Vietnam: High bank interest rates, high production costs for businesses

Last update 12/11/2010 05:29:56 PM (GMT+7)

High bank interest rates, high production costs for businesses

VietNamNet Bridge – Higher dollar, higher loan interest rates, higher prices of input materials and weak purchasing power all have made businesses worried.
In an effort to curb the inflation, the Government is making efforts to reduce money supply to ease the pressure on prices. However, analysts have warned that this will hurt production companies which are normally dependent on credit.

Businessmen have also said that any measure adopted by the central bank to cope with high inflation will result in an increase in both deposit and lending interest rates.

The lending interest rate hike will put manufacturers and traders in a difficult position, in terms of their expenses including the import of raw materials 

Doanh Anh Tuan, Deputy General Director of ITC, an investment and trade company, said that the demand for borrowing capital from ITC in particular and Vietnamese businesses in general is now very high, because they are now making products for Tet sale season. Meanwhile, the lending interest rates are on the rise, thus putting hard pressure on production.

According to Tuan, ITC has to import input materials in big quantities to serve the local production, therefore, it has a high demand for dollars. Tuan said that since the beginning of the year, ITC has lost $2.5 million after two dong/dollar exchange rate adjustments.

ITC now has 300 billion dong of working capital, 30 percent of which comes from bank loans. Therefore, the interest the company has to pay for the loans will be a big burden.

Representative from a fibre export company in Da Nang said that anticipating the possible cotton price increases in the world market, his company plans to import a big volume of cotton for the upcoming production season. However, the company still cannot borrow dollars from banks, while the cotton price is escalating every day.
Secoin, which specializes in making and trading construction materials, has decided to delay some investment projects, because it does not want to risk borrowing too much when the lending interest rates are overly high.

Garment companies said that though there are many orders from foreign partners and the export prices have increased by 15-20 percent, they are still facing a lot of difficulties due to the higher production costs. Ho Le Hung, Deputy General Director of Hanosimex, said that even when export companies can enjoy higher export prices, they cannot pocket much money, because they have to pay for import materials.

In 2010, Hanosimex plans to export over $30 million worth of products. However, in order to obtain the export turnover, the company will have to import nearly $30 million worth of input materials.

Hung complained that it is now a very difficult period for businesses, and that Hanosimex despite getting privileged treatment at banks as their loyal customer has to think carefully before deciding to borrow money, , because the current interets rates are toohigh.

Source: Dau tu

http://english.vietnamnet.vn/en/business/1416/high-bank-interest-rates--high-production-costs-for-businesses.html

Vietnam: When a securities company leaves the market

Last update 29/10/2010 06:00:48 PM 

When a securities company leaves the market

VietNamNet Bridge – The news that Vincom Securities Company (VincomSC) has announced the plan to withdraw from the market has immediately caused a stir-up in the market. Analysts believe that many other securities companies would follow the move, especially when the stock market is getting cool.

VincomSC on October 26 announced the close down of its trading floor in the north to focus on the headquarter in the south. The move is part of the economic group’s plan to give up securities trading.

The leave of someone would be the opportunity for others

The withdrawal of VincomSC, a company with 18,000 securities accounts, is believed to create opportunities to other operational securities companies.

Just one day after VincomSC released the announcement, on October 27, a lot of securities investors came to VincomSC’s trading floor in Hanoi to listen to the news and make necessary procedures to close accounts there. An officer of the trading floor said many investors came to place orders to sell securities, withdraw money from their accounts, or open accounts at other securities companies.

An investor told VietNamNet that the first thing he had to do after hearing about the close down is to withdraw all the money from his account. He said that he would open an account at a company headquartered in the north, rather than a one in HCM City.

Long, another securities investor, also said that he and some of his friends have also closed the accounts at VincomSC. They are planning to open accounts at big securities companies belonging to commercial banks, because they believe once the companies are backed by banks, they would get support from the parent banks.

Long even believes that the market would witness another withdrawal , and that it would be better to open accounts at big companies than small ones.

VincomSC has said that the current clients of VincomSC in the north will have three choices, either to maintain their accounts at the company which would then be transferred to the trading floor in HCM City, or to close the accounts at VincomSC, or transfer the accounts to VPBank’s Securities Company.

It seems that most investors choose the latter option.

Having realized that a big number of investors are looking for suitable service providers, securities companies have been rushing to approach the investors and persuade them to become their clients\. Some of the companies have sent staff to VincomSC’s trading floor to meet and persuade new clients.

A broker from a securities company has revealed that at this moment, when the market is gloomy, it is the right time for securities companies to develop the scope of?? services. Therefore, it would be a very important task to seek more clients now. His company not only tries to access individual investors, but also VIP clients, and institutional investors.

When the stock market becomes gloomy

In fact, many securities companies have narrowed their business scope after a lot of ups and downs in the market. The first thing they did was to shut down branches in small areas with few investors. Some even had to stop providing the services which require high chartered capital. Some others have been trying to transfer capital to foreign partners.

Three years ago, when the stock market was scorching hot, securities companies were mushrooming. There are about 100 operational securities companies now. However, in fact, securities investors only know 20 biggest companies, while the other companies are all small and less known. The top 10 companies alone are holding 50 percent of the market share, while the other 90 companies have share the other 50 percent.

Previously, when the market was hot, small companies still did well by trading securities themselves. However, as the market has become gloomy, the companies cannot live solely on services.

It is clear that the small stock market in Vietnam is not a big cake which can be divided into enough pieces to all securities companies. Therefore, analysts have said that it would be not a surprise if other companies follow VincomSC’s move and decide to leave the market.

Le Khac Hiep, Chair of Vincom, the parent company of VincomSC, admitted that the company has not been doing well, failing to meet the business targets.

Le Khac

http://english.vietnamnet.vn/en/business/904/when-a-securities-company-leaves-the-market.html

Vietnam: Big shareholders turn their backs to bank shares

Last update 01/11/2010 02:47:46 PM (GMT+7)

Big shareholders turn their backs to bank shares

VietNamNet Bridge – State shareholders, i.e. the economic institutions, where the state holds controlling stakes, now turn their backs to bank shares, which they had never done before.
To date, the State Bank of Vietnam has approved the plans to increase chartered capital to three trillion dong by 16 domestic joint stock banks. As required, banks must have the chartered capital of three trillion dong at minimum by the end of 2010. However, a lot of banks are reportedly facing big difficulties in increasing capital, because state shareholders do not intend to inject more money in the banks.

Turning a deaf ear to banks’ share issues

Since state shareholders do not havea demand for more bank shares, they have aucioned the shares additionally issued by banks. Most recently, the HCM City State Financial Investment Company (HFIC) auctioned nearly 15 million options on HD Bank’s shares at the starting price of 110 dong per option.

The company has also auctioned 3.82 million options on Viet A Bank’s shares. Meanwhile, VOSCO, a shipping firm, has auctioned 4.15 million options on Military Bank’s shares.

Being a small bank, Navibank is thought to face many difficulties when trying to increase chartered capital. The Vietnam Textile and Garment Group (Vinatex) does not intend to maintain the ownership ratio at the bank.

In January 2009, the Vietnam National Oil and Gas Group (PetroVietnam) became a shareholder and strategic partner of Ocean Bank. The bank plans to increase its chartered capital to 3000-4000 billion dong in 2010 and to five trillion dong in 2013. However, a serious problem has arisen when Deputy Prime Minister Nguyen Sinh Hung instructed PetroVietnam not aim for20 percent of Ocean Bank’s shares since the group has capital difficulties.

Vietcombank, which turned from a state-owned bank into a joint stock banks three years ago, is now holding 19 percent of stakes of Gia Dinh Bank. Vietcombank is still considering whether to pour more money into Gia Dinh Bank to maintain the current ownership ratio of 19 percent or to withdraw its capital altogether.
Orient Bank has got the approval from the State Bank for its plan to increase the chartered capital from two trillion dong to 3.1 trillion dong in 2010 by issuing more shares, including to existing shareholders. Ben Thanh Corporation, the biggest shareholder of the bank, now holding 10.6 percent of stakes of the bank, has agreed to increase capital, but it is still unclear if it try to keep the current ownership ratio at the bank or not. Ben Thanh said it will still have to ask for the permission from the HCM City People’s Committee.

Banks still have opportunities

Under the current laws, banks must implement the capital increase within 12 months since the day they get the permission from the central bank.

Cao Sy Kiem, former Governor of the State Bank said that if state shareholders do not spend money to buy the shares to be additionally issued by banks, this would create a great challenge for the banks in trying to increase their capital. However, Kiem said banks still have many other measures availablerather than relying on state shareholders.

“There are two solutions. First, they can issue shares to the public. Second, they can look for foreign partners,” Kiem said, adding that no matter who their buyers are, banks need to set up reasonable sale prices and set reasonable requirements. “Especially, they may have to make compromises in negotiations on some matters,” he said

Doanh Nhan

http://english.vietnamnet.vn/en/business/976/big-shareholders-turn-their-backs-to-bank-shares.html

Vietnam: Goods prices escalating, people have to tighten their belts

Last update 10/11/2010 02:36:18 PM (GMT+7)

Goods prices escalating, people have to tighten their belts

VietNamNet Bridge – The prices of essential goods have been increasing sharply by 10-20 percent, or even 100 percent just over the past few weeks. But the actual income of regular employees does not increase.

Prices on the rise

Nguyen Thi Theu in Ngoc Thuy ward, Long Bien District, said that previously, she spent about 100,000 dong a day for the meals for five members of the family. she now has to spend no less than 130,000 dong a day for the same ingredients. Several hundreds of thousand dong would suffice for some essential goods.

Theu joked that sometimes she thought she must have dropped the money somewhere, because it ran out so quickly. “The problem is the prices have been increasing so rapidly,” she said.

Kim Oanh, 60, a housewife in the central district of Hoan Kiem in Hanoi, said that the prices have been increasing every day. Previously, Oanh regularly went to the small market near her house, where the prices were a little higher than the prices in other places. However, since the prices have been increasing so sharply, Oanh has decided to go farther to Ngo Sy Lien market which offers lower prices.

“I am now living with my son and his family. My son gives me three million dong more a month after he realized that the prices were on the increase. However, even with the additional money, I still have to tighten my belt,” she complained.

The prices of fresh food and vegetables have been rapidly increasing at all markets in Hanoi. Vegetables have become 20-50 percent more expensive, while the meat and fish prices have increased by 5-10 percent due to the short supply caused by the epidemics in the central region.

Big supermarkets in Hanoi such as Co-op Mart, Intimex, have increased the prices of many products since November, including sweets, cosmetics, clothes and household goods, after suppliers announced the 5-10 percent increases in October.

Meanwhile, many big stores on Hang Ma, Kham Thien and Nguyen Thai Hoc streets have warned customers about the price increases of 20-30 percent in days to come.

Traders on a knife-edge

Director of Minh Anh company, a big importer and distributor of sweets, and drinks, said the company had to raise the sale prices by 10-20 percent, after the euro increased to 28,000 dong per euro from 25,000 dong one month ago.

“The imports from Europe have become terribly expensive because producers have raised prices and the euro has appreciated. The Belgian partner has informed us of the 28 percent price increase,” the director said.

Analysts say despite the increase in the prices of sweets and drinks, the demand will not fall, because people will still have to purchase these products as the New Year 2011 and Lunar New Year are nearing, the time to give gifts to bosses and partners.

Meanwhile, the distributors of non-food products complain that the purchasing power is very weak.

The salesman of DigiWorld Shop on Hang Bai street, specializing in trading digital products, said since the dollar price has exceeded the 20,000 dong per dollar threshold, the purchasing power has dropped by 50 percent.

The sharp CPI increase of 1.05 percent in October has raised worries among the public. Dr Vu Dinh Anh, Deputy Head of the Ministry of Finance’s Market and Price Research Institute, said that if Vietnam cannot restrain the CPI in the last two months of the year, the CPI increase in the whole year 2010 would be at two-digit levels, 11 or 12 percent.

Nguyen Nga

http://english.vietnamnet.vn/en/business/1315/goods-prices-escalating--people-have-to-tighten-their-belts.html

Vietnamese rushed to purchase gold, but shops only sold gold in dribs and drabs.

Last update 10/11/2010 02:43:36 PM (GMT+7)

Gold prices dancing, shops sell gold in dribs and drabs

VietNamNet Bridge – The gold market was burning yesterday with the price increasing in waves. People rushed to purchase gold, but shops only sold gold in dribs and drabs.

Gold and dollar prices escalating, no one benefits

Gold prices fluctuating

In the afternoon of November 9, the gold shops on Tran Nhan Tong street in Hanoi were less crowded than in the morning of the same day. Explaining this, some people told VietNamNet’s reporter that many people purchased gold in the morning already, and they did not have to go to gold shops any more.

At Bao Tin Minh Chau shop, only a limited volume of bar gold was seen on display. Those people, who wanted to purchase gold in big quantities, were told to come back the next day to get deliveries.

The gold prices in the afternoon saw slight decreases from the prices in the morning. However, VietNamNet’s reporter found out that the prices are still fluctuating.

At 4 pm, the price of Rong Thang Long brand gold of Bao Tin Minh Chau was quoted at 36.7-37.3 million dong per tael (purchasing and selling prices) (a tael is equal to 1.2 oz). At 5 pm, the purchasing price increased by 200,000 dong per tael to 36.9 million dong per tael, while the selling price dropped by 100,000 dong to 37.2 million dong.

Rong Thang Long brand gold’s closing prices were 36.9-37.45 million dong per tael (purchasing and selling prices) which meant that the purchasing price remained unchanged while the selling price increased by 250,000 dong per tael.

The prices SJC brand gold, sold by Phu Quy Company, also fluctuated. At 5 pm, the price of SJC brand gold was quoted at 37-37.5 million dong per tael, an increase of 100,000 dong per tael in purchasing price in comparison with the price in mid afternoon, and 300,000 dong in selling price.

Ha Van, a gold investor told VietNamNet that the domestic gold price is 3-4 million dong per tael higher than the world price. He said that this is the most serious price increase in the history of Vietnam’s gold market

People panic

A lot of people whom VietNamNet’s reporter met yesterday said that they cannot predict the gold price.

Kim Thao, who lives in Hoang Mai District, told VietNamNet late yesterday afternoon that she came to the gold shop at 9 am but she still could not buy anything.

Thao said that she has sold $10,000 at 19,500 dong per dollar and planned to buy gold. She decided not to buy gold when the price was 32.5 million dong per tael, thinking that the price would go down in some more days. However, contrary to her prediction, the price increased to 32.7 million dong, and then to 35.85 million dong on November 8. 

“Now I really dare not purchase gold, because the price has jumped to 38.15 million dong per tael,” she complained.

“I do not understand, especially if the Government can intervene the market to force the prices down,” she added.

Binh, another gold buyer, told VietNamNet that he had to spend a whole morning to queue up to purchase gold, but the shop only sold gold in dribs and drabs. “The gold price escalated every minute this morning. The price soared by 200,000 dong per tael just within a short time, from the time you placed order to the time you got delivery,” he said.

While people panicked with the price increases, financial experts said the price increases are predictable. Tran Dung, an analyst, said: “People do not have much information about the gold price performance in the world market. But I know that experts have forecasted the gold price will continue rising to $1650 per oz from the current price of $1410.

“If the world price increases, the domestic price would go up accordingly, and go up more sharply, because the dong is losing its value against the dollar,” he said.

Pham Huyen

http://english.vietnamnet.vn/en/business/1317/gold-prices-dancing--shops-sell-gold-in-dribs-and-drabs.html

Vietnam Banks quietly raise deposit interest rates

Last update 11/11/2010 05:44:11 PM (GMT+7)


Banks quietly raise deposit interest rates

VietNamNet Bridge – Though members of the Vietnam Banking Association have agreed to keep the ceiling deposit interest rate at 12 percent per annum, many banks have quietly raised the deposit interest rates to 14-15 percent, and the lending interest rates to 18-19 percent.

On November 10, the interbank interest rate exceeded the 20 percent per annum threshold.

Banks thirsty for deposits

Deputy General Director of a HCM City-based bank said that though the bank has raised the deposit interest rate to 12 percent per annum from 11 percent, it still has to struggle hard to retain deposits, because people are trying to withdraw money from the bank.

“We have never met such big difficulties in mobilizing capital before. Though the deposit interest rates have become sky high, depositors still do not want to put money into banks, because the dollar and gold prices both have been increasing sharply,” he said.

General Director of another bank said that though the deposit interest rates have been increasing sharply, this still cannot attract capital into banks.

Some depositors told bank officers that they will only deposit money if the interest rates are raised to 13.5-14 percent per annum.

The highest deposit interest rate is being offered by Phuong Tay Bank, at 15 percent per annum.

Small banks stop lending

Pham Quoc Thanh, Deputy General Director of An Binh Bank, said that the bank now only disburses money for the signed credit contracts, while it does not consider providing new loans at this moment.

General Director of another bank said the bank’s board of director had a meeting yestserday to discuss the solutions to the sharp falls in mobilized capital. The prompt measure put forward is that the bank will stop providing new loans until the situation can be improved.

Currently, the bank still can meet the requirements on capital adequacy ratio. However, in the next week, when other banks withdraw money as the deposits become matured, the bank will face difficulties.

Urgent intervention called

According to Dr Tran Hoang Ngan, Deputy President of the HCM City Economics University, the task of the State Bank is to ensure liquidity for banks and keep the interest rates at the reasonable levels to ensure the implementation of socio-economic plans. Therefore, Ngan said, the State Bank needs to make urgent intervention to the market by pumping money through the open market to stabilize the interbank interest rates. If the central bank does not take actions immediately, a new interest rate war among commercial banks may occur.

Ngan also said that the central bank should consider allowing commercial banks to mortgage their gold at the central bank to borrow Vietnam dong.

Cao Sy Kiem, former Governor of the State Bank also thinks that the State Bank needs to take urgent action in order to obtain the macroeconomic stability.

Source: Tuoi tre

Why I'm with Warren Buffett on bonds versus equities

Follow the herd or follow Warren Buffett? That sounds like it should be a pretty simple choice for most investors given the average investor's consistent ability to buy and sell at the wrong time and the sage of Omaha's ranking as one of the world's richest men.

By Tom Stevenson 6:15PM BST 09 Oct 2010

Curious then that Mr Buffett is doing a passable imitation of Cassandra – she who was cursed so that she could foretell the future but no one would ever believe her.

Here's Buffett, speaking last week to Fortune magazine's Most Powerful Women Summit: "It's quite clear that stocks are cheaper than bonds. I can't imagine anyone having bonds in their portfolio when they can have equities ... but people do because they lack the confidence."

And here's what everyone else is doing. According to Morgan Stanley, the speed of inflows to bond funds is even greater than retail inflows into equity funds at the height of the technology bubble in 2000 – $410bn (£256bn) in the 12 months to April 2010 in the US versus $340bn into equities in the year to September 2000.

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Over here, too, investors can't get enough fixed income. According to the Investment Management Association, net sales of global bonds and corporate bonds both exceeded £600m during August. Only absolute return funds were anywhere close to these inflows. The staple British equity fund sector, UK All Companies, saw £291m of redemptions and even the previously popular Asia ex-Japan sector raised a paltry £22m.

So, is this a bubble waiting to burst or a logical investment choice in a deflationary world where interest rates could stay lower for longer as governments adopt more desperate strategies to prevent another slump?

The case for bond prices staying high has received a boost in recent weeks as speculation has grown that the US government is contemplating a second round of quantitative easing. Printing yet more money to buy bonds creates a buyer of last resort and would underpin the price of Treasuries even at today's elevated levels.

Indeed, the talk on Wall Street has turned to a measure the US government has not employed since the Second World War when a target yield for government securities was set with the implied promise that the authorities would buy up whatever they needed to keep the cost of money low.

Ben Bernanke, the Fed chairman, referred to this policy in his famous "Helicopter Ben" speech of 2002 when he reminded financial markets of the US government's ultimate weapon in the fight against deflation – the printing press. It really is no wonder that the price of gold is on a tear.

For a few reasons, however, I'm not convinced that the theoretical possibility that interest rates could go yet lower à la Japan makes a good argument for buying bonds at today's levels.

First, to return to fund flows, extremes of buying have in the past been a very good contrarian indicator of future performance. Equity flows represented around 4pc of total assets in 2000 just as the bubble was bursting. At the same time, there were very significant outflows from bond funds just ahead of a strong bond market rally.

My second reason for caution is illustrated by the chart, which shows how little reward investors are receiving for lending money to the US government (and the UK, German or Japanese governments for that matter). Accepting this kind of yield makes sense only if you believe the US economy is fatally wounded and that the dragon of inflation has been slain. I don't believe in either thesis.

History shows very clearly that investing in bonds when the starting yield is this low has resulted in well-below-average returns if and when rates start to rise. Between 1941 and 1981, when interest rates last rose for an extended period, the total return from bonds was two and a half times lower when the starting point was a yield of under 3pc than when it started above this level. Investing when yields are low stacks the odds against you.

My final reason for caution is that there is no need to put all your eggs in the bond basket. Around a quarter of FTSE 100 shares are yielding more than 4pc while the income from gilts is less than 3pc. More income and the potential for it to rise over time too. I'm with Warren on this one.

tomrstevenson@fil.com

Tom Stevenson is an investment director at Fidelity Investment Managers. The views expressed are his own.

http://www.telegraph.co.uk/finance/comment/tom-stevenson/8052896/Why-Im-with-Warren-Buffett-on-bonds-versus-equities.html

The ultimate determinant of eventual returns is the price you pay at the outset. History shows that the best way to invest is against the tide but not blindly so.

For most, equities are still a step too far


A feature of investment markets this year has been the so-called risk-on, risk-off trade whereby investors have swung between an appetite for more risky assets like shares and commodities and a desire to play it safe in the perceived calm havens of government bonds and cash.

By Tom Stevenson, on The Markets

8:35PM GMT 13 Nov 2010

This jumpiness is part of a bigger trend away from the certainties of the pre-2000 equity bull market towards a foggier investment landscape in which investors are scrabbling around for three sometimes contradictory outcomes: capital security in a volatile world; a decent income in an environment of near-zero interest rates; and growth against a backdrop of deleverage and austerity.

The chart illustrates how much the investment world has changed over the past decade. In 2000 there was only one game in town. Around £8 of every £10 invested in UK mutual funds by private investors went into equities, with about £1 into bonds and the same into balanced funds.

Fast forward nine years to 2009 and a very different picture emerges. Last year, less than a third of net retail sales of UK funds was in funds investing in the stock market. A larger proportion went into bonds while much of the remainder went into absolute return and cautious managed funds. This is not just a UK picture. Figures compiled by Citigroup show that inflows into equity funds have been nothing to write home about across Europe (in fact they are negative pretty much everywhere outside the UK) while bond funds continue to attract money despite increasing fears in the eurozone periphery. The big winner has been balanced funds.

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What this tells us, I think, is that investors are being forced out of cash and into riskier assets by persistently low interest rate policies but, despite the return to form of stock markets over the past 18 months, the pain of the "lost decade" and recent volatility mean that for most people equities remain a step too far.

The money that is going in to equities is largely chasing the perceived growth offered by emerging markets, which confirms the contradictory thinking driving asset allocation at the moment. Investors' desire for safety, income and growth all at the same time smacks of wanting their cake and eating it. This is leading to some pretty indiscriminate investment with not a lot of attention to which assets currently offer the best value.

There are some good technical reasons why investment flows should have shifted towards less risky assets. The matching of assets to liabilities by pension funds and the ageing of the average member of pension schemes are part of the story – as are greater capital requirements in the insurance sector. But something else less logical and more worrying seems to be going on. Investors yet again appear to be chasing past performance in a rose-tinted piece of extrapolation which assumes that last year's winners will inevitably be next year's too.

In 2000 the best-performing asset classes over the preceding five years in the UK were residential property, European equities and hedge funds. It is perhaps unsurprising that fund flows should have been so skewed. Jump to 2009 and the best-performing assets were gold, corporate bonds, gilts, German bunds and US Treasuries. Guess where the money is now going.

We know what happened to those caught up in the equity mania 10 years ago, so it is not unreasonable to ask what the returns will be 10 years hence on all the money currently pouring into precious metals, government bonds and emerging market equities.

History shows that the best way to invest is against the tide but not blindly so. Fund flows are only a part of the story because the ultimate determinant of eventual returns is the price you pay at the outset. In the case of emerging market equities, the multiple of earnings on which the average share trades is bang in line with global markets generally, according to Morgan Stanley's calculations.

When Japanese stocks peaked in 1989 it was at three times the global average, while technology stocks in 2000 were twice as expensive. Equities, emerging and developed, are much better value than government bonds – which is just what the fund flows are telling us.

tomrstevenson@fil.com

Tom Stevenson is an investment director at Fidelity Investment Managers. The views expressed are his own


http://www.telegraph.co.uk/finance/comment/tom-stevenson/8130470/For-most-equities-are-still-a-step-too-far.html


Main Points:
What this tells us, I think, is that investors are being forced out of cash and into riskier assets by persistently low interest rate policies but, despite the return to form of stock markets over the past 18 months, the pain of the "lost decade" and recent volatility mean that for most people equities remain a step too far.


Investors yet again appear to be chasing past performance in a rose-tinted piece of extrapolation which assumes that last year's winners will inevitably be next year's too.


In 2000 the best-performing asset classes over the preceding five years in the UK were residential property, European equities and hedge funds. It is perhaps unsurprising that fund flows should have been so skewed. Jump to 2009 and the best-performing assets were gold, corporate bonds, gilts, German bunds and US Treasuries. Guess where the money is now going.


History shows that the best way to invest is against the tide but not blindly so. Fund flows are only a part of the story because the ultimate determinant of eventual returns is the price you pay at the outset.