's Internal Rate of Return is, the Better for its Investors
Of course, the stronger the real estate trust company is to begin with, the more able it is able to raise additional money.
The REIT Real Estate Investment Trust can use the additional cash to purchase additional properties, or even to purchase entire private real estate companies, or even other REITs.
The goal is to find opportunities to make an additional internal rate of return that's higher than the company's cost of equity capital. The difference between the cost of capital and the FFO a company can earn from the property is called the spread.
Strong Real Estate Investment Trusts have picked up great properties at bargain basement prices following local and national real estate market collapses. Eventually demand picks up again, and the REIT is making money off the properties.
Some REITs are Able to Expand by Developing New Properties in their Specialization and Local Geographic Area
Of course, this depends on their ability to raise the necessary capital to fund the development until it begin making money.
Of course, such development projects come with the risk of cost overruns on the construction, the demand for the space may be reduced during the development period (perhaps a recession has just started), and the risk that interest rates rise during the construction period.
Some real estate companies have formed joint ventures (JVs) with institutions to develop, acquire and manage properties. The REIT provides the skills and experience to acquire, develop and manage the commercial properties. The institutions provide the capital. Both can benefit.
With the passage of the REIT Modernization Act, these trusts have been allowed to engage in real estate-related businesses.
REIT trust investors should look for management teams who are aggressively seeking to increase both Funds From Operations and Internal Rates of Return.
http://www.incomeinvesthome.com/growth/reit/equity/growth.htm
Related: Understanding REITS
Investing in Real Estate Investment Trusts (REITs)
http://www.pimco.com/LeftNav/Bond+Basics/2006/REIT+Basics.htm
Real Estate Investing through REITS
http://beginnersinvest.about.com/od/reit/a/aa101404.htm
Understanding Risks before Investing in REITS
http://findarticles.com/p/articles/mi_m0JQR/is_3_14/ai_30366025/
What are the Risks of Investing in Real Estate Investment Trusts?
What are the Risks of Investing in Real Estate Investment Trusts?
Of course, nothing in this life is guaranteed, and that includes real estate investment trusts.
REITs are more than just a pile of properties, they are active businesses, and subject to business risks. It's a testimony to the industry, however, that over the years only a handful have gotten into deep financial trouble.
According to Ralph L. Block in Investing in REITs, those real estate trusts that have gotten into trouble have done so primarily due to
1. Overbuilding or excess capacity, or overdevelopment.
Real estate property typically goes through a boom to bust cycle. When demand for offices/apartments/malls is going up, developers rush in to build more of these properties. It's difficult to know when enough is enough, and within a few years, too many offices/apartments/malls are on the market, and rents go up and occupancy rates go down.
Sometimes the problem is not with the amount of new properties put on the market, it's with the local economy. When it goes bust, for whatever reason, the local commercial real estate market goes down.
One good example is the San Francisco Bay Area during the late 1990s. During the dot com/high tech bubble, people in Silicon Valley were renting out their couches to computer programmers for hundreds of dollars a month. After the dot bomb crash of March 2001, when many high tech companies closed their doors, the market for office space in that area went downhill with it.
Such periods are known as renters markets, and are therefore bad for property owners.
It's simple economics. When supply goes up too much and/or demand goes down too much, the price of the product must go down.
2. High interest rates
Interest rate increases affect REITs in a number of ways.
Since their value as an investment is for their income, higher interest rates in the overall economy makes bond yields higher, driving some money from REITs to bonds and preferred stocks.
In operating their businesses, higher interests rates makes it harder and more expensive for Real Estate Investment Trusts to borrow the money they need to expand.
Also, higher interest rates put pressure on the businesses they're renting to (by increasing their cost of borrowing money, and from reducing consumer income to spend), making it harder for those businesses to pay rent, or to pay higher rents.
Also, reduced sales in stores reduces the amount of overage rents that mall REITs can collect from the stores.
There is a risk in using current rental income to value a REIT. What current tenants are paying may be more or less than current market rents. When the current leases expire, the company will have to negotiate current market rents.
When current rents are below market rents, that's known as embedded rent growth or loss to lease, because when the lease is renewed, rents will have to go up.
When current rents are below market rents, that's known as rental roll-down, because when the lease is renewed, rental income will have to go down.
In a commercial lease, one year is used as a reference against which revenues or expenses are measured in later years. This is known as the base year.
The total leasable space in a commercial property is known as the Gross Leasable Area or GLA
http://www.incomeinvesthome.com/growth/reit/equity/risks.htm
Of course, nothing in this life is guaranteed, and that includes real estate investment trusts.
REITs are more than just a pile of properties, they are active businesses, and subject to business risks. It's a testimony to the industry, however, that over the years only a handful have gotten into deep financial trouble.
According to Ralph L. Block in Investing in REITs, those real estate trusts that have gotten into trouble have done so primarily due to
- excessive debt leverage,
- poor allocation of capital resources, and
- questionable transactions with directors or major stockholders.
1. Overbuilding or excess capacity, or overdevelopment.
Real estate property typically goes through a boom to bust cycle. When demand for offices/apartments/malls is going up, developers rush in to build more of these properties. It's difficult to know when enough is enough, and within a few years, too many offices/apartments/malls are on the market, and rents go up and occupancy rates go down.
Sometimes the problem is not with the amount of new properties put on the market, it's with the local economy. When it goes bust, for whatever reason, the local commercial real estate market goes down.
One good example is the San Francisco Bay Area during the late 1990s. During the dot com/high tech bubble, people in Silicon Valley were renting out their couches to computer programmers for hundreds of dollars a month. After the dot bomb crash of March 2001, when many high tech companies closed their doors, the market for office space in that area went downhill with it.
Such periods are known as renters markets, and are therefore bad for property owners.
It's simple economics. When supply goes up too much and/or demand goes down too much, the price of the product must go down.
2. High interest rates
Interest rate increases affect REITs in a number of ways.
Since their value as an investment is for their income, higher interest rates in the overall economy makes bond yields higher, driving some money from REITs to bonds and preferred stocks.
In operating their businesses, higher interests rates makes it harder and more expensive for Real Estate Investment Trusts to borrow the money they need to expand.
Also, higher interest rates put pressure on the businesses they're renting to (by increasing their cost of borrowing money, and from reducing consumer income to spend), making it harder for those businesses to pay rent, or to pay higher rents.
Also, reduced sales in stores reduces the amount of overage rents that mall REITs can collect from the stores.
There is a risk in using current rental income to value a REIT. What current tenants are paying may be more or less than current market rents. When the current leases expire, the company will have to negotiate current market rents.
When current rents are below market rents, that's known as embedded rent growth or loss to lease, because when the lease is renewed, rents will have to go up.
When current rents are below market rents, that's known as rental roll-down, because when the lease is renewed, rental income will have to go down.
In a commercial lease, one year is used as a reference against which revenues or expenses are measured in later years. This is known as the base year.
The total leasable space in a commercial property is known as the Gross Leasable Area or GLA
http://www.incomeinvesthome.com/growth/reit/equity/risks.htm
Boy's RM8mil gambling losses!!!!
Tuesday May 25, 2010
Boy's RM8mil gambling losses
By EDWARD R. HENRY
edward@thestar.com.my
PORT KLANG: A boy who went into high-stakes gambling at the age of 16 accumulated losses amounting to about RM8mil by the time he was 19.
The boy, a millionaire’s son, had allegedly followed in his father’s footsteps by gambling and ended up losing millions in foreign football bets over the Internet.
His compulsion for betting was so great that he came to be known as the Little Dragon.
Yesterday, Klang Barisan Nasional chairman Datuk Teh Kim Poo (pic) who was unable to coax the teenager to come forward to relate his gambling spree, said the youth’s gambling habit stemmed from his father, a compulsive gambler.
“This teenager grew up watching his father gamble and at the age of 16, he began to gamble after gambling agents gave him a credit line of RM100,000. Each time he was buried in debt, his father would bail him out. Over these three years, there have been several bail-outs,” he said.
Teh added when the accumulated losses came to RM8mil, it was the last straw for the father. The man, in his 50s, barred him from gambling and stopped his son from attending college. He now works with his father.
According to Teh, the teenager who was pursuing an Australian degree programme at a college in Petaling Jaya had on several occasions used college fees to settle his debts and extend his credit line.
He would lie to his father that college fees needed to be paid and use the money to pay the gambling agents.
On occasions when he could not settle the debt, the agents would send Ah Long to collect from the father.
Teh said gambling agents were the culprits who went after teenagers from rich families.
“Most times, these agents would go to ‘high-end colleges’ and look for these rich kids. ”
Teh added that Pandamaran New Village had become a hot place for such gambling and simple wooden houses were equipped with Internet facilities for the activity.
On Sunday, Klang and Kapar MCA held an “Anti-Gambling at Internet Cafes” signature campaign at the Taman Eng Ann morning market.
It got more than 2,000 signatures from parents in two hours.
Klang OCPD Asst Comm Moha-mad Mat Yusop urged the public to provide information on gambling dens that existed in Internet cafes so swift action can be taken.
http://thestar.com.my/news/story.asp?file=/2010/5/25/nation/6332739&sec=nation
Boy's RM8mil gambling losses
By EDWARD R. HENRY
edward@thestar.com.my
PORT KLANG: A boy who went into high-stakes gambling at the age of 16 accumulated losses amounting to about RM8mil by the time he was 19.
The boy, a millionaire’s son, had allegedly followed in his father’s footsteps by gambling and ended up losing millions in foreign football bets over the Internet.
His compulsion for betting was so great that he came to be known as the Little Dragon.
Yesterday, Klang Barisan Nasional chairman Datuk Teh Kim Poo (pic) who was unable to coax the teenager to come forward to relate his gambling spree, said the youth’s gambling habit stemmed from his father, a compulsive gambler.
“This teenager grew up watching his father gamble and at the age of 16, he began to gamble after gambling agents gave him a credit line of RM100,000. Each time he was buried in debt, his father would bail him out. Over these three years, there have been several bail-outs,” he said.
Teh added when the accumulated losses came to RM8mil, it was the last straw for the father. The man, in his 50s, barred him from gambling and stopped his son from attending college. He now works with his father.
According to Teh, the teenager who was pursuing an Australian degree programme at a college in Petaling Jaya had on several occasions used college fees to settle his debts and extend his credit line.
He would lie to his father that college fees needed to be paid and use the money to pay the gambling agents.
On occasions when he could not settle the debt, the agents would send Ah Long to collect from the father.
Teh said gambling agents were the culprits who went after teenagers from rich families.
“Most times, these agents would go to ‘high-end colleges’ and look for these rich kids. ”
Teh added that Pandamaran New Village had become a hot place for such gambling and simple wooden houses were equipped with Internet facilities for the activity.
On Sunday, Klang and Kapar MCA held an “Anti-Gambling at Internet Cafes” signature campaign at the Taman Eng Ann morning market.
It got more than 2,000 signatures from parents in two hours.
Klang OCPD Asst Comm Moha-mad Mat Yusop urged the public to provide information on gambling dens that existed in Internet cafes so swift action can be taken.
http://thestar.com.my/news/story.asp?file=/2010/5/25/nation/6332739&sec=nation
AIA bosses predict ‘disastrous’ Pru takeover
May 25, 2010
AIA bosses predict ‘disastrous’ Pru takeover
Christine Seib in New York and Leo Lewis in Hong Kong
Prudential’s $35.5 billion takeover of AIG’s Asian insurance business will be a disaster, according to senior executives at AIA, the Hong Kong-based company that the Pru is struggling to acquire.
One source at AIA in Hong Kong told The Times that there was a “tangible undercurrent” of concern over the takeover and that several executives had questioned Prudential’s ability to manage AIA effectively.
The executives’ comments came as it was reported that Mark Wilson, AIA’s chief executive, had told friends and industry executives that he planned to quit if the deal went through.
According to press reports last night, Mr Wilson said that he would step down because the combination of AIA and the Pru’s Asian business was “unworkable”.
Two senior executives, Steve Roder, AIA’s finance director, and Peter Cashin, its legal head, have already quit the company.
The timing of the comments are inconvenient for Prudential, coming just hours before it debuts its dual listing in Hong Kong, with a secondary listing in Singapore.
Traders arriving early at their desks in Asia on Tuesday said that rumours over possible executive quittings would have a “definite negative” impact on today’s dual listing of the Prudential in Hong Kong and Singapore.
Prudential had said earlier this month that the 43-year-old American, who joined AIA in 2002 from AXA, the French insurer, would remain as chief executive under the new ownership.
AIG, which must extract maximum value from AIA in order to repay its giant US government bailout, scrapped a plan to float AIA in favour of a sale to Prudential, which was announced in March.
Mr Wilson had stood to make a fortune out of the float and would have been chief executive of the independent listed company.
Other top AIA executives are expected to follow him out the door, if the deal closes. One person at the company told The Times that a number of workers, also annoyed by the fact that AIA’s float was scuppered, were watching how Mark Wilson responds and intend to take their lead from him.
But the source also suggested that Mr Wilson may be allowing rumours of his intention to quit to try to get an early sense of his worth to Prudential, and that his decision to quit or stay would actually depend on how “hands on” Prudential intends to be in a region it has only limited experience in.
The Pru said on May 17 when it published its prospectus that Mr Wilson would remain as chief executive of AIA, suggesting he had given at least an informal commitment to stay on.
The timing couldn’t be more inconvenient for the Pru, coming just hours before its shares are due to start trading in hong kong and singapore.
The Pru declined to comment.
http://www.timesonline.co.uk/tol/news/world/asia/article7135625.ece
AIA bosses predict ‘disastrous’ Pru takeover
Christine Seib in New York and Leo Lewis in Hong Kong
Prudential’s $35.5 billion takeover of AIG’s Asian insurance business will be a disaster, according to senior executives at AIA, the Hong Kong-based company that the Pru is struggling to acquire.
One source at AIA in Hong Kong told The Times that there was a “tangible undercurrent” of concern over the takeover and that several executives had questioned Prudential’s ability to manage AIA effectively.
The executives’ comments came as it was reported that Mark Wilson, AIA’s chief executive, had told friends and industry executives that he planned to quit if the deal went through.
According to press reports last night, Mr Wilson said that he would step down because the combination of AIA and the Pru’s Asian business was “unworkable”.
Two senior executives, Steve Roder, AIA’s finance director, and Peter Cashin, its legal head, have already quit the company.
The timing of the comments are inconvenient for Prudential, coming just hours before it debuts its dual listing in Hong Kong, with a secondary listing in Singapore.
Traders arriving early at their desks in Asia on Tuesday said that rumours over possible executive quittings would have a “definite negative” impact on today’s dual listing of the Prudential in Hong Kong and Singapore.
Prudential had said earlier this month that the 43-year-old American, who joined AIA in 2002 from AXA, the French insurer, would remain as chief executive under the new ownership.
AIG, which must extract maximum value from AIA in order to repay its giant US government bailout, scrapped a plan to float AIA in favour of a sale to Prudential, which was announced in March.
Mr Wilson had stood to make a fortune out of the float and would have been chief executive of the independent listed company.
Other top AIA executives are expected to follow him out the door, if the deal closes. One person at the company told The Times that a number of workers, also annoyed by the fact that AIA’s float was scuppered, were watching how Mark Wilson responds and intend to take their lead from him.
But the source also suggested that Mr Wilson may be allowing rumours of his intention to quit to try to get an early sense of his worth to Prudential, and that his decision to quit or stay would actually depend on how “hands on” Prudential intends to be in a region it has only limited experience in.
The Pru said on May 17 when it published its prospectus that Mr Wilson would remain as chief executive of AIA, suggesting he had given at least an informal commitment to stay on.
The timing couldn’t be more inconvenient for the Pru, coming just hours before its shares are due to start trading in hong kong and singapore.
The Pru declined to comment.
http://www.timesonline.co.uk/tol/news/world/asia/article7135625.ece
A quick look at QL Resources (25.5.2010)
A quick look at QL Resources (25.5.2010)
http://spreadsheets.google.com/pub?key=t8Bl00tf5MqO-9a41aIDekA&output=html
Investment myths
Investment myths
Tags: Ang Kok Heng | Buy low | Buy the best | Complicated | dividend | gambling | Long-term | market direction | October | Only for the rich | Risk of losing money | sell high | Sell in May | Short memories
Written by Ang Kok Heng
Monday, 24 May 2010 10:37
There are several investment myths that are uttered among the investing public. Some of them are true, while others may only apply in certain circumstances. Some investors or punters who have experienced similar situations believe that this is the investment maxim. There are so many versions of good investment practice, so much so that investors may just get more confused after hearing all these investment myths. Further explanations could help to clear some of these myths.
Buy low, sell high
Buy low and sell high is a common advice to investors. Many know this, but few actually know how to do it or do it well. When market is falling, it is always surrounded by various negative news and investors are fearful that the worst is not over and market can fall further. As such, it is difficult to “buy low”. As long as the market did not hit the bottom, there is always a chance that it may go down further after a purchase. Similarly, selling high is also difficult to practise. In a bull market when prices keep going up, chances are stock prices will continue to go up after the disposal.
Investors must remember “buy low, sell high” is not the same as “buy lowest, sell highest”. Low is relative. It means that prices are relatively low, though not the lowest. As long as prices have fallen substantially, it poses an opportunity for the buyer. Staggered purchase is recommended in a falling market, instead of a bullet investment. If the market has fallen by a substantial amount say 20%, it poses an opportunity to invest and investors can put in some money. If the market falls further and becomes even cheaper, investors can then buy more.
The “buy low, sell high” strategy must only be used when the overall fundamentals have not deteriorated substantially. In a crisis, this strategy must be used with care. If the market descends because of changes in sentiment, then this strategy will work well.
Buy the best, and ignore the rest
For savvy investors, buying a few good stocks and ignoring the rest of the noise is a good strategy. Different investors have different criteria as to what constitutes a “best” stock. Some will focus on pure fundamentals, which may also vary from person to person. Some of the fundamentals required by investors include prudent management, business model, business prospects, cash flow, dividend yield and valuation.
The problem with this method is that some stocks with strong fundamentals may not be the favourites among fund managers; thus, these stocks remain undervalued for years. Investors buying into these types of stocks must have lots of patience for the stocks to realise their true values.
Companies that pay regular dividends are safer investments
A bird in hand is better than two in the bushes. Companies that do well must also reward investors. Dividend is a proof of cash flow and the ability of the management to manage the company’s finances. An investor who invests in a stock is seeking a return which comes in two forms — dividend and capital gain. If the expected return is 10% and dividend yield is 4%, then the expected capital gain of 6% will depend on the market. This is better than hoping purely for capital gains of a non-dividend paying stock.
Don’t believe everything you hear
In a market full of various news and hearsay, it is difficult to differentiate between facts and rumours. There are many instances where owners and syndicates who want to see higher stock prices purposely fabricate various news on potential contracts, corporate exercise, etc to analysts and reporters with the intention to mislead investors. Every piece of news must be scrutinised to determine the authenticity and its impact on the earnings. Although this could be difficult in many cases, effort is still needed to avoid falling prey to unwarranted predators.
One advice for investors is to only believe events which are more likely to happen, and only on those stocks where the management can be trusted.
Don’t try to catch a falling knife
This is a different strategy from “buy low, sell high” which postulates buying on the way downwards. In a bear market, there are also many cases where the market continues to fall like a knife. A fundamentally-cheap buy can still go cheaper due to deteriorating market sentiment. Technical chartists will advise against buying downwards, as they will prefer to see the market hitting a bottom and start to show some confidence from buyers. Each method has its merits and demerits. “Buy low, sell high” is suitable for fundamental investors aiming for long term investment, whereas the “Don’t try to catch a falling knife” strategy is normally used by shorter term traders who do not want to tie up their money in the market.
Investors have very short memories
Some believe that investors are now smarter and they have learnt their lessons, but others think that investors have very short memories and they will continue to repeat the same mistakes again and again. The fear of losing money in a bear market and greed of making quick money in a bull market come and go when market progresses from boom to bust cycle. Investors, being human, are subjected to the psychological hurdle every time the market moves into the bear or bull phase. So long as investors cannot overcome the temptation of their peers to make a killing in the market, they could fall into the same trap again. When the market plunges the unwillingness to cut and take losses will get them “stuck” with some stocks.
Investing in stocks is like gambling
Certain people believe that the stock market is like a casino. Punters will buy a four-digit stock hoping for the share price to appreciate. Some will chase after hot news and look for stocks which are actively traded recently. Fundamentals are less important. What is more crucial is that the price must go up. A good stock is defined as one where the price will soar regardless of the fundamentals. The priority of a punter is to find the next winning horse and avoid the limping horse. This strategy was popular in the past. Some may make money from good tips, but many had experienced huge losses gambling this way, and they are still licking their wounds as many of these stocks have not seem to recover at all even though the market has recovered by 50% over the past one year.
Investing is complicated
Other than relying on tips to pick the favourite stock, some investors do not have a clue as to how to select the right stock. Although experts have advised them to do their homework, study annual reports, read research reports produced by analysts, buy on fundamentals, go for prudent management, etc, they find the process too tedious. Not only do they see contradictory recommendations from different research houses, they also do not know how to decide which stock is still undervalued. Some analysts say a stock is cheap but not exciting as the growth is low. Other analysts will recommend a stock based on the net present value of its discounted future cash flow. Some use price/book ratio, price-earnings ratio, price over enterprise value, PE over growth ratio, etc. As there is no single method to judge which is a best stock to buy, investors get more confused when they start to do some research. They realised even the so-called “gurus” could be wrong too.
No doubt, investment is not easy. If it is so easy, everyone will be rich and nobody will need to work. Doing some homework may not guarantee profit but it can only help to avoid some of the investment pitfalls. Knowing what you are investing in is better than investing blindly. The additional knowledge accumulated over the years will help to reduce the risk of investment and hopefully it will lead to a wiser choice of selection.
Investing is too risky
Besides the hard work needed to commence investing, the risk of losing money may deter would-be investors. Seeing how some of their friends lose large sums of money dabbling in the stock market may imply that investing in the stock market is risky. The only safe way is to avoid this type of investment. Some have resorted to investing in unit trusts to grow their money. However, investing in unit trusts still requires certain forms of investment knowledge such as the timing of investment, type of funds and manager’s investment styles.
There is no doubt that investing in the stock market has risks. Those who do not know how to invest and do not have the discipline to follow an investment policy will continue to fail. There are also many who have invested successfully for years. Investors should follow the footsteps of successful investors who are able to grow their wealth via investment rather than be deterred by the unsuccessful dabblers who rely on luck instead to make money.
October is a bad stock month
Although Halloween falls in October, it is not a curse for the stock market. However, for whatever reason, many investment mishaps so happened occurred in September/October — the Wall Street Crash of 1929, Black Monday in 1987, 1997’s South American market crash, the Sept 11 (2001) terrorist attack, subprime crisis in US causing a black week where the US market fell by 18% in September 2008, etc. Historically, October is a bad month in terms of stock performance and it also denotes the bottom of the market for investors looking to buy for the medium term of 3-5 months.
Out of the 10 biggest one-day falls in the US, seven falls were in October. This could be a coincidence. There is no assurance that the next crash will be in October, but when it does come, it also poses an opportunity for those who believe in long term investment.
‘Predicting’ the stock market is impossible
Nobody can predict the market direction — how high it can go and how low it can fall. The general trend of the stock market is upward bias due to corporate earnings growth. Market moves in a cycle similar to the economic cycle. But it is also very much influenced by market sentiment and the flow of global funds seeking maximum returns. From time to time, it follows market fundamentals on PE valuation and earnings growth. There are also times when the market is driven by fear of changes in policies.
Sell in May, go away
This is a seasonal indicator for investors who think that summer holidays are bad for the market. If buying fund managers were on leave during this period, the market may come down. On the other hand, if selling fund managers were on summer holidays, then it may not be a bad news.
“Sell in May, go away” also denotes the six-month period from May to October where the market generally performs poorer than the other six-month period from November to April. Between May and October, the worst months were September and October. The month of May appears to be a reasonable month as far as stock performance is concerned.
Stock markets are only for the rich
Some investors believe the rich have the upper hand when it comes to investments as they have deep pockets to average down in a falling market. The rich definitely have that advantage. The limited resources of the “poor” suggest that they adopt a bullet investment style by putting all their investments in a single stock in a single day. In this way, there is no time diversification for the “poor” who have limited resources to invest. The bullet investment style is definitely riskier. For those who can afford, time diversification is preferred. One does not need to be a multi-millionaire to dabble in the stock market. In fact, small investors also have an advantage over large institutional investors who may have several hundreds of millions to invest. For one, small investors can invest in a wider range of stock without fear of liquidity constraint when it comes to selling.
The long-term always pays off
This statement seems to suggest long-term (LT) investors perform better than short-term (ST) investors. Other than the duration of investment, the strategies of LT and ST investment, may not be the same. LT investors tend to invest in low beta, fundamentally-sound investment grade stocks, whereas ST investors tend to look for higher beta, volatile and high-liquidity situational stocks. In a bullish market, ST investors could make more provided appropriate cut loss strategies are put in place. There are also many LT investors who kept a portfolio of non-performing stocks where prices continue to decline due to deteriorating earnings.
What is required is the right strategy regardless of short-term or long-term investment.
What goes up must come down
Like Newton’s Law of Gravity, “what goes up must come down”, this investment myth describes the volatile pattern of stock prices. While the price of a trading stock may fluctuate within a certain range from the mean, the price of a growth stock will continue to go up in the long run. Even if the price of a growth stock goes down, it is only temporary. Having said this, in the
This article appeared in The Edge Financial Daily, May 24, 2010.
http://www.theedgemalaysia.com/in-the-financial-daily/166634-investment-myths.html
Monday 24 May 2010
Stocks that won't fall in market meltdown. Do such stocks exist?
Stocks that won't fall in market meltdown
24 May 2010, 0218 hrs
IST,Ramkrishna Kashelkar,ET Bureau
After the skeletons popped out of the closets of the world’s largest economy in 2008, it's the time for the weak members of Europe to put their soft belly on display. The fiscal problems that surfaced in some of the Euro zone countries as much capable of disrupting the global economy as the US's financial system fiasco in 2008.
As the international economist Nouriel Roubini puts it, first came rescue of private firms, and now comes the rescue of the rescuers - ie, the governments. Rumours abound that problems are much worse than what meets the eye.
There is no doubt that what investors have seen in the US sub-prime mortgage crisis makes them more susceptible to such rumours. And as a result the volatility continues. At a time when the markets are gloomy and the media is abuzz with talks on things like fiscal crises, double-dip recession, overheating, debt burdens et al one just can’t be overcautious.
Retail investors, in particular, are cursed to fail in such markets.
However, if you haven’t installed these shock absorbers already, it is not too late to act. But the end to the current volatility is nowhere in sight and investors can rightly be scared of making fresh investments. Wouldn’t it, therefore, be just wonderful, if we had a handful of companies that won’t buckle, if the markets were to fall further, but will bounce back, if the stability were to return? Do such stocks exist?
Yes, they do. In fact, ET Intelligence Group has unearthed a few such investment ideas, which fit the bill - they are available at attractive valuations and hold the potential to reward investors once the market sentiment turns positive. And the list contains companies from various industries apart from just FMCG and Pharmaceuticals - the traditional friends in the times of volatility.
We have mainly five types of companies here.
Brand driven businesses
FMCG and pharma industries have always been well regarded as recession-busters. So much so that in market rallies, when these sectors start picking pace, market observers start predicting a correction. Most of these stocks are slow gainers, but they hold the capacity to make a new all-time high in every bull-run. One main problem, however, is that owing to their market credibility and a long-history of superior performance, they don’t come in cheap.
Despite rising food inflation pressuring the profit margins of the company, Nestle India remains one of the priciest FMCG company on the Dalal Street with a price-to-earning (P/E) multiple of 42. Its market leadership in the niche product category of ready-to-eat food and dairy product has enabled its revenues and profits to grow at a strong pace. Despite the stretched valuations, it remains a classic defensive stock.
The diversified nature of ITC makes its business model de-risked. A stronger growth in its non-cigarette businesses is reducing its dependence on tobacco business for forging its future growth. Valued at little over six times its annual revenues and a (P/E) ratio of 26, the scrip appears reasonably valued with limited downside risk. Its ability to raise dividends year-after-year adds to its attractiveness.
Similarly, Dabur India’s non-cyclical product-mix in consumer care, healthcare, food and retail with strong brand recall and international presence makes it an attractive consumer business. The company has outperformed its peers in the past several quarters justifying its premium valuations at P/E of 32.
GSK Consumer Healthcare (GSKCH) is a market leader in niche category of malt based health drinks with a portfolio of OTC drugs. Although its margins were affected by rising food prices, it has successfully kept competition at bay. Despite trading at high valuations, this company has limited downside risk given its niche product category and non-cyclical nature of its business.
GlaxoSmithKline Pharma is the third largest player in the domestic pharma market. Its established international lineage, consistent growth, market leadership in many therapeutic areas and strong brand equity work in its favour. The company is aggressively increasing its presence in various therapeutic areas and expanding its field force. Its stock is trading at a P/E of 33. While these are relatively high valuations, the company is a promising long-term buy - offering limited down side.
Monopolistic Business Model
The country’s largest paints company, Asian Paints, has enjoyed almost a monopolistic leadership in the decorative paints segment. The company has greatly benefited from increasing consumer spending in the domestic market over the past few years. While the domestic market is the key driver for the company’s growth, Asian Paints has been consolidating its portfolio in the international market.
The company has divested its four loss making units in the South Asian region in order to mitigate the erosion of profitability in its international operations. Unless there is a significant drop in the consumer demand, the company’s business has limited downside risk. Trading at a consolidated P/E of 27, the company offers a good defensive bet to the long-term investors.
Another company, which is assured of its revenues by nature of its monopolistic business, is Gail - India’s largest transporter of natural gas. In the years to come, a vast majority of gas consumers will continue to depend on Gail’s pipeline for a seamless supply of natural gas, which will be a preferred fuel for the coming generations.
Gail has long been a cash-rich company, with very low debt. It will be spending nearly Rs 50,000 crore in the next four years to lay new pipeline and expand its polymer capacity. Defying the overall weakness in the market, Gail’s shares have gained 5.6% last week despite Sensex losing over 3.2%.
Crisil enjoys a similarly dominating position in a highly-competitive industry. Its business of providing rating, research and advisory services is far more insulated than other businesses in financial services domain. Firstly, this is not a fund-based business like lending. Since the asset base is low, return on capital employed is much higher. Secondly, even in a case of stock market downturn, the demand remains for research and advisory services making it a sustainable business model.
Crisil has always been a zero-debt company with strong dividend paying record. Its current price-to-earning multiple (P/E) of 28 is lower compared to what it commanded in 2005, 2006 and 2007. This shows that the stock has scope to move up further from here.
Container Corporation of India (Concor) is almost an indispensable company when it comes to transporting goods across the country by rail. Concor has always enjoyed a dominant position in the domestic container rail freight segment. The company is debt-free and cash-rich, which has enabled it to fund its expansion plans of the past few years entirely from internal accruals. A detailed write-up on page 2 gives a better perspective on the company.
The country’s largest auto component maker Bosch enjoys a similar position in its industry. Its product range is such that every vehicle on the road carry some of the Bosch component right from fuel injection systems to spark plugs to wipers to batteries. Besides, the company is also a market leader non-automotive segments such as hand tools, compact packaging equipment and automotive audio systems. Its continues to introduce latest products in the market thanks to its German parent, Robert Bosch
Its German parent, Robert Bosch is the largest auto component maker and an technology leader. The company is debt-free and has a history of strong operating cash with ever rising dividend payments. Not surprisingly, at the height of the market meltdown in 2008, Bosch market capitalisation exceeded most of its customers except Maruti Suzuki and Hero Honda. At its current market price, the stock is trading at just 21 times its trailing 12-months earnings and is a good buy.
Completed Capex
In the second category of companies that have completed major capex plans, we have companies like Petronet LNG. Petronet doubled its LNG capacity in the second half of last year with the additional 2.5 MTPA LNG supply starting in January. Its March 2010 quarterly numbers failed to show its benefits as RIL’s cheaper gas flooded the markets.
Completion of Gail’s pipelines in the North India will allow it to increase sales volumes as more customers get connected to the gas pipeline grid. Considering the company’s secured income source by way of regassification charges and its expanded capacities, a P/E of 15 appears attractive.
The pharma major Cipla may not have done well on the bourses in the past few years, but it has been busy building up capacities. In the past three years up to FY09, the company spent nearly Rs 1,700 crore on building its fixed assets. It is preparing to launch its robust product line in overseas markets including asthma inhalers. The company’s current valuations do not fully reflect these upsides.
JSW Energy is another such example, where the market has failed to reward capacity addition due to the weak sentiments. The company had a very impressive growth in the fourth quarter of FY10, with sales and profit going up almost three times over last year, aided by commissioning of 600 MW of generation capacity.
The company will be nearly doubling its total generation capacity in FY11, based on the current status of its various projects, which will give a significant boost to its financials. The stock currently trades at a P/E of 22 times, which provides huge upside potential.
The buoyancy in real estate industry is set to do good for Mahindra Lifespaces, which currently has almost 8 million square feet of properties at various stages of launch or under construction. The company predominantly operates in the mid and high-end residential segment in Mumbai, Pune, Nashik, NCR, Chennai and Nagpur. It recently launched its mass housing project in Gurgaon.
It currently has two SEZ’s in Chennai and Jaipur, both of which are seeing a strong traction in the recent past. The company is debt light, which is the main differentiating factor between other players. On an annualised EPS of Rs 23.2, it is trading at a price to earnings multiple of 18, that appears reasonable considering the growth prospects.
Delhi-based Anant Raj Industries continues to monetise assets where it is able to get lucrative prices. In December 2009 quarter, it sold its commercial property of 0.11 million sq ft at Rs 6,500 per sq ft. Net revenue booked during the quarter was Rs 6 crore from this project. The company has been increasing its rental income on a quarter-on-quarter basis, as it booked rental Rs 13.6 crore in December 2009 as against Rs 11.3 crore in the previous quarter. In another mall, the company has been continuously leasing space.
Going ahead, it will be launching two residential projects at premium locations, an IT Park, and also rentals will start coming from its malls. The stock is currently trading at 16 times its trailing 12 months earnings, leaving enough scope to gain in the coming months.
Changing business model:
A focused management can gradually change the business model of a company to bring in better efficiencies or integration that can take it to its inflexion point -a point beyond which the growth will speed up. The first departmental store retailer Shoppers Stop and textile major Alok Industries appear to have reached such inflexion points.
Shoppers Stop has evolved its business model over a period of last decade that will enable it now to scale up faster in the coming years. It has been derisking its merchandise model with a higher share of consignment as against the bought-out share, while its cost-cutting exercise has started paying off as visible in better margins in the two quarters.
Most of its subsidiaries have already turned profitable with a turnaround in the home solutions and international airport retail venture expected in near future. Its footfalls to sales conversion ratio came down in the March 2010 quarter, but a significant increase in average transaction size and average sales price have kept the like-to-like store growth up.
Going ahead, the company has aggressive growth plans to open 8 stores in FY11, and another 10-12 stores in the next financial year. This will cumulatively add about 1 million sq ft to the existing 20.4 million sq ft of space. These factors enable the company to justify its P/E above 27 and P/BV above 4.7, which are unlikely to weaken in market turmoil.
Alok Industries has emerged as a vertically integrated textile company with five core business divisions viz. cotton spinning, polyester yarn, garments, apparel fabric and home textiles. Its subsidiary, Alok Retail operates its branded stores ‘H&A’ having 216 stores across the country. It plans to expand to 450 shops by 2011.
Over the past 4-5 years, the company has invested heavily to create large production capacities. These capacities plus its integrated business model put it in a unique position to control the raw material costs while producing high-value-added products.
This has enabled it to expand its operating profits at a CAGR of 38% in the past five years, against a 22% growth in the topline. Galloping interest costs has so far eroded its profits, but its plans to monetise its real estate assets in near future can address the problem squarely. Considering the huge entry, the company has erected against its integrated business model, the downside appears limited at a P/E multiple of 6x.
Changed valuations
Going out of market’s favour can bring down the valuations significantly. However, if the business model is robust, it doesn’t take long to win back the favour. Pursuing the tariff wars and stringent regulatory recommendations, the telecom industry has been facing a lot of heat and has fallen out of market’s favour.
A steeper fall compared to its peers has made the valuations of Reliance Communications highly attractive, where a further weakness appears unlikely.
RCom lost over 50% since last October as a sharp drop in telecom fares lowered its profitability. The future, however, appears bright.
The company has domestic and global assets in the form of telecom infrastructure in India and under-sea fibre optic network overseas. Its telecom towers are fast gaining tenancy from other operators, which is likely to support its revenue in future. It’s 3G licences win in 13 circles including Mumbai and Delhi gives a better balance between the initial capex fees and revenue prospects. Given its low valuations and asset base, the stock looks attractive at the current levels.
The cement industry also has been worrying over the price realisations and the dampened demand in the upcoming monsoon season could keep it unattractive for a while. However, there is no reason a company like JK Lakshmi Cement should trade at half its book value and a P/E of 3.3x. The company is focusing on northern markets where demand is strong and provides the necessary growth momentum over the medium term. Its cement capacity will grow to 5.3 million tonne from current 4.7 MT during FY11.
One of the key assumptions that have gone in preparing this list is that the current debt crisis in the Europe can be contained and tackled reasonably within the next few weeks. No stock market investments will remain safe if the crisis blows out of proportions into what we saw in 2008.
(With inputs from Amrit Mathur, Ashish Agrawal, Karan Sehgal, Kiran Somvanshi, Ranjit Shinde and Supriya Verma)
http://economictimes.indiatimes.com/articleshow/5966128.cms
24 May 2010, 0218 hrs
IST,Ramkrishna Kashelkar,ET Bureau
After the skeletons popped out of the closets of the world’s largest economy in 2008, it's the time for the weak members of Europe to put their soft belly on display. The fiscal problems that surfaced in some of the Euro zone countries as much capable of disrupting the global economy as the US's financial system fiasco in 2008.
As the international economist Nouriel Roubini puts it, first came rescue of private firms, and now comes the rescue of the rescuers - ie, the governments. Rumours abound that problems are much worse than what meets the eye.
There is no doubt that what investors have seen in the US sub-prime mortgage crisis makes them more susceptible to such rumours. And as a result the volatility continues. At a time when the markets are gloomy and the media is abuzz with talks on things like fiscal crises, double-dip recession, overheating, debt burdens et al one just can’t be overcautious.
Retail investors, in particular, are cursed to fail in such markets.
- Firstly they are always late to react - be it a rally or a fall.
- And secondly, the doubts ‘what if I sell out today and markets rebound tomorrow?’ or vice-versa never leave them at peace.
However, if you haven’t installed these shock absorbers already, it is not too late to act. But the end to the current volatility is nowhere in sight and investors can rightly be scared of making fresh investments. Wouldn’t it, therefore, be just wonderful, if we had a handful of companies that won’t buckle, if the markets were to fall further, but will bounce back, if the stability were to return? Do such stocks exist?
Yes, they do. In fact, ET Intelligence Group has unearthed a few such investment ideas, which fit the bill - they are available at attractive valuations and hold the potential to reward investors once the market sentiment turns positive. And the list contains companies from various industries apart from just FMCG and Pharmaceuticals - the traditional friends in the times of volatility.
We have mainly five types of companies here.
- Firstly there are large brand driven FMCG businesses with large cash generating capacities.
- Then we have companies commanding almost monopolistic leadership in their respective industries.
- There are companies that have recently completed major capex and are going to reap its benefits in FY11.
- A couple of companies that have seen their business models evolve into becoming more robust also figure in the list.
- At the end, we have chosen two companies that have taken a disproportionately bigger hit in the weak market and are now available at attractive valuation compared to their peers.
Brand driven businesses
FMCG and pharma industries have always been well regarded as recession-busters. So much so that in market rallies, when these sectors start picking pace, market observers start predicting a correction. Most of these stocks are slow gainers, but they hold the capacity to make a new all-time high in every bull-run. One main problem, however, is that owing to their market credibility and a long-history of superior performance, they don’t come in cheap.
Despite rising food inflation pressuring the profit margins of the company, Nestle India remains one of the priciest FMCG company on the Dalal Street with a price-to-earning (P/E) multiple of 42. Its market leadership in the niche product category of ready-to-eat food and dairy product has enabled its revenues and profits to grow at a strong pace. Despite the stretched valuations, it remains a classic defensive stock.
The diversified nature of ITC makes its business model de-risked. A stronger growth in its non-cigarette businesses is reducing its dependence on tobacco business for forging its future growth. Valued at little over six times its annual revenues and a (P/E) ratio of 26, the scrip appears reasonably valued with limited downside risk. Its ability to raise dividends year-after-year adds to its attractiveness.
Similarly, Dabur India’s non-cyclical product-mix in consumer care, healthcare, food and retail with strong brand recall and international presence makes it an attractive consumer business. The company has outperformed its peers in the past several quarters justifying its premium valuations at P/E of 32.
GSK Consumer Healthcare (GSKCH) is a market leader in niche category of malt based health drinks with a portfolio of OTC drugs. Although its margins were affected by rising food prices, it has successfully kept competition at bay. Despite trading at high valuations, this company has limited downside risk given its niche product category and non-cyclical nature of its business.
GlaxoSmithKline Pharma is the third largest player in the domestic pharma market. Its established international lineage, consistent growth, market leadership in many therapeutic areas and strong brand equity work in its favour. The company is aggressively increasing its presence in various therapeutic areas and expanding its field force. Its stock is trading at a P/E of 33. While these are relatively high valuations, the company is a promising long-term buy - offering limited down side.
Monopolistic Business Model
The country’s largest paints company, Asian Paints, has enjoyed almost a monopolistic leadership in the decorative paints segment. The company has greatly benefited from increasing consumer spending in the domestic market over the past few years. While the domestic market is the key driver for the company’s growth, Asian Paints has been consolidating its portfolio in the international market.
The company has divested its four loss making units in the South Asian region in order to mitigate the erosion of profitability in its international operations. Unless there is a significant drop in the consumer demand, the company’s business has limited downside risk. Trading at a consolidated P/E of 27, the company offers a good defensive bet to the long-term investors.
Another company, which is assured of its revenues by nature of its monopolistic business, is Gail - India’s largest transporter of natural gas. In the years to come, a vast majority of gas consumers will continue to depend on Gail’s pipeline for a seamless supply of natural gas, which will be a preferred fuel for the coming generations.
Gail has long been a cash-rich company, with very low debt. It will be spending nearly Rs 50,000 crore in the next four years to lay new pipeline and expand its polymer capacity. Defying the overall weakness in the market, Gail’s shares have gained 5.6% last week despite Sensex losing over 3.2%.
Crisil enjoys a similarly dominating position in a highly-competitive industry. Its business of providing rating, research and advisory services is far more insulated than other businesses in financial services domain. Firstly, this is not a fund-based business like lending. Since the asset base is low, return on capital employed is much higher. Secondly, even in a case of stock market downturn, the demand remains for research and advisory services making it a sustainable business model.
Crisil has always been a zero-debt company with strong dividend paying record. Its current price-to-earning multiple (P/E) of 28 is lower compared to what it commanded in 2005, 2006 and 2007. This shows that the stock has scope to move up further from here.
Container Corporation of India (Concor) is almost an indispensable company when it comes to transporting goods across the country by rail. Concor has always enjoyed a dominant position in the domestic container rail freight segment. The company is debt-free and cash-rich, which has enabled it to fund its expansion plans of the past few years entirely from internal accruals. A detailed write-up on page 2 gives a better perspective on the company.
The country’s largest auto component maker Bosch enjoys a similar position in its industry. Its product range is such that every vehicle on the road carry some of the Bosch component right from fuel injection systems to spark plugs to wipers to batteries. Besides, the company is also a market leader non-automotive segments such as hand tools, compact packaging equipment and automotive audio systems. Its continues to introduce latest products in the market thanks to its German parent, Robert Bosch
Its German parent, Robert Bosch is the largest auto component maker and an technology leader. The company is debt-free and has a history of strong operating cash with ever rising dividend payments. Not surprisingly, at the height of the market meltdown in 2008, Bosch market capitalisation exceeded most of its customers except Maruti Suzuki and Hero Honda. At its current market price, the stock is trading at just 21 times its trailing 12-months earnings and is a good buy.
Completed Capex
In the second category of companies that have completed major capex plans, we have companies like Petronet LNG. Petronet doubled its LNG capacity in the second half of last year with the additional 2.5 MTPA LNG supply starting in January. Its March 2010 quarterly numbers failed to show its benefits as RIL’s cheaper gas flooded the markets.
Completion of Gail’s pipelines in the North India will allow it to increase sales volumes as more customers get connected to the gas pipeline grid. Considering the company’s secured income source by way of regassification charges and its expanded capacities, a P/E of 15 appears attractive.
The pharma major Cipla may not have done well on the bourses in the past few years, but it has been busy building up capacities. In the past three years up to FY09, the company spent nearly Rs 1,700 crore on building its fixed assets. It is preparing to launch its robust product line in overseas markets including asthma inhalers. The company’s current valuations do not fully reflect these upsides.
JSW Energy is another such example, where the market has failed to reward capacity addition due to the weak sentiments. The company had a very impressive growth in the fourth quarter of FY10, with sales and profit going up almost three times over last year, aided by commissioning of 600 MW of generation capacity.
The company will be nearly doubling its total generation capacity in FY11, based on the current status of its various projects, which will give a significant boost to its financials. The stock currently trades at a P/E of 22 times, which provides huge upside potential.
The buoyancy in real estate industry is set to do good for Mahindra Lifespaces, which currently has almost 8 million square feet of properties at various stages of launch or under construction. The company predominantly operates in the mid and high-end residential segment in Mumbai, Pune, Nashik, NCR, Chennai and Nagpur. It recently launched its mass housing project in Gurgaon.
It currently has two SEZ’s in Chennai and Jaipur, both of which are seeing a strong traction in the recent past. The company is debt light, which is the main differentiating factor between other players. On an annualised EPS of Rs 23.2, it is trading at a price to earnings multiple of 18, that appears reasonable considering the growth prospects.
Delhi-based Anant Raj Industries continues to monetise assets where it is able to get lucrative prices. In December 2009 quarter, it sold its commercial property of 0.11 million sq ft at Rs 6,500 per sq ft. Net revenue booked during the quarter was Rs 6 crore from this project. The company has been increasing its rental income on a quarter-on-quarter basis, as it booked rental Rs 13.6 crore in December 2009 as against Rs 11.3 crore in the previous quarter. In another mall, the company has been continuously leasing space.
Going ahead, it will be launching two residential projects at premium locations, an IT Park, and also rentals will start coming from its malls. The stock is currently trading at 16 times its trailing 12 months earnings, leaving enough scope to gain in the coming months.
Changing business model:
A focused management can gradually change the business model of a company to bring in better efficiencies or integration that can take it to its inflexion point -a point beyond which the growth will speed up. The first departmental store retailer Shoppers Stop and textile major Alok Industries appear to have reached such inflexion points.
Shoppers Stop has evolved its business model over a period of last decade that will enable it now to scale up faster in the coming years. It has been derisking its merchandise model with a higher share of consignment as against the bought-out share, while its cost-cutting exercise has started paying off as visible in better margins in the two quarters.
Most of its subsidiaries have already turned profitable with a turnaround in the home solutions and international airport retail venture expected in near future. Its footfalls to sales conversion ratio came down in the March 2010 quarter, but a significant increase in average transaction size and average sales price have kept the like-to-like store growth up.
Going ahead, the company has aggressive growth plans to open 8 stores in FY11, and another 10-12 stores in the next financial year. This will cumulatively add about 1 million sq ft to the existing 20.4 million sq ft of space. These factors enable the company to justify its P/E above 27 and P/BV above 4.7, which are unlikely to weaken in market turmoil.
Alok Industries has emerged as a vertically integrated textile company with five core business divisions viz. cotton spinning, polyester yarn, garments, apparel fabric and home textiles. Its subsidiary, Alok Retail operates its branded stores ‘H&A’ having 216 stores across the country. It plans to expand to 450 shops by 2011.
Over the past 4-5 years, the company has invested heavily to create large production capacities. These capacities plus its integrated business model put it in a unique position to control the raw material costs while producing high-value-added products.
This has enabled it to expand its operating profits at a CAGR of 38% in the past five years, against a 22% growth in the topline. Galloping interest costs has so far eroded its profits, but its plans to monetise its real estate assets in near future can address the problem squarely. Considering the huge entry, the company has erected against its integrated business model, the downside appears limited at a P/E multiple of 6x.
Changed valuations
Going out of market’s favour can bring down the valuations significantly. However, if the business model is robust, it doesn’t take long to win back the favour. Pursuing the tariff wars and stringent regulatory recommendations, the telecom industry has been facing a lot of heat and has fallen out of market’s favour.
A steeper fall compared to its peers has made the valuations of Reliance Communications highly attractive, where a further weakness appears unlikely.
RCom lost over 50% since last October as a sharp drop in telecom fares lowered its profitability. The future, however, appears bright.
The company has domestic and global assets in the form of telecom infrastructure in India and under-sea fibre optic network overseas. Its telecom towers are fast gaining tenancy from other operators, which is likely to support its revenue in future. It’s 3G licences win in 13 circles including Mumbai and Delhi gives a better balance between the initial capex fees and revenue prospects. Given its low valuations and asset base, the stock looks attractive at the current levels.
The cement industry also has been worrying over the price realisations and the dampened demand in the upcoming monsoon season could keep it unattractive for a while. However, there is no reason a company like JK Lakshmi Cement should trade at half its book value and a P/E of 3.3x. The company is focusing on northern markets where demand is strong and provides the necessary growth momentum over the medium term. Its cement capacity will grow to 5.3 million tonne from current 4.7 MT during FY11.
One of the key assumptions that have gone in preparing this list is that the current debt crisis in the Europe can be contained and tackled reasonably within the next few weeks. No stock market investments will remain safe if the crisis blows out of proportions into what we saw in 2008.
(With inputs from Amrit Mathur, Ashish Agrawal, Karan Sehgal, Kiran Somvanshi, Ranjit Shinde and Supriya Verma)
http://economictimes.indiatimes.com/articleshow/5966128.cms
Take a long shot in such choppy markets. Investors tend to forget that equities deliver only in the long term
Take a long shot in such choppy markets
24 May 2010, 0501 hrs
IST,Nikhil Walavalkar & Prashant Mahesh,ET Bureau
Increased volatility in markets has made life difficult for equity investors in India. The risk that some European governments may default has thrown a scare into equity markets globally. Though domestic economic fundamentals are sound, flight of some foreign funds has eroded value of companies on Indian exchanges.
A look at indices’ movement shows that S&P CNX Nifty has lost 5.43% since January 2010 whereas Nifty Mid-cap 50 index lost 2.21%. But this is rather deceptive. If one looks at the fall from the highest point, the indices (the Nifty level of 5374) in the current calendar year, the Nifty lost 7.94% in 30 sessions and Nifty Mid-cap lost 7.32% in 14 sessions, as on May 20, 2010. This has confused retail investors. Now, the million-dollar question that haunts all of them is — “What should I do with my equity investments?”
QUICK ACTIONS
Though often repeated, investors tend to forget that equities deliver only in the long term. So, if you are there with your short-term resources for some quick buck, just follow the classical advice and get out of equities. This applies to even the best of the conviction ideas you have. “Though there is some global uncertainty, there is no crisis. The current correction is a good buying opportunity, as markets have corrected 10-15%, and we are positive on mid-cap stocks as valuations there are at a discount to large caps,” says K Ramanathan, chief investment officer, ING Mutual Fund.
Leverage can be disastrous when equities obey the laws of gravity. In volatile times, futures, too, may emerge as the weapons of mass destruction, as envisaged by legendary investor Warren Buffett. Given the circumstances, it’s better to cut down naked derivative exposures and avoid taking any positions using borrowed money.
If you are not sure of the equity markets’ future in the near term, change all your lump-sum investments in mutual funds and other vehicles into systematic investment plans (SIP) to ensure that you don’t commit the mistake of trying to time the market. If you need some time to think before you act, you can consider buying insurance by way of purchasing index ‘put’ options. Of course, there is a cost attached to it.
THINK BEFORE YOU JUMP
Equity investing is an art as well as science. Especially in cases, where you decide it on your own, it becomes a tight-rope walk. “One should stick to strong conviction ideas with strong fundamentals. Fundamentally, strong companies are last to fall and first to bounce back when the environment changes,” asserts Vinod Ohri, president-equity, Gupta Equities. It makes sense to revisit the portfolio with a single question in mind — If I am given money, will I buy the share I am holding now? If the answer to this question comes positive, your investment deserves a place in your portfolio. If you are not sure if you will buy it at the current price, probably, it’s the time to bid adieu to that stock.
“Retail investors need to at least check business performance of companies in which they have invested, by going to the exchange website,” says Sunil Shah, director-equities, Indsec Securities & Finance. This is even more important in case of small-, and mid-cap companies, where there is no or limited research coverage. “As a broad rule, one can decide to stay with mid-cap stocks, enjoying single-digit price earning multiples and book profits, where the mid-cap stocks quote at price multiple of more than 20,” adds Mr Shah.
If you are not sure as to how the global crisis will unfold, you can choose to convert some of your equities into short-term fixed income instruments to earn decent ‘return on capital’ without compromising on ‘return of capital’.
Strategies
As of now, the domestic economy is in shape. Some experts prefer to restrict their equity exposure to ideas that revolve around domestic themes such as consumption and infrastructure. One can cut his exposure on export-oriented companies.
There is another advice to stick to companies with least leverage. This may come handy if the credit crisis spread beyond European countries. Look at only those companies with no or nominal debt on books. To play safe, one can avoid companies that are still in the capital expenditure mode and are expected to guzzle a good amount of cash.
Looking for price supports is a very much a normal act of savvy equity investors. Some call it special situations-investing. Investing in fundamentally strong companies where due to open offer or some other corporate action there exists a safety net is a good bet in weak markets. Delisting offers also can be considered here.
Ultra-conservative investors looking at equity can resort to a capital protection strategy. If you have, say Rs 5 lakh, to invest with a three-year time-frame, invest Rs 4 lakh in fixed deposits, earning an 8% return and invest the rest in diversified equity funds with a good track record using systematic investment plans. Here, your investments in fixed deposits will ensure that you get Rs 5 lakh back at the end of three years. At the same time, your equity investments will earn superior returns for you.
Ultimately, investors will be better off sticking to their asset allocation. Of course, one can take tactical calls of moving from one type of equities (such as mid-caps) to another type (large-cap). One should never forget that all bear markets start with correction. Greed leads to investors throwing good money after bad ideas. It is time to have some conviction in the Indian growth story and buy quality businesses at attractive prices slowly and steadily.
http://economictimes.indiatimes.com/articleshow/5966749.cms
24 May 2010, 0501 hrs
IST,Nikhil Walavalkar & Prashant Mahesh,ET Bureau
Increased volatility in markets has made life difficult for equity investors in India. The risk that some European governments may default has thrown a scare into equity markets globally. Though domestic economic fundamentals are sound, flight of some foreign funds has eroded value of companies on Indian exchanges.
A look at indices’ movement shows that S&P CNX Nifty has lost 5.43% since January 2010 whereas Nifty Mid-cap 50 index lost 2.21%. But this is rather deceptive. If one looks at the fall from the highest point, the indices (the Nifty level of 5374) in the current calendar year, the Nifty lost 7.94% in 30 sessions and Nifty Mid-cap lost 7.32% in 14 sessions, as on May 20, 2010. This has confused retail investors. Now, the million-dollar question that haunts all of them is — “What should I do with my equity investments?”
QUICK ACTIONS
Though often repeated, investors tend to forget that equities deliver only in the long term. So, if you are there with your short-term resources for some quick buck, just follow the classical advice and get out of equities. This applies to even the best of the conviction ideas you have. “Though there is some global uncertainty, there is no crisis. The current correction is a good buying opportunity, as markets have corrected 10-15%, and we are positive on mid-cap stocks as valuations there are at a discount to large caps,” says K Ramanathan, chief investment officer, ING Mutual Fund.
Leverage can be disastrous when equities obey the laws of gravity. In volatile times, futures, too, may emerge as the weapons of mass destruction, as envisaged by legendary investor Warren Buffett. Given the circumstances, it’s better to cut down naked derivative exposures and avoid taking any positions using borrowed money.
If you are not sure of the equity markets’ future in the near term, change all your lump-sum investments in mutual funds and other vehicles into systematic investment plans (SIP) to ensure that you don’t commit the mistake of trying to time the market. If you need some time to think before you act, you can consider buying insurance by way of purchasing index ‘put’ options. Of course, there is a cost attached to it.
THINK BEFORE YOU JUMP
Equity investing is an art as well as science. Especially in cases, where you decide it on your own, it becomes a tight-rope walk. “One should stick to strong conviction ideas with strong fundamentals. Fundamentally, strong companies are last to fall and first to bounce back when the environment changes,” asserts Vinod Ohri, president-equity, Gupta Equities. It makes sense to revisit the portfolio with a single question in mind — If I am given money, will I buy the share I am holding now? If the answer to this question comes positive, your investment deserves a place in your portfolio. If you are not sure if you will buy it at the current price, probably, it’s the time to bid adieu to that stock.
“Retail investors need to at least check business performance of companies in which they have invested, by going to the exchange website,” says Sunil Shah, director-equities, Indsec Securities & Finance. This is even more important in case of small-, and mid-cap companies, where there is no or limited research coverage. “As a broad rule, one can decide to stay with mid-cap stocks, enjoying single-digit price earning multiples and book profits, where the mid-cap stocks quote at price multiple of more than 20,” adds Mr Shah.
If you are not sure as to how the global crisis will unfold, you can choose to convert some of your equities into short-term fixed income instruments to earn decent ‘return on capital’ without compromising on ‘return of capital’.
Strategies
As of now, the domestic economy is in shape. Some experts prefer to restrict their equity exposure to ideas that revolve around domestic themes such as consumption and infrastructure. One can cut his exposure on export-oriented companies.
There is another advice to stick to companies with least leverage. This may come handy if the credit crisis spread beyond European countries. Look at only those companies with no or nominal debt on books. To play safe, one can avoid companies that are still in the capital expenditure mode and are expected to guzzle a good amount of cash.
Looking for price supports is a very much a normal act of savvy equity investors. Some call it special situations-investing. Investing in fundamentally strong companies where due to open offer or some other corporate action there exists a safety net is a good bet in weak markets. Delisting offers also can be considered here.
Ultra-conservative investors looking at equity can resort to a capital protection strategy. If you have, say Rs 5 lakh, to invest with a three-year time-frame, invest Rs 4 lakh in fixed deposits, earning an 8% return and invest the rest in diversified equity funds with a good track record using systematic investment plans. Here, your investments in fixed deposits will ensure that you get Rs 5 lakh back at the end of three years. At the same time, your equity investments will earn superior returns for you.
Ultimately, investors will be better off sticking to their asset allocation. Of course, one can take tactical calls of moving from one type of equities (such as mid-caps) to another type (large-cap). One should never forget that all bear markets start with correction. Greed leads to investors throwing good money after bad ideas. It is time to have some conviction in the Indian growth story and buy quality businesses at attractive prices slowly and steadily.
http://economictimes.indiatimes.com/articleshow/5966749.cms
Stockmarket: what should investors do now?
Stockmarket: what should investors do now?
The FTSE100 dropped below the 5,000 barrier in the aftermath of the naked short-selling ban in Germany and the ongoing euro crisis.
By Paul Farrow
Published: 3:07PM BST 21 May 2010
Investors had been enjoying a market revival since shares hit their March 2009 lows. Markets had become more volatile in recent weeks but many fund managers had ruled out any possibility of a full-blown stock market crash.
However, the eurozone crisis is worsening and many analysts are predicting a double-dip recession and further market falls.
Paul Niven, head of asset Allocation at F&C, said: "Equity markets have entered into a technical correction, with major indices, such as the US S&P 500 falling more than 10pc from recent peaks. The VIX index of 'fear and greed' (which measures the volatility of the S&P500) has hit 13-month highs and is back trading at levels only seen during the 2008 meltdown.
"The way that markets are now behaving is suggestive of a move to pricing in renewed and significant economic weakness and the danger for investors is that market action will begin to negatively permeate economic fundamentals. It may be that capitulation is required in the near term to mark a short term trough in risk assets."
Financial advisers admit that no one can predict what will happen and suggest the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. What's more there will be some fund managers who argue that the volatility will trigger buying opportunities, although it is understandable that caution is the operative word for many investors at this juncture.
The advice from the great and the good, more often than not, is not to panic. There is the well-trodden argument from Fidelity that "it's about the time in the market, not out of it that counts''. But that can seem flippant when it comes to the prospect of losing your hard-earned cash.
Experts say that if you haven't already, it would be well worth reviewing your holdings to see if you are overexposed to any asset class or classes. Diversification and getting the balance right are vital.
Patrick Connolly at AWD Chase de Vere said that most people don't appreciate the risk they are taking when stock markets are going up. They only realise when markets are going down or are more volatile and then can panic and sell out at entirely the wrong time, he said.
"Too often investors buy at the top of the market when they are feeling bullish and sell out at the bottom when they are feeling negative. They should not allow short-term sentiment to influence their decision," said Connolly.
"The right approach is to hold a level of cash and then a diversified portfolio including shares, fixed interest and commercial property. These different investments need to be held in the right proportion to meet the requirements and risk profile of individual investors."
AWD Chase de Vere suggest that a diversified portfolio could include investment funds such as, PSigma Income, M&G Global Leaders, Cazenove European, Threadneedle American, JPM Emerging Markets, M&G Property Portfolio, Fidelity Moneybuilder Income and Schroder Strategic Bond.
Connolly added: "While panicking and selling is likely to be the wrong approach, for those who are concerned it is sensible to review their existing holdings and ensure they have the right level of diversification in their portfolios."
Adrian Lowcock at Bestinvest said that investors should look to have exposure to other asset classes, such as bonds, commercial property and absolute return funds.
His favoured funds in each of these sectors include Invesco Perpetual Tactical Bond, Henderson UK Property, Standard Life Global Absolute Return Strategies. He added: "The EU/IMF bail-out package will struggle to contain the issue and markets have responded accordingly. Investors should look to diversify their portfolios to reduce volatility but it is likely to be a bumpy ride in the short term."
http://www.telegraph.co.uk/finance/personalfinance/investing/7749761/Stockmarket-what-should-investors-do-now.html
The FTSE100 dropped below the 5,000 barrier in the aftermath of the naked short-selling ban in Germany and the ongoing euro crisis.
By Paul Farrow
Published: 3:07PM BST 21 May 2010
Investors had been enjoying a market revival since shares hit their March 2009 lows. Markets had become more volatile in recent weeks but many fund managers had ruled out any possibility of a full-blown stock market crash.
However, the eurozone crisis is worsening and many analysts are predicting a double-dip recession and further market falls.
Paul Niven, head of asset Allocation at F&C, said: "Equity markets have entered into a technical correction, with major indices, such as the US S&P 500 falling more than 10pc from recent peaks. The VIX index of 'fear and greed' (which measures the volatility of the S&P500) has hit 13-month highs and is back trading at levels only seen during the 2008 meltdown.
"The way that markets are now behaving is suggestive of a move to pricing in renewed and significant economic weakness and the danger for investors is that market action will begin to negatively permeate economic fundamentals. It may be that capitulation is required in the near term to mark a short term trough in risk assets."
Financial advisers admit that no one can predict what will happen and suggest the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. What's more there will be some fund managers who argue that the volatility will trigger buying opportunities, although it is understandable that caution is the operative word for many investors at this juncture.
The advice from the great and the good, more often than not, is not to panic. There is the well-trodden argument from Fidelity that "it's about the time in the market, not out of it that counts''. But that can seem flippant when it comes to the prospect of losing your hard-earned cash.
Experts say that if you haven't already, it would be well worth reviewing your holdings to see if you are overexposed to any asset class or classes. Diversification and getting the balance right are vital.
Patrick Connolly at AWD Chase de Vere said that most people don't appreciate the risk they are taking when stock markets are going up. They only realise when markets are going down or are more volatile and then can panic and sell out at entirely the wrong time, he said.
"Too often investors buy at the top of the market when they are feeling bullish and sell out at the bottom when they are feeling negative. They should not allow short-term sentiment to influence their decision," said Connolly.
"The right approach is to hold a level of cash and then a diversified portfolio including shares, fixed interest and commercial property. These different investments need to be held in the right proportion to meet the requirements and risk profile of individual investors."
AWD Chase de Vere suggest that a diversified portfolio could include investment funds such as, PSigma Income, M&G Global Leaders, Cazenove European, Threadneedle American, JPM Emerging Markets, M&G Property Portfolio, Fidelity Moneybuilder Income and Schroder Strategic Bond.
Connolly added: "While panicking and selling is likely to be the wrong approach, for those who are concerned it is sensible to review their existing holdings and ensure they have the right level of diversification in their portfolios."
Adrian Lowcock at Bestinvest said that investors should look to have exposure to other asset classes, such as bonds, commercial property and absolute return funds.
His favoured funds in each of these sectors include Invesco Perpetual Tactical Bond, Henderson UK Property, Standard Life Global Absolute Return Strategies. He added: "The EU/IMF bail-out package will struggle to contain the issue and markets have responded accordingly. Investors should look to diversify their portfolios to reduce volatility but it is likely to be a bumpy ride in the short term."
http://www.telegraph.co.uk/finance/personalfinance/investing/7749761/Stockmarket-what-should-investors-do-now.html
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