Thanks SC and Bursa, for alerting investors of possible market manipulations

In todays paper in the Star (18.6.09), the headline reads:

On the alert. SC and Bursa to act against market manipulators.

Investors beware!

Thursday June 18, 2009
SC and Bursa to act against market manipulators
By YAP LENG KUEN


PETALING JAYA: The Securities Commission (SC) and Bursa Malaysia will investigate and take action if there is any evidence of stock market manipulation amidst the current liquidity-driven rally.

“Both the SC and Bursa carry out surveillance of all trading activities on the exchange.

“The scope of surveillance covers all dimensions of the trading activities. If there is any evidence of market manipulation, the SC and/or Bursa Malaysia will investigate and take appropriate enforcement action,” an SC spokesman said in an e-mail response to queries from StarBiz. “This is further complemented by SC’s investor education programmes conducted regularly to help investors make informed investment decisions.”

Since early May, Bursa has issued six unusual market activity (UMA) queries, following sudden surges or drops in share price or volume traded. The first query went to Unisem (M) Bhd (May 6), followed by Measat Global Bhd (June 4), Transmile Group Bhd (June 5), SAAG Consolidated (M) Bhd and Compugates Holdings Bhd (June 11) and Equine Capital Bhd (June 16).


Recent price movements of some counters

Bursa chief regulatory officer Selvarany Rasiah said as a frontline regulator, Bursa had a duty to ensure an orderly and fair market.

“The maintenance of an orderly and fair market necessarily means that the exchange focuses on identifying the presence of any manipulative or artificial nature of trading on the market. On this note, to be clear, it is the manipulative or artificial nature of trading (in the sense of being false or resulting from trickery or deception) that is of concern to the exchange,’’ she said in a statement to StarBiz.

“Where trading takes place in an informed market and in the absence of manipulative conduct, the exchange believes it is a matter for investors to make a decision as to whether to participate.

“So-called speculative trading is not in itself offensive or undesirable but it is not tolerated by the exchange if it transforms into a market offence such as manipulative trading conduct.’’

“While those in the market may only see the UMAs or market alerts – or only be aware of the contact we have directly with them – the exchange engages in a high level of activity across all facets of the market, monitoring and investigating trading and initiating a range of regulatory responses to ensure that the market is fair, orderly and informed.”

On comments that the current market alerts were reminiscent of those issued in old times, she said: “Stock markets, this one included, tend to be cyclical and when market levels change, the exchange will come in as necessary to inform investors about the importance of ignoring rumours and basing their trading decisions on research and a careful consideration of the fundamentals of the stocks that make up the market.

“The exchange will continue its active monitoring of trading, engagement with brokers and registered persons, its use of a range of regulatory responses from those that can be implemented immediately to investigation and disciplinary action which necessarily takes more time to complete.’’

Hence, she added, the market could expect to see continued use of UMAs and market alerts, a continuation of Bursa’s awareness raising activities and emphasis on the role of listed issuers, participating organisations and registered persons’ play in ensuring market integrity.

“We note also the value, particularly to investors, of the publication and reporting of market alerts and other information about trading activity on our market,” she said.

---

"Where trading takes place in an informed market and in the absence of manipulative conduct, the exchange believes it is a matter for the investors to make a decision as to whether to participate.

So-called speculative trading is not in itself offensive or undesirable but it is not tolerated by the exchange if it transforms into a market offence such as manipulative trading conduct."

----

Wednesday June 17, 2009

Equine queried on heavy trading


PETALING JAYA: Equine Capital Bhd (ECB) in reply to a Bursa Malaysia query yesterday said it was not aware of any event that may have contributed to the unusual market activity in its shares recently, in particular, on June 15.

ECB was the most heavily traded counter on Monday with 50.28 millions exchanging hands.

In a filing with Bursa, the ECB board of directors said that they were not aware of any corporate development relating to ECB group’s business and affairs that had not been previously announced that may account for the unusual market activity.

“We do not have any other possible explanation to account for the unusual market activity,” it added.

Since April, Bursa has issued five unusual market activity queries, issued when the share price or volume of a company suddenly surges.

The first for the year was on May 6 when it queried Unisem (M) Bhd, followed by four more this month, starting with Measat Global Bhd on June 4, Transmile Group Bhd the next day, and SAAG Consolidated (M) Bhd and Compugates Holdings Bhd on June 11.

Meanwhile, Compugates told Bursa yesterday group managing director and substantial shareholder Goh Kheng Peow had received margin call notices between June 2 and June 7 from Malacca Securities, EON Bank Bhd, OSK Investment Bank Bhd and Malayan Banking Bhd.

Earlier, in a reply to Bursa’s query on June 11, Compugates said the recent high trading volume was caused by a reduction of margin facility to Goh by stockbrokers.

For example, RM5mil was revised downwards to RM1.5mil effective May 20 by TA Securities.

EQUINE : [Stock Watch] [News]

http://biz.thestar.com.my/news/story.asp?file=/2009/6/17/business/4132023&sec=business

Tips on how investors could build a large portfolio

Wednesday June 17, 2009
Tips on how investors could build a large portfolio
Personal Investment - A column by Ooi Kok Hwa



OWING TO the global economic downturn, some investors may have to put aside their aim of wealth accumulation lately. (Comment: This is the best time to invest.)

For now, wealth accumulation seems to be far away given their current low salary level, worsened by lower bonuses received or no salary increment.

As a result of the uncertainty arising from salary reduction or getting retrenched, some may even need to tap into their savings to survive through this period of difficulty.

We can fully understand this situation. However, we believe that we should consider building a portfolio at this time.

We may not want to rush in to buy stocks now in view of the current high prices. However, we need to prepare ourselves to “fish” good quality stocks at reasonable price levels if the market turns down again.

We will regret if we are not investing during this period because usually the best opportunities are discovered during a downturn.

Nevertheless, some investors think that it may not be realistic for them to invest now given that they are already having difficulties making ends meet.

However, we believe that we need to start somewhere. Every big portfolio always starts from a small one. If we never sit down and start thinking about building a portfolio, we will never get a big portfolio. Hence, we should start now and start small.

When our portfolio is about RM10,000 in size, a 10% return means a return of only RM1,000. However, when our portfolio grows to RM1mil, a 10% return means RM100,000!

Some investors may have the intention of building a portfolio but they do not know how to do so. In fact, some may depend on wealth advisers on this issue.

However, even if we get a very good, knowledgeable and responsible wealth adviser, we also need to equip ourselves with some knowledge in this area to make sure we make sound investment decisions; after all, we need to be responsible for our future.


We can gain this knowledge by reading books related to this topic or attending some training courses. (Comment: Get good financial education early.)

Know what we want to achieve

T. Harv Eker says in his book, Secrets of the Millionaire Mind, that “the number one reason for most people who do not get what they want is that they don’t know what they want.”

For example, if we want to have a good retirement, we will have to know how much we need for our retirement and plan ahead for it. To give you some ideas, there are quite a few websites that can provide free advice on how to determine your retirement needs.

Once we know how much we need for retirement and set it as an objective, we need to focus on growing our net wealth to achieve it.

Sometimes investors are too focused on their current income level and short-term gain that they end up neglecting the long-term growth of their net wealth. (Comment: Focus on the long-term, grow your portfolio, allowing compounding to work its magic over a long period.)

High income does not mean high net wealth if your expenses are higher than your income level. Hence, we need to control and monitor our expenses in order to have a net positive cash inflow instead of outflow.

If possible, we should have a cash budget that will guide us on the expected income to be received as well as the expenses to be incurred in the coming periods. We should try our best to stick to the plan and be committed to build our wealth.

Lately, some investors have been affected by high credit-card debts, which may be due to high expenses that cannot be supported by their current income.

During hard times, we need to plan carefully for big expenses and, if possible, we should delay expenditures which are not critical.

Given that nobody will know when our economy will recover, it is safer to spend less and try to reduce our debts.

In fact, if we have cultivated good spending habits from the start, regardless of economic situation, we will not have the problem of having to trim down unnecessary expenses during bad times. We have seen a lot of successful people living below their means and being very careful in spending money on luxury items. We should learn from these examples.

Don’t look down on low returns

Sometimes, a guarantee of low returns is better than the uncertainties of high returns, depending on the risk tolerance level of individuals. Always remember that risk and return go hand-in-hand. Not every investment product suits our return objective and risk tolerance level. (Comment: The smart investor searches for high returns with low risks ... yes, these investments are available, just be patient and be ready when the opportunities appear.)

Therefore, we need to understand the characteristics and nature of investment products that we intend to invest in before we make any investment decisions.

We cannot always think of big returns without considering the potential risks that we need to encounter. (Comment: Always assess the risk of downside first, then the reward of any upside. The risk/reward ratio should be favourable to your requirement of safety of capital and with a reasonable moderate return, before you invest.)

For those who like to play it safe, it will be wiser to go for defensive ways of investing, which means looking for stocks that pay good dividends and have solid businesses. (Comment: This is the safest route for the less savvy investors.)

Remember, we need to be patient, go slow and steady. If we can avoid making losses during this period, we should be able to achieve our financial goals when the economy recovers again.


Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


http://biz.thestar.com.my/news/story.asp?file=/2009/6/17/business/4131454&sec=business

Diary of a private investor: Three reasons why it is bigger risk to be out of the market

Diary of a private investor: Three reasons why it is bigger risk to be out of the market

Can the spring rally continue into summer? The FTSE 100 was crushed at a mere 3,512 on March 3. By early this week, it had risen to 4,500 – a 28pc jump.

By James Bartholomew
Published: 7:00AM BST 03 Jun 2009

In glorious Technicolor retrospect, it seems pretty obvious that the market was likely to recover from its March low since many individual shares at the time were at Armageddon-fearing valuations.

Indeed, I did mention in this diary in early March that a company called Staffline was priced at a “mere” 2.5 times its prospective earnings and the shares were “seriously cheap”.


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These shares have risen 66pc since. And that illustrates the problem. Many such shares may well still be excellent value for the medium or longer term. But you would not use the phrase “seriously cheap” so freely now.

So what happens next? If that was a rally from extreme cheapness, what does the market do when it is merely excellent value? Last week I got a little nervous and sold some of my shares in Enterprise Inns, a pub company.

I reckoned May was ending and summer is the season when shares tend to do badly. Add in that the market has had such a terrific run and was there not a setback risk? Was it not a good idea to have more cash in hand?

But three things now make me think the bigger risk is being out of this market. The first is a paper by economist Tim Congdon, who has just created a new consultancy International Monetary Research.

In this he argues inflation will not take off in the next two years, contrary to my previous belief. I had thought all this monetary stimulus was likely to lead to serious inflation. If this happened, it would lead to higher interest rates, which would undermine any potential bull market.

But, looking at the American economy, Congdon examines major economic setbacks and finds in six cases out of seven since the Second World War, the inflation rate two years after a trough was lower that it had been previously. That is one worry of mine calmed.

The second influence again comes from Congdon. He went on to study how the stock market in America performed in the two years following a trough in economic activity. Of course, this is not America, but a similar story can probably be told here. In every case, shares rose.

And the third influence is the Coppock Indicator, devised by a man of that name many years ago. He asked bishops how long it takes people to recover emotionally from the loss of a loved one. He was told 11 to 14 months, and from that he built a system – presumably thinking it could take investors a similar time to get over losing their savings.

I believe his system has an excellent track record for confirming the start of bull markets. Well, the Coppock Indicator for the FTSE 250 has given a buy signal and apparently it is now inevitable it will do the same for the FTSE 100.

Given a new lease of confidence, this week I more than bought back the Enterprise Inns I had sold last week (sadly at a higher price). Before that I bought more shares in Telecom Plus, a utility provider at 291p.

I also bought more shares in Nippon Parking in Japan at Y4017 and Y4984; Home Products in Thailand at Thai baht 4.63 and 5.23, and Bumrungrad Hospital at Thai Baht 27.33. Most have attractive dividend yields.

I have also bought two chunks of shares in Cheung Kong, the Hong Kong property blue chip at HK$91.70 and HK$99.65.

I have financed the purchases by selling most of my yen. I have also sold my inflation-indexed gilts and most of my corporate bonds. Why so many Far Eastern shares? Because the proportion in my portfolio had become tiny and the bull markets there seem to be charging ahead.

I also fear that – despite the good medium prospect – Britain might have a lull over summer. I am still 20pc in cash and bonds. But if the market does weaken between now and November, at that point I intend to get 100pc invested.

http://www.telegraph.co.uk/finance/personalfinance/investing/5433916/Diary-of-a-private-investor-Three-reasons-why-it-is-bigger-risk-to-be-out-of-the-market.html

Message to investors – don't panic

Message to investors – don't panic

The stock market has reacted badly following the revelation that Lehman Brothers, the giant US investment bank has filed for bankruptcy, leaving investors wondering how to protect their savings.

By Paul Farrow
Published: 1:33PM BST 15 Sep 2008

In London staff at the bank's Canary Wharf offices turned up to work to hear the bad news Photo: ANTHONY UPTON

Millions rely on shares to provide for their retirement and the pessimistic outlook has left them asking: "Should I hold on to my shares, or cut and run before it's too late?''

With shares down more than 20 per cent on their peak, many will be tempted to sell. But the experts will tell you that even if you are sitting on losses, it may pay to grit your teeth and see the crisis through – particularly if you have held on through the past year. Are you investing for short-term profit or a long-term nest egg? If you are saving for retirement then hanging on to your shares could be the wisest decision.


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Investing in shares is about your time in the market, not out of it. According to the fund manager Fidelity, a stake of £1,000 invested in the UK stock market 15 years ago would today be worth £3,261. But if you had missed the 10 best days since June 1993, the stake would be worth just £2,147. Stripping out the best 40 days slashes it to just £885.

Mark Dampier, head of research at Hargreaves Lansdown, says: "I think it is actually good news, although I understand why investors will have the jitters – they need to hold their nerve if they can. We need some banks to go under – the quicker that happens the quicker we can get out of this mess and it means we are a step nearer the bottom. It is not all good news, the economy will get worse, but much of that is priced in the stock market - we all knew Lehman was in trouble and it has not been that much of a surprise.

No one can predict what will happen and the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. There will be those managers who argue that the volatility will trigger buying opportunities, but there is no doubt that caution is the operative word at this juncture. The advice from the great and the good is not to panic.

But 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.

Dampier – who has around 25 per cent of his own portfolio in cash – is buying shares on their bad days to take advantage of the price dips. He adds: "I think the FTSE100 will fall to below 5,000, but investing is never easy, but it is when markets are bad that it is the right time to stay invested - if you wait until share prices have stabilised you will have missed out on the gains.

http://www.telegraph.co.uk/finance/personalfinance/investing/2962934/Lehman-Brothers-Message-to-investors---dont-panic.html

Keep your balance as markets plunge

Keep your balance as markets plunge
A mix of different assets will keep your portfolio in positive territory amid the crunch.

By Rosie Murray-West
Published: 1:57PM BST 22 Sep 2008

Attitudes to risk and reward remain individual Photo: PA
For some people an unacceptable risk might be bungee jumping off the Empire State Building, while others might find it too frightening to board a plane.

But while attitudes to risk and reward remain individual, there are things you can do to make sure your investment portfolio is not overexposed to risky markets - and that it is not too safe to be making you any money. While no investment is entirely without risk, some are perceived as safer than others, but may produce lower returns.


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Recent market volatility has encouraged some people to unbalance their portfolios by pulling out of areas that have not performed well, such as equities, according to Christopher Traulsen of Morningstar, the investment analyst. "Panic is never a good thing,'' he says. "Market timing is a difficult thing to get right. There is a tendency to think you need to remake your portfolio, but what you really need to do is look at your risk tolerance, and only maybe tilt your portfolio a little depending on the markets.''

Most investment managers recommend a balanced portfolio, unless you have large amounts of other wealth you can fall back on. "We ask how much can you afford to see your portfolio move and still sleep at night, and what is your time horizon,'' says Nigel Parsons of Bestinvest, the financial adviser.

Stockbrokers and financial advisers will offer at least three basic types of portfolio - high, low and medium risk - depending on how much time you have before you might need the money you are investing and your attitude towards risk.

The current market is completely different from others we have seen before, Parsons says, because the lack of interbank lending has "caused its lifeblood to dry up''. It is more important than ever that your portfolio is able to withstand this volatility.

Reducing the risk in your portfolio without losing its potential is a case of ensuring that you have your money invested in several different types of asset that tend to move at different times. For example, commodities are extremely volatile, but often rise as equities fall. "What you need to do is pair things that move in different ways,'' says Traulsen.

Carl Cross of Rensburg Sheppard, the investment manager, suggests splitting your money between British shares, overseas equities, fixed-income products and hedge funds. "It is the old adage - you need to juggle fear and greed,'' he says. "Some people are too reluctant to accept any volatility, and others cannot see that in the long term they will get superior returns from it.''

Even within the equities component of your portfolio, it is important not to rely too heavily on one part of the market. In order to properly balance your portfolio, says Traulsen, you need to know how the funds you are buying are managed.

"You need to understand how a manager positions his fund so you can take the right types of risk at the right time,'' he says. "For example, if you had bought all of the best-performing funds of 2006, you would be very heavily exposed to mid-cap stocks.'' He advises buying several funds that invest in different areas of the equity market.

When buying overseas funds, he suggests not being too narrow in your choice. "Steer clear of very focused funds - so don't just buy a fund focusing on Russia,'' he says. "Nobody knows what that will do in the next 10 years. Why pay a fund manager and then tie his hands behind his back by allowing him only one country to invest in? Buy an emerging market fund instead.''

A good fund manager will sell and buy stocks to reduce risk. For instance, the City of London investment trust, which has increased its share price by 55 per cent over five years, currently has a bias towards defensive and larger-cap stocks because of economic uncertainty.

To counteract your equities, it is important to invest in both government and corporate bonds, which involve different levels of risk. Government bonds, or gilts, are very low-risk, because the Government is unlikely to default on them, but they do not produce spectacular returns. "Gilts are gilts, so just buy the cheapest,'' says Cross.

Corporate bonds, another useful part of a balanced portfolio, are far riskier than government bonds because of the risk of default. However, Parsons points out that highly rated bonds that are unlikely to default are now available with very high yields. "The market is pricing in Armageddon,'' he says. "There are yields of 7 to 8 per cent on good corporate debt.'' Corporate bonds can be bought outright, but it may be easier to hold a corporate bond fund.

Meanwhile, Cross suggests that between 5 and 7 per cent of a portfolio should be held in hedge funds. "This is one area that most people don't understand,'' says Parsons. However, holding hedge funds may help protect you against falls in the equity market. He recommends funds run by Brevan Howard, including BH Global, which is now listed on the London Stock Exchange.

A combination of all of these asset classes ought to give you a safety net in a market like this, without minimising your returns. In fact, being well balanced is the only way to survive the storms.


http://www.telegraph.co.uk/finance/personalfinance/investing/3050940/Keep-your-balance-as-markets-plunge.html

Opportunities still abound in tougher financial times

Opportunities still abound in tougher financial times

Published: 4:01PM GMT 19 Mar 2009

Managing client money in a downturn is proving to be the ultimate stress test. In an economic downturn, capital preservation becomes a greater consideration as investment risk increases.

Stockmarkets can experience sharp declines, volatility rises and traditional sources of income can be eroded. Such periods of economic difficulty also provide attractive opportunities. Being positioned with flexibility means it is possible to take advantage of these as they emerge.


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To manage client money successfully in a downturn we have to try to identify the environment in which we are operating. This has been made more difficult by the rapid change in the economic and financial landscape in recent months. But certain factors are apparent:

A number of leading banks have wiped out their capital. Governments have, however, made it clear that they will do everything possible to protect savers and keep the banking system functioning. This is good news, but investors need to be wary of any loss of nerve by the authorities as they face up to multiple bank recapitalisations.

We have entered a recession that will be deep and last for several years. There will be a sharp fall in the rate of inflation and we may even see a negative number this year. Interest rates will continue to fall.

Given the level of uncertainty, the value of capital and the extensive range of attractive opportunities available it makes no sense to lock up capital even if apparent returns are attractive. For example, investors in five-year structured notes backed by a bank whose credit rating is deteriorating, will attest to how uncomfortable they feel at present and how much poorer they are in the short term.

Equally, borrowing to invest even though interest rates are falling is unnecessary and potentially dangerous.

Backward-looking asset-allocation models have also failed to protect investors. Decade-long average returns and past correlations have been of little use over the past year and they will continue to provide poor guidance for a number of years to come.

Governments are fully occupied in an exercise that may best be described as battlefield triage of the financial system, while at the same time trying to work out how to sustain the rest of the economy and the confidence of consumers. They have now moved on to search for explanations as to what went wrong and who to blame.

On the other hand, investors should have a different agenda.

Liquidity in all asset classes is critical so that when the forced selling stops and the markets stabilise, investors will be able to use valuable capital to maximum effect. There are attractive opportunities in all asset classes.

Interest rates are low and probably heading lower. Returns on cash are correspondingly low, but having a good cushion of liquidity provides the flexibility to redeploy this quickly as opportunities open up. Gilt yields have tumbled, reflecting the decline in interest rates and the expectation that inflation will remain low for some time.

However, while this may hold true for now, the combination of substantial fiscal and monetary stimulus packages is likely to rekindle inflation in two years. This makes inflation-linked gilts look more attractive at present.

Corporate bonds have delivered a poor return over the past year as the default risk priced into them rises in step with the deterioration in the economic environment. However, there are a number of high-quality investment-grade bonds offering attractive yields well in excess of government stock.

Equity markets have slumped, but there are many good-quality businesses with strong balance sheets that are generating sufficient cash flow to support progressive dividend policies. Equities are an unloved asset class at present, but many quality companies in sectors such as oil and pharmaceuticals are sitting at attractive valuations. Commodities also have a role to play within a diversified portfolio.

Our focus at present is on gold and silver, rather than economically sensitive industrial metals. We regard the former as a hedge against the longer term inflationary implications of the action being taken to stimulate the economy, specifically low interest rates and the expansion of the monetary base.

We believe that successful investment is about managing risk, sensible diversification and taking advantage of opportunities as they occur.

Michael Kerr-Dineen is chief executive of Cheviot Asset Management

http://www.telegraph.co.uk/finance/personalfinance/investing/5016903/Opportunities-still-abound-in-tougher-financial-times.html

POH KONG

# POH KONG HOLDINGS BHD posted a lower pre-tax profit of RM6.798 million in the third quarter ended April 30, 2009, compared to RM12.816 million a year before. Revenue fell to RM121.3 million from RM124.236 million previously.

Picture of a nervous investor

'The market is as cheap as in 1953'

'The market is as cheap as in 1953'
When the market turns it will be one of the most stunning bull markets any of us has experienced.

By James Bartholomew
Published: 3:03PM GMT 19 Mar 2009

These are truly extraordinary times. Share prices of many smaller companies are almost unbelievably low. I was once told by an editor never to use the word "cheap" and he had good reason. You can say something looks "cheap" today and look pretty silly when it is even cheaper tomorrow. But really these times make it very difficult not to employ the "c" word.

There is no pleasing the market. On Monday, two of the companies in which I have serious stakes – worth more than 7pc of my portfolio – announced results. Aero Inventory, which manages aircraft parts for airlines, produced excellent profits – up by nearly half. How did the shares respond? They fell 17pc.


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Yes, there were one or two reasons for the fall. Above the rest, the company said it had not been able to agree terms for a new contract with a major airline. That was a disappointment. But the irony is in the past six months or so, I have been told that the share price has been weak because of fear of overexpansion leading to a need for capital-raising. So, one minute the company is distrusted because it is expanding too fast, the next it is spurned for not expanding quickly enough. Damned if you do, damned if you don't.

The other company that reported on Monday is safe and exciting. Healthcare Locums, an agency for health and social workers, still slumped 6pc on Tuesday morning.

Sometimes the market seems moody. Shares can rise or fall 20pc with no apparent cause. I wonder if it can be occasionally a single, relatively modest buyer or seller who moves the market a great deal because the turnover in shares has fallen so low. Some of my shares, REA Holdings for example, can easily go through a day without a share being bought or sold. I would also guess that sometimes the buying and selling is just because some people – or funds – need cash.

In theory, this should provide an ideal hunting ground for those seeking good long-term investments. Aero Inventory is forecast by Numis Securities to make earnings per share this year of 83p. The share price earlier this week was 168p. So the share price was only a fraction over two times forecast earnings. Normally my rule of thumb is to say that anything with an earnings multiple of less than 10 is lowly rated. A good company on a multiple of five I would normally regard as extremely good value. But a multiple of two? That is astonishing.

No, gritting my teeth, I won't use the "c" word. But what can you say? It is hard to do justice to how astonishing this kind of valuation is. And it is not as though the company is in any discernible danger. Yes, it is geared but it is profitable and has banking facilities right the way through to 2013. Aero Inventory is an extreme example of the market as a whole.

On the bad side, the chart of the FTSE 100, like the chart of Aero, offers no encouragement. There has been no break in the downward trend. On the other, by any traditional measure, shares are excellent value. The redemption yield on 15-year government stock is currently 3.6pc, whereas the dividend yield on shares is 5.3pc.

Normally, it is the other way around: the dividend yield is lower than the return on government stock for the simple reason that, over time, dividends have historically risen whereas the yield on a government stock does not. True, some companies are reducing or cutting their dividends but this is at the margin. On this method of valuation, as far as I can discover, shares have not been such good value compared to government stock since about 1953.

My view is simple: shares are extremely good value, but it is impossible to know when the turn will come. When it does arrive, from this low valuation, it will be one of the most stunning bull markets any of us has experienced.

http://www.telegraph.co.uk/finance/personalfinance/investing/5017022/The-market-is-as-cheap-as-in-1953.html

Financial crisis: The options for nervous investors?

Financial crisis: The options for nervous investors?
For everyday investors who have so far stood firm and headed the calls not to panic, they must be wondering whether their courage will pay dividends.

By Paul Farrow
Published: 9:10AM BST 30 Sep 2008

The FTSE100 has fallen to four year low leaving investors wondering whether worse is to come.

Henk Potts at Barclays Stockbrokers, said: "Inevitably this will be an extremely volatile market for sometime and there are some big hurdles to overcome. But many people with a brave heart are seeing this as a buying opportunity - our ratio of buyers to sellers yesterday was 72:28."


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This time a year ago the overall message was also to stay calm – although one stockbroker was a little more frank: "If you are going to panic, then panic early."

Those that refused to hold their nerve and did indeed panic, will be feeling smug right now because the bear market has long arrived. The FTSE100 has fallen from 6,200 to below 4,600 since 2004.

All but the most hardened investors will be wondering whether it still makes sense to cut and run. It is easy to be advised to stick with it, but seeing the pounds drop day by day is difficult to take – and with further woe widely predicted then who can blame investors from saying enough is enough.

Mark Dampier, head of research at Hargreaves Lansdown, said: "In all honesty no one has experience anything quite like this so any view is just that a view. In the UK the financial/property crisis will herald a UK recession for the whole of 2009. But stock markets are a discounting mechanism and will bottom well before the economy does which makes it very difficult to judge, as bad news will predominate.

"September and October are notoriously bad months in the stock markets and are living up to their name but we are now nearer the end game with markets. The politicians in the US will have to swallow their pride and egos as John Major did in 1992 and comeback with a package. This is not a bail out of Wall Street rich kids – it hits everyone and especially those in the real economy. It will be messy until economically illiterate politicians are made to see sense by the markets.

"At times like this I am reminded of the words of St John Templeton that 'the time of maximum pessimism is the best time to buy'. We are surely getting very close to that point."

Andrew Merricks, at Brighton-based Skerritts Consultants, says: "Thinking logically, not every company will go bust (far from it), so there must be a floor to which valuations can fall before bouncing. Perhaps we need to take notice of other regions than the UK, which is traditionally where we feel most comfortable. The positives are, admittedly, relative, but there are some. Firstly, the dividend yield on the FTSE All Share has exceeded the yield on the 10-year gilt.

"This historically has been a great indicator to future share price rallies, with the last time this happened being in March 2003 just as the markets took off. The other similarity with 2003 is that there were articles at that time questioning whether equities would ever work again and we had entered the “capitulation” stage, when the everyday investor had given up hope. Today feels somewhat similar. The world will be a different place as a consequence of September 2008. If this is so, it should be at the top of everyone’s priorities who has savings, investments or pensions to reassess how theirs will fare as events unfold."

Boll Doll, vice-chairman and chief investment officer for global equities at BlackRock, said: "The current situation ranks among the most difficult investors have faced in memory, and perhaps in generations. De-leveraging and re-pricing of risk have been exacting a heavy toll on the housing, credit and equity markets. The volatility in oil and other commodity prices, coupled with uncertainty about the direction of government policy and the outcome of the coming election, have made it difficult for investors to find their footing.

Nevertheless, investors should recognise that we are in the midst of panic and outright liquidation conditions, which are usually signs of the climax in selling. While the U.S. financial sector (which has been at the heart of the problem) has experienced a significant downturn in recent weeks, that sector has not broken through the lows it established in mid-July. To us, all of this suggests that equity markets are still in the midst of a bottoming phase."

Anthony Bolton, the Fidelity fund guru – who has delivered the goods – says that if you find it difficult to stay invested in the bear market and are panicked by the bad news, then perhaps equity investing is not right for you. If that's you, cash is the obvious alternative. You can get rates of more than 6.5 per cent on the market. Bolton has started to buy shares over the past few days.

Gold is the other classic safe haven and despite its price rising in recent days as investors search for low risk assets, it is still viewed as such. About a year ago, the gold price was $667 an ounce, but it rose to a peak of over $1,000 on 17 March – coinciding with the collapse of Bear Stearns – before falling back to its current level of around $900 this week.

If you are worried about losing money, consider a guaranteed equity bond (Geb). These are fixed-term savings plans that pay out a proportion of any gains in the stock market index or indices to which they are linked. If the market falls, the initial investment is returned in full. But be aware that any index growth excludes dividends, which make a huge difference to overall returns. And ensure the plan gives you a cast iron guarantee that your capital will be returned in full whatever happens to the stock market.

For those happy to remain invested in shares, Bolton says to focus on large, good quality companies. Avoid at all costs smaller and medium-sized companies with weak balance sheets, he says.

And if you want to stick with it then take these words from Maynard Keynes, perhaps the most famous investor of them all for comfort. He wrote in 1937: "It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind. When I can persuade the board of my insurance company to buy a share, that, I am learning from experience, is the right moment for selling it."

Recession: How to invest

Recession: How to invest – an expert's view
Britain is on the brink of a recession and stock markets have been falling, leaving investors in a dilemma of where to invest. Nick Sketch, senior investment director Rensburg Sheppards Investment Management gives his view on where to put your money in the months ahead.

By Nick Sketch
Published: 9:14AM BST 24 Oct 2008

Nick Sketch at Rensburg Sheppards advises investors where invest for the recession. "Our policy remains to selectively increase risk, taking some cash off the sidelines to deploy into firstly corporate bond funds. We think that equities are cheaper than corporate bonds, in the same way that the latter are cheaper then gilts.

Nevertheless, we expect corporate bonds to outperform gilts before equities start going up in any useful way. In fact it is close to being a required precondition before equities can post a major & sustained recovery. Equities in aggregate should rise further on a (say) two or three year view than corporate bonds, but corporate bonds will rise first. What to buy depends on your risk tolerance and particularly on whether you are looking for a shorter term bounce or simply to buy long term value. After all, an active investor might buy corporate bonds now and then simply move some of that cash to equities if and when corporate bonds see a price recovery over the next few months.


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Much the same argument applies within the bond sectors. Non-financial-sector bonds may well start doing better before financial sector bonds, even though we expect financial sector bonds in aggregate to outperform non-financials over the next two or three years, as what we regard as their excessive undervaluation unwinds. However, financial sector bonds are in general a good deal more risky than non-financial bonds and are not likely to stop being so any time soon.

On this basis, a long term, risk-tolerant investor who does not want to trade too actively might just leap the intermediate steps and buy equities now. However, that would be going up the risk curve a long way. A cautious investor might buy some non-financial corporate bonds, but regard anything else as too risky.

And an active investor might well reckon that the best risk/return trade-off will come from owning non-financial corporate bonds now, then increasing the weighting in financial sector bonds.

Well-run corporate bond funds with low exposure to financial sector bonds certainly include the M&G Corporate Bond fund. Fidelity's corporate bond fund is still underweight in financial bonds too.

Corporate bond funds managed by Henderson are generally overweight financial bonds. Our favourite Henderson Bond funds, however, are not like-for-like competitors to the M&G & Fidelity funds – the Henderson Preference & Bond fund is in the riskier "Other Bond" category.

It is also worth remembering that well run funds in this area tend to have low fees. The Annual management fees of the Henderson, Fidelity and M&G funds are all well below 1 per cent. Thus, the hurdle of covering the fund's costs and then outperforming the benchmark is not being made impossible as a result of high fees on any of these funds. Moreover, given the high stock-specific risk in the sector, fees of that level look a small price to pay for good management and good diversification.

For the more contrarian-inclined, diversified global growth funds and the highest quality equities are additional options. Admittedly, this is some way short of advice to wholeheartedly “embrace” equity risk again, but until credit spreads narrow further and stocks reaction to “bad news” is more favourable, this is not felt to be advisable.”


http://www.telegraph.co.uk/finance/personalfinance/investing/3251558/Recession-How-to-invest--an-experts-view.html

Asian shares fall as recovery hopes fade

Asian shares fall as recovery hopes fade
Asian stock markets tumbled on Tuesday, with Hong Kong's benchmark down more than 3pc, after weak US manufacturing figures knocked confidence in a quick recovery from global recession.

AP
Published: 6:52AM BST 16 Jun 2009

Oil retreating from eight-month highs dragged commodity stocks lower in Asia while top manufacturers such as Japanese automaker Toyota fell on the weak data.

Indexes in big Asian markets such as Japan and Hong Kong have gained 40pc or more since early March, powered by ample liquidity and signs the economic slump has leveled out.

But as the rally gathered pace, it became increasingly vulnerable to any evidence that a recovery wasn't unfolding as quickly as investors hoped.

Wall Street faltered overnight on one such sign, with the Dow Jones industrials posting its biggest drop in nearly a month.

A monthly index of manufacturing conditions around the New York region fell to minus 9.4 in June from minus 4.6 the previous month, underscoring that any recovery in the world's largest economy — a critical market for Asian exporters — will be tepid and slow.

"All the global stock markets have been overbought so the manufacturing data was a trigger, an excuse to sell and take some profit," said Peter Lai, investment manager at DBS Vickers in Hong Kong.

"I don't believe the economy will recover so fast," he said. "China and Asia will be the pioneers of the recovery but I don't see it happening until the first or second quarter of 2010."

Japan's Nikkei 225 stock average shed 256.83 points, or 2.6pc, to 9,782.84, and Hong Kong's Hang Seng slid 584.39, or 3.2pc, to 17,914.57. South Korea's Kospi dropped 1.1pc to 1,396.62.

Elsewhere, Australia's index lost 1.8pc, Singapore retreated 1.9pc and the Philippine market dived 3.8pc.

Oil's decline hit commodity stocks with Chinese offshore oil producer CNOOC plunging 5.1pc in Hong Kong and BHP Billiton, the world's biggest mining company, off 2.1pc in Sydney trade.

Benchmark crude for July delivery fell 54 cents to $70.08 a barrel in Asia trade, taking a breather from a three-month rally that has doubled the price of oil. Last week, it rose above $73.

In the US on Monday, the Dow Jones industrial average tumbled 187.13, or 2.1pc, to 8,612.13, returning to a loss for the year. The broader Standard & Poor's 500 index dropped 2.4pc to 923.72, and the Nasdaq composite index sank 2.3pc, to 1,816.38.

Markets in Europe also closed down. London's FTSE 100 fell 2.6pc, Germany's DAX 3.5pc, and France's CAC 3.2pc.

http://www.telegraph.co.uk/finance/markets/5547360/Asian-shares-fall-as-recovery-hopes-fade.html

Which shares for income?

Which shares for income?
The yield on BT of 19pc sounds good, but remember the adage "if it looks too good to be true, it probably is.

By Gavin Oldham
Published: 3:32PM BST 09 Apr 2009

With the equity market close to a six-year low and with equity yields at historically high levels compared with gilts, the temptation is there for investors to switch into shares: not only in the hunt for income but also factoring in that one day the equity market will recover.

The challenge is, however, to find those rewards without shouldering too much risk; because whereas cash savings can face risk of default, it is in equities that you face investment risk.


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However, it is also worth remembering that since 1900 high-yielding shares have outperformed the stock market as a whole, 85pc of the time over 10-year periods. They've also outperformed the market since September 2008, when the markets really went into freefall.

As an example of the relationship between risk and yield, let's compare two blue chips with apparent dividend attractions: BP and BT.

This week, the yield on BT is 19pc net of basic-rate tax. Sounds good, but remember the adage "if it looks too good to be true, it probably is". Every analyst in the City expects BT to cut its dividend next time around. Investors should be cautious of above-average share yields: the market is telling you "the higher the yield the higher the risk".

BP has a yield of 9pc. Recently, there has been speculation that the low oil price may force the company to cut the dividend. This has proved unfounded, as BP's management has said the dividend will be maintained this year and it will try to maintain it into 2010, even if the oil price stays at current levels. So here we have some medium-term visibility and potential for capital growth if the oil price rises over the medium term.

When considering an investment for yield, note the dividend cover; this is how many times the profits cover the dividend and is an indicator of whether a company will be able to pay future dividends at the current rate or higher. It is calculated by dividing the net earnings per share by the net dividend per share.

Dividend cover = EPS / DPS

or

Dividend cover = 1 / DPO

For example, if a company has earnings per share of 5p and it pays out a dividend of 2.5p, the dividend cover will be 5/2.5 = 2. The higher the cover, the better the chance of maintaining the dividend if profits fall. However, a lower figure may be acceptable if the group's profits are relatively stable.

So a good portfolio of equity income shares would feature mainstream companies with good dividend cover and a relatively recession-proof business (such as energy), plus a good helping of the FTSE 100 iShare – a form of exchange traded fund (ETF) marketed by Barclays – to provide some extra diversification, and to provide the opportunity to take advantage of market volatility.

Such a portfolio might include BP, yielding 9pc with 2.6 times dividend cover; GlaxoSmithKline, yielding 5.5pc with 1.6 times cover; National Grid, yielding 6.5pc with 2 times cover; Scottish & Southern, yielding 5.7pc (1.7); Shell, yielding 4.2pc (3.5); Vodafone, yielding 6pc (1.8) plus the FTSE iShare yielding 5.1pc with no cover calculation available.

An investment of £12,000 could therefore give you about £710 income over a full year, an overall yield of 5.9pc.

These equity shares could provide a relatively stable source of income combined with the potential for capital growth. There is, of course, a risk of further setbacks in the markets that could take your investment value lower, but with blue-chip companies like these it's a relatively low-risk portfolio as equities go.

Keep in touch with the companies you've invested in: if you hold the shares in an Isa or a broker's nominee, opt in for shareholder communications direct from the company. It's your right to be kept informed and it shouldn't cost you extra.

Your holding in the FTSE 100 iShare may provide the opportunity to do some tactical purchases or sales. Rather than buying the whole holding at once, you could invest in £1,000 steps as the market falls back, then set a limit at, say, 10pc up on your purchase price to sell as the market strengthens.

This way you can take advantage of short-term volatility to improve the return on the portfolio as a whole. Finally, if you're a taxpayer make sure you use your Isa allowance to minimise your income tax bill.

Gavin Oldham is chief executive of the Share Centre


http://www.telegraph.co.uk/finance/personalfinance/investing/5131421/Which-shares-for-income.html

Dividends: Which are safe and which may fall?

Dividends: Which are safe and which may fall?

Key: Dividend cover = Earnings / Dividend

The income from shares offers some protection against a bear market – unless it is cut. We asked the experts which companies looked safest.

By Richard Evans
Published: 6:57AM GMT 05 Mar 2009

Share prices have been falling for months now but for many investors there has been one crumb of comfort: dividends.

After all, share prices can recover if you don’t sell – and hanging on can be relatively painless if the income from your investment is maintained or even increased.


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But there have been some worrying developments for dividends recently. HSBC, the bank that seemed relatively unscathed by the financial crisis, was forced to cut its payout; now there are rumours that BP may have to freeze its dividend for the first time in years because of the falling oil price.

So we asked the experts which dividends they thought should be safe despite the turmoil – and which ones could be at risk.

Ian Lance, manager of the Schroder Income fund, said: "Despite all the concerns about the sustainability of dividend payments in the face of falling profits, we believe those invested in UK equities are still being well rewarded, particularly as yield is becoming increasingly difficult to find in many other areas of investment.

"The dividend yield on the highest yielding UK equities has risen to its highest point in around 20 years – even if you exclude financials. The dividend yield on non-financial stocks now exceeds the yield on 10-year government bonds."

As for concerns about how resilient these yields will be, Mr Lance said dividend levels were likely to fall across the UK market as a whole over the next couple of years, but he remained confident that a number of companies had sufficient dividend "cover" – the degree to which the dividend is exceeded by earnings – to support their current payouts even if earnings fell.

Schroders believes that the most resilient and attractive dividend streams will be among the long-established, well-diversified "mega caps" and companies that declare dividends in US dollars, given that sterling’s weakness pushes up their value. "These include names such as GlaxoSmithKline, AstraZeneca, Royal Dutch Shell and Vodafone, which we bought some time ago when they were out of favour with other investors and consequently undervalued, and which we continue to hold today," said Mr Lance.

Jonathan Jackson, an equity analyst at Killik & Co, the stockbroker, is not convinced that BP's dividend is under threat; he expects it to be safe for at least this year and next. "My reading is that BP will let gearing [borrowing relative to equity] increase," he said. "Holding the dollar-denominated dividend means 23pc growth for British shareholders, resulting in a yield of 10pc."

He also backs Vodafone, which is yielding 6.5pc, pointing to its strong balance sheet and "fairly defensive" qualities. "Tobacco stocks such as BAT and Imperial Tobacco have stable cash flows throughout the cycle," he added.

Hugh Duff, an investment manager at Scottish Investment Trust, said that among his holdings were two companies likely to maintain, or possibly grow, their dividends: Serco and De La Rue.

"Serco is a leading international services company operating in a broad range of sectors, servicing both private and public markets. The long-term nature of Serco’s contracts and the significant order book give us confidence in the company’s defensive and highly visible earnings growth," he said.

"De La Rue is the world’s largest commercial security printer and literally has a licence to print money. The company's main operation is the production of 150 currencies on behalf of central banks. The demand for currency printing is expected to continue to show stable growth, with a key driver being the increasing use of cash machines which require notes to be in mint condition. De La Rue has a very good track record of returning the profits from this business to shareholders through special dividends and dividends."

Turning to companies seen as candidates for cutting their dividends, Mr Jackson singled out BT Group. "There are trading difficulties in the global services division and a pension fund gap," he said. A recent ruling from the pensions regulator that pensions should take priority over dividends made a cut more likely, he added.

"The consensus in the City is that the dividend could be halved but we don’t know the size of the pensions deficit. BT used to put £280m into the fund annually to reduce the gap, now it could need to put in twice that figure. The cost of the dividend is £1.2bn."

Mark Hall, a fund manager at Rensburg Sheppards, voiced concern about life insurers. He said: "The sector I am most concerned about now regarding dividend payments is the life assurers such as Legal & General and Aviva. They have big bond portfolios and are vulnerable to any further dislocation in the financial system putting even greater pressure on their solvency ratios.

"This contrasts with the general insurance companies and Lloyd's specialists such as Royal Sun Alliance and Amlin, where we think the dividend prospects are really quite good."

http://www.telegraph.co.uk/finance/personalfinance/investing/4941355/Dividends-Which-are-safe-and-which-may-fall.html

Answer these Simple Questions to guide your investing

These are the two messages investors are hearing simultaneously these days:

The first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."

The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"



So should investors be buying shares or steering clear?

And should existing investors grit their teeth and hang on – or sell at a huge loss?


Related article:
Stock market: opportunity of a lifetime or priced for a depression?

Stock market: opportunity of a lifetime or priced for a depression?

Stock market: opportunity of a lifetime or priced for a depression?

By James Bartholomew
Published: 10:45AM GMT 09 Mar 2009

These are the two messages investors are hearing simultaneously these days: the first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."

The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"

So investors are pulled one way and then the other. Let us not pretend it is easy. If possible, one wants to have one's cake and eat it – to finesse the problem by having exposure to shares but, at the same time, owning ones that might hold up even if things worsen.


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The trouble is, lots of people are trying to do the same, so anything that looks pretty safe gets a much higher rating than companies that could get into trouble.

The safest ones are often in sectors where it will take a lot to destroy demand. People are always going to want to eat, and will probably want to drink, too. We are going for "the bare necessities of life".

Fortunately, the stock market is so low that, even among such safer companies, shares are clearly good value for the long term. It would be easy to make a little portfolio of relatively reliable companies with modest, but perhaps sustainable, dividend yields. It could include Associated British Foods at 622p on a prospective yield of 3.3pc, British Sky Broadcasting at 452p on a yield of 3.9pc and, say, Tesco at 310p on a yield of 3.7pc.

I prefer to go for smaller companies where I believe share prices are cheaper and potential gains bigger. I have been buying back into REA Holdings, which has a palm oil plantation. Palm oil is used, among other things, as a basic foodstuff.

I have also held onto my stake in Staffline, which provides "blue-collar" labour for a variety of industries, but especially food processing. Staffline produced its annual results this week and they were a perfect illustration of how results announcements have changed.

Press releases of results often start with "Highlights". Twelve months ago, companies shone light on their growth and expansion. "Highlights" were full of bold ambition. Now, the greatest boast a company can make is that it is safe and won't be closed. On Tuesday, Staffline announced its "gearing" – borrowing as a proportion of the shareholders' net assets – had fallen from 28pc to 24pc.

In the old days, companies were criticised if they borrowed so little. They were accused of "failing to make full use of their capital base". Now, low borrowing is absolutely the fashion (except for the Government).

Staffline went on to trill about how the cost of its interest payments had tumbled by a quarter and that these payments were covered a wonderful 10 times by profits. The message was "we have been prudent, we are safe and our bankers are happy". The shares rose 15pc.

Many people feel big companies are safer than such small ones and I don't blame anyone wanting to feel safe. But small companies, as a generality, are much cheaper than large ones at the moment. They also have greater scope for growth. And, after Royal Bank of Scotland, surely no one is confident that size guarantees safety.

I don't hold any particular torch for Staffline, but it is a good example of what I see among plenty of small companies. Its share price, as I write, is 27p, a mere 2.5 times the earnings per share last year. That is seriously cheap. Over the long term, a rating of at least four times that would be normal.

A broker forecasts that its profits will fall this year but only by a little. The historic dividend yield is terrific at just over 10pc. Yes, the dividend could be reduced next year but probably not by much.

It does seem like the opportunity of a lifetime and one might be tempted to fill one's boots with the shares of companies like this.

The only thing that holds me back is the echo of the other message: that the economy is sliding down so fast and unpredictably that one should keep at least some cash in reserve.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4961165/Stock-market-opportunity-of-a-lifetime-or-priced-for-a-depression.html

Five ways to profit from oil

Five ways to profit from oil
Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months - motorists will lose out but investors could profit from this rise.

By Rosie Murray-West
Published: 12:40PM BST 08 Jun 2009

Motorists are facing a summer of rising petrol costs, thanks to recent increases to the price of oil. Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months.

Goldman Sachs, the city bank, has raised its forecast on the price that oil will reach by the end of 2009, which has already convinced many speculators to take the plunge. If you think that oil has further to go, however, there are still ways that you can benefit – rather than just fuming at the petrol pumps. Here are five ways to speculate on oil.


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1. Buy the big boys
BP and Shell are Britain's two big oil and gas companies. Both have been popular buys due to their high dividend yields and exposure to the price of oil. Neither company is expected to cut its dividend in the coming months, although this is likely to lead to an increase in borrowing.

Potential investors in Shell should note that UK investors need to buy Shell's 'B' Class shares.

2. Consider the minnows
BP and Shell may be the supertankers of the oil market, but you can also buy shares in other smaller companies which will also give you exposure to this market.

Many of them have already enjoyed healthy price rises, however, and you may feel that there is little scope for future gains. Tullow Oil and Soco International have recently seen huge rises in price. Dragon Oil and Bowleven are other possibilities in this sector.


3. Look at funds
If you invest in funds, exposure to the oil price is actually quite hard to avoid as commodities and resources companies make up about a third of the FTSE Index. However, some are more heavily exposed than others. Two BlackRock funds – BlackRock Commodities Income investment trust and the Blackrock World Energy fund – have large oil investments.

Investec Global Energy is another hefty investor in a combination of oil producers, refiners and services companies. If you are looking to take risk in this area, the CF Junior Oils Trust invests only in smaller gas exploration and production companies, including many of the minnows mentioned above.


4. Try an ETF or ETC
Exchange Traded Funds and Commodities have become increasingly popular with investors seeking easy ways to take a punt on commodities or indices. An ETF is a relatively low-cost way of gaining exposure to the price of a commodity or to a specific index for either the short or long term.

They can be bought through stockbrokers. Lyxor, for instance, offers the Lyxor DJ Stoxx 600 Oil and Gas ETF, or ETF Securities offers a crude oil fund.

However, buyers of these funds should beware an effect known as 'contango', which occurs when oil prices for future delivery are higher than the current oil price. This effect has caused erosion on funds that invest in near-term futures contracts based on the price of oil, so ETF investments may not be as simple as they seem. Do consult a stockbroker if you are keen on investing in ETFs.

5. Spread betting
Many investors have been seduced by spread betting as a low-cost way of gambling on the price of commodities, but you should always beware the risks. With spread betting, you would take a bet on the future movement of the oil price, but could lose out very rapidly if the price goes the other way.

Companies such as City Index, Cantor Finspreads or IG will allow you to take a bet on the future price of Brent crude. However, do not indulge in spread betting unless you are sure you understand the implications and have appropriate measures in place to limit your losses.

UK Bank shares: Bargain or basket case?

Bank shares: Bargain or basket case?
As some of Britain's banks languish in the 90pc club, have the shares fallen far enough to be worth buying again?

By Richard Evans
Published: 3:26PM GMT 11 Mar 2009

Britain's banks have been a terrible investment. Many have joined the "90pc club" of companies whose share prices have fallen to a mere 10th of their former highs.

Shares in Royal Bank of Scotland, for example, had lost 94pc of their value at the time of writing, while Lloyds Banking Group was not far behind on 91pc. The figure for Barclays was 88pc. Even HSBC, which is seen as one of the strongest banks around, was trading 62pc below its peak at one stage, while Standard Chartered had lost 54pc of its value.


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Shareholders' gloom is deepened by the fact that they are unlikely to see any dividends for a while and that, in the case of Lloyds and RBS, the Government holds a controlling stake, potentially bringing political as well as commercial considerations into their decision-making.

Contrarian investors, who are used to buying at the point of maximum pessimism, may think it is time to buy the banks' shares. After all, they reason, all the bad news should be in the price, while the banks could prosper again when the economy eventually recovers. In five years' time, today's prices could look very cheap.

Others say the banks are bust in all but name and could be fully nationalised if the recent string of bail-outs fails to work.

So should investors be buying bank shares or steering clear? And should existing investors grit their teeth and hang on – or sell at a huge loss? We asked the experts for their views.

JONATHAN JACKSON, KILLIK & CO
The bottom line is that all banks are high risk at present given the lack of visibility over the economy or the level of possible write downs in the future. It depends on what type of investor you are.

We don't think RBS or Lloyds are likely to be nationalised but the state's stakes could rise further if the economy turns out worse than we think. If you buy shares in Lloyds you are effectively buying an option on it surviving for three to five years and benefiting from its huge market share. Given the lack of visibility, both share prices will be very volatile.

With HSBC, the falling shares price is a reflection of investor concern that the bank may need to come back for more capital and the presence of hedge fund short positions betting on that.

Standard Chartered should benefit from the trend of survival of the fittest; it should be able to mop up market share as weak players fall away. It operates in a part of the world – Asia – that should experience stronger growth in the long term. It is well placed, but short sellers are attracted by the fact that the share price has held up well, so there could be more volatility. In the long term it's a strong bank and is much less likely to go under.

Barclays is not in as bad shape as Lloyds or RBS and has less chance of being nationalised. The market believes that Barclays will have to join the government asset protection scheme. The risk is that it may have to come back for more money. So far, it hasn't turned to the Government for capital, preferring instead to use third party investors.

In the long term, the Lehmans deal should turn out well. We will have more visibility by the end of the month.

MARK HALL, RENSBURG SHEPPARDS
There is a credible case for believing that the equity in the UK banks should already be worthless, given the scale of government intervention that has been necessary to keep the banks afloat.

However, with the authorities seemingly intent on avoiding full nationalisation, at least for now, the case for and against the shares is not quite so clear cut. There are still very realistic scenarios under which the shares are worthless but the upside could also be very substantial for any survivors of the current recession.

The only certainty is that the shares should be held only as part of a well-diversified portfolio or by those with a very high risk tolerance. The stories of pensioners with their life savings in one or two bank shares are very distressing.

NIC CLARKE, CHARLES STANLEY
We have a great deal of sympathy for those Lloyds TSB investors who bought a low-risk bank and through its management launching an ill advised acquisition [of HBOS] have lost a great proportion of the company.

We believe that the threat of complete nationalisation has been reduced significantly through this deal [with the Government to insure toxic assets]. Lloyds says it can now weather the severest of economic downturns as its assets have been thoroughly stress-tested.

The group will be loss-making in 2009 and there is a chance that it will be loss-making in 2010, despite the synergies from HBOS coming through, unless the outlook for the UK economy improves. And of course if the group is making a loss it is unlikely to pay a dividend, whether it is blocked or not. But at least the announcement [of the government deal] should improve the group's credit ratings and takes it a step nearer to a time when the market is able to value the group on an earnings basis. Unfortunately, due to the fallout from the HBOS deal that is the best that investors can hope for and any sort of recovery will take time. Our recommendation remains hold.

Putting a value on RBS currently is really about trying to decide what the odds are that it will be nationalised or whether it remains a listed company in say three years' time when the economy has improved.

Chief executive Stephen Hester's comment that "to make any forecast is hazardous" and that credit losses will rise "probably sharply" underlines the level of risk that investors are exposed to owning the stock during a prolonged recession. On balance our recommendation remains hold.

On Barclays, one key question mark has been whether the group has been conservative enough writing down its wholesale assets. It has seemed odd that RBS's global markets/wholesale bank has performed so markedly worse than Barclays Capital. Moody's cut its long-term ratings on Barclays by two notches to Aa3 on February 2 due to the potential for "significant" further losses due to credit-related write downs and rising impairments.

It would be helpful to know more detail regarding the Government's asset protection scheme. If participation makes economic sense Barclays' risk weighted assets will be reduced, which will diminish markets concerns about its capital.

And of course whether the macroeconomic forecasts improve/deteriorate in a number of key countries (US, UK, Spain and South Africa) will have a huge bearing on stock performance. Our recommendation remains hold.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4973811/Bank-shares-Bargain-or-basket-case.html

How to invest in a bear market

Paralysis and panic is behind us now.

How to invest in a bear market
The FTSE All Share Index lost 29pc in 12 months and there is more pain in store.

By David Stevenson, manager of the Ignis Cartesian UK Opportunities Fund
Published: 10:32PM BST 15 Jun 2009

UK equity investors have had a torrid time of it in the last year. The FTSE All Share Index lost 29pc in the 12 months to the end of March and there is more pain in store. Recent stock market rallies should be taken for what they were, short-term technical bounces rather than the market bottoming on improved fundamentals.

That said, for investors who are able to stomach the volatility and take a longer term view, there are positives. The UK stock market is at one of its lowest points in the last ten years.

In the coming 12 to 18 months, it is likely to fall further taking valuations to levels of 'cheapness' that only present themselves once or twice in a lifetime. Making the most of these opportunities, however, requires a suitable investment approach and there are key considerations for investors in a bear market.

Companies are under considerable pressure and investors need to look in detail at what they are potentially buying into.

This requires careful balance sheet analysis as heavily indebted businesses may not survive the coming years. This may seem extreme but is a reality of economic cyclicality. Companies with low or sustainable levels of borrowing, and which therefore have a degree of control over their future, are relatively attractive, especially when combined with a secure dividend yield.

Earnings provide a barometer of corporate health and are under pressure across the market. Investors can, however, mitigate that risk by targeting certain types of companies.

Defendable earnings are important and are typically generated by companies with big franchises, large market shares and leverage over competitors or suppliers, allowing them to eke out more market share or a better margin. Thinking big is generally a sensible approach.

Big brands have a footprint that will allow them to survive through a difficult environment. Companies like Vodafone, Centrica and Unilever are all likely to outperform, operating in areas where spending remains necessary. Food retailers and pharmaceutical companies are also attractive.

Investors should also focus on sectors that offer predictable growth, rather than those dependent on support from the economic cycle.

Secular trends currently include the long-term growth of outsourcing, both in the public and private sector, and the maintenance and operation of critical infrastructure, such as utility and telecommunication networks and transport links. Both of these should offer resilience in a downturn and will benefit if the government's stimulus plans come to fruition.

It pays for investors to be sceptical in all market conditions but particularly during a downturn. It is important to think independently and not be fooled by consensus views.
Fundamental analysis of balance sheets and earnings will give a clearer picture of companies' future prospects. This then allows a portfolio to be built 'bottom-up' without necessitating a 'top-down' view on overarching macroeconomic, consensus or benchmark themes.

For investors seeking exposure to the market via mutual funds it is important to analyse the investment approach of fund managers. There is a temptation for managers to alter their process when short-term performance numbers disappoint, as can happen in volatile markets.

This, however, tends to be detrimental. Proper analysis of a manager's track record is therefore important, paying particular attention to longevity, consistency of approach and performance during previous downturns.

Certain managers are suited to a rising market, others, typically those able to best identify potential balance sheet holes and signs of earnings weakness, fare better when business models come under increased pressure, as is currently the case.

Another point to consider is the level and type of trading in a fund. Fund managers are generally not good short-term traders. Investment views need to be made on at least a one year basis, and a bear market does not change that.

A sharp pickup in turnover within a portfolio may indicate panic trades or a fundamental shift in strategy. In a bear market the number of attractive stock ideas tends to fall.

This may justify holding a more concentrated portfolio, and then adding new positions when opportunities arise. The important point is to make sure a fund manager is not holding low conviction stocks for the sake of diversification.

Finally, it will pay to be patient. The UK stock market will recover, but not overnight. At the moment market conditions remain challenging and it would be foolish to invest expecting the market to bounce back straightaway.

Equities tend to move before economic data picks up but with the current levels of volatility it is prudent to wait for clear signs that leading indicators are improving and government stimulus packages have laid solid foundations for growth.

This is likely to be some way off but by reinforcing a portfolio based on the points above, and taking advantage of increasingly attractive valuations, long-term investment opportunities in the UK can be exploited.

http://www.telegraph.co.uk/finance/personalfinance/investing/5545094/How-to-invest-in-a-bear-market.html