2010 Investment Outlook
Advice for next year: Go global
By Peter Coy
December 28, 2009
After a long, hard day of conquering the world, Chinese industrialists toast deals with Scotch whisky. This is an opportunity for London-based Diageo (DEO), the world's largest distiller. In 2007 it introduced Johnnie Walker Blue Label George V Edition at $600 per crystal decanter. Sales in Asia were so strong that Diageo topped itself this year with The John Walker at a suggested retail price of $3,000. It's "performing very well," the company says.
Investors looking ahead to 2010 can learn from Diageo. Figure out where wealth is being produced in the world and grab a piece of it, whether that's in China or Brazil or the U.S. Don't count on a robust economic recovery to lift the stocks of run-of-the-mill companies, because most economists expect a weakish rebound.
We predicted in this space one year ago, when blood was running in the streets, that investors would "do well by buying what's out of favor," such as high-yield bonds. Did they ever: Through November in the global markets, junk bonds returned 58%, followed by commodities (36%), gold (34%), stocks (29%), and investment-grade corporate bonds (23%). Bringing up the rear in returns was the safe choice, government debt (8%). But the easy money from amping up risk is over. Now it's time to choose safer plays in stocks, bonds, and commodities that will thrive even as the U.S. economy continues its struggle to get back to good health.
In that light, going global is a good, sensible theme for 2010. It's one of the few things that passive and active investors can agree on, even though they have opposite reasons. Passive investors believe that you can't beat the market, so they favor a little-bit-of-everything approach to reduce the risk from any one investment going bad. By their philosophy, the maximum diversification comes from spreading your bets all over the globe, not just in your home country. Ideally, the passive investing camp says, Americans' investment in U.S. stocks should be no higher than U.S. stocks' share of global market capitalization. That share has fallen from 70% in 1970 to 48% in 2009, according to MSCI Barra (MXB), which calculates market indexes.
You can even argue that Americans should underweight U.S. stocks to offset their heavy exposure to the U.S. through the homes they own on American soil. Not many Americans are that internationally diversified. A typical 401(k) in the U.S. has about five times as much invested in U.S. stocks as in foreign stocks, according to a survey by Hewitt Associates (HEW).
Active investors are also exploring investments abroad, but not just for diversification. In contrast to index-fund investors, they believe you can beat the market—and many happen to think that some of the best bargains for 2010 lie outside the U.S., in markets that have been less picked over by professionals. An investor who miraculously managed to select the top 10 stocks in the world in each market sector each year for the eight years through December 2008 would have had a cumulative return of almost 7,000%, says MFS Investment Management, the Boston-based fund manager. In contrast, MFS adds, an equally foresighted investor who was restricted to the top-performing stocks in the Standard & Poor's 500-stock index would have had a cumulative return of just under 1,500%. In other words, if you have any faith in your stockpicking, you will want to roam the world for candidates.
Whatever their motivation, many Americans are likely to intensify their search for investments abroad in the coming year. An online investors' survey for Bloomberg BusinessWeek in early December found that 40% of American investors plan to increase their exposure to international stocks over the next five years, up from 22% a year ago.
The survey included 770 Americans as well as 158 international investors who had been recruited to participate in periodic online polls by Bloomberg BusinessWeek Research Services. Some things don't change quickly, though: Asked which stock market would produce the best returns over the next year, Americans were still more likely to pick the U.S. than any other country. Among foreign investors surveyed, the U.S. came in fourth after China, India, and Brazil.
Those non-U.S. investors may be on to something. In comparison with the outlook in the recuperating U.S., prospects for growth are much stronger in Asia and in resource-rich nations such as Brazil, Canada, and Australia, where business confidence recently reached its highest level in seven years. "The U.S. economy, with all due respect, is not such a dominant part of the global economy as it used to be. We're going to have decoupling" of other countries from the U.S. in terms of economic performance, says Oded Shenkar, a professor at Ohio State University's Fisher College of Business. The case for going global is even stronger if you believe that the dollar will sink in 2010. Returns on foreign stocks and bonds are worth more to Americans when the dollar falls against other currencies. The Federal Reserve has vowed to keep short-term interest rates extremely low until the U.S. economy gains strength, which may not be until summer or later. Low U.S. rates put downward pressure on the currency.
Buying multinationals is an easy way to bet on global growth without mucking about in names you've never heard of. Not just any multinational will do, though. Makers of consumer staples that serve the growing markets of Asia and Latin America are a good bet for 2010, says Rajiv Jain, head of international equities for Vontobel Asset Management in New York. Diageo is one, of course. Others include Coca-Cola (KO), Nestlé, McDonald's (MCD), and BAT (BTI) (if owning a tobacco company doesn't bother you). Many of these companies have handsome dividend yields as well as price-earnings multiples that are historically low in comparison with those of growth stocks, Jain says.
If you want even more exposure to growth in the developing world, try a company like Nestlé India—not a multinational, of course—which has had 11 consecutive quarters of strong revenue growth. "If you look at their numbers, you would never know there was a recession," says Jain.
In contrast, this is not the best year to go all-in on an industrial renaissance. There is still massive overcapacity in manufacturing in the U.S. despite plant shutdowns and layoffs. China made its own excess of productive capacity worse when it staved off an economic slump by building plants, equipment, infrastructure, and housing.
The tech sector should do somewhat better than general manufacturing because it enjoys shorter product cycles: If customers have any money at all, they tend to replace their computers and communications gear when the stuff becomes obsolete. Worldwide semiconductor sales rebounded more than 50% from their February 2009 lows through October, notes economist Edward Yardeni of Yardeni Research in Great Neck, N.Y. But tech stocks have risen a lot from their nadirs, so they're no great bargains at current prices.
Banks and other financial companies don't look like good deals, either. They continue to be weighed down by weak loans and investments that were made during the go-go years. And the off-balance-sheet financing they once used to juice up their returns is now pretty much off limits, says Wasif Latif, an equity portfolio manager and a member of the asset allocation team of USAA, the San Antonio-based financial-services firm for the armed forces and veterans. Plus, financial stocks have risen a lot from their priced-for-Armageddon lows.
It's been a crazy year. Somewhere out there is a hapless investor who stayed fully invested all through the crash, then finally capitulated and sold in early March, only to watch from the sidelines in horror as the Standard & Poor's 500 rebounded 65% through mid-December. To make sure that's not you in 2010, think hard about your investment choices so you can have the courage of your convictions. Make an investing plan and stick to it, advises Eileen Rominger, chief investment officer of Goldman Sachs Asset Management (GS) in New York, which oversees about $850 billion of investments. "You need a solid foundation of knowing what you own and why you own it," Rominger says. "In this volatile environment, the temptation for investors to do the wrong thing at exactly the wrong point in time is tremendous."
That's especially good advice if you're venturing for the first time into unfamiliar territory such as foreign stocks and bonds. It's a big world, with lots of opportunities. Don't let the strangeness frighten you away.
Coy is BusinessWeek's Economics editor.
http://www.businessweek.com/magazine/content/09_52/b4161045147139.htm
Saturday 19 December 2009
8 Tips For Starting Your Own Business
Be Your Own Boss
Wouldn't it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible! Here we'll examine some important steps to follow when starting your own business.
Do You Have What It Takes?
Not everyone is cut out for the challenge of starting their own business. There are several personality traits that are common among successful entrepreneurs, including discipline, frugality, self-confidence, good communication skills, humility, honesty and integrity, superb record-keeping skills, motivation, good health, optimism and more. For more on these characteristics, read Are You An Entrepreneur?
Creating The Concept
Before you quit your job to become an entrepreneur, you must first think of a concept, product or service that will generate a steady stream of income. This may sound easy, but for most people, this is actually the hardest part. You should conceive a plan that puts your knowledge, experience and expertise to use in the most profitable way possible. Once you settle on an idea, research the marketplace to see how similar businesses have fared.
Smart Tip: Start with areas you already have a great deal of interest in, and equipment and materials for. This will help cut down startup costs.
Make Sure You Have Support
If you're married and/or have kids, you should also be asking your family how they feel about your working from home, as your decision will affect them both financially and psychologically. If the response is negative, spend time addressing any concerns and decide whether your goal is worth continuing against their wishes if you are unable to change their minds.
Develop A Work Space
If you are considering a home-based business, remember that your home's primary function is to serve as a dwelling for you and your family - not as a warehouse or meeting place for your business and its clients. If you're considering a computer-based business, make sure you have the technology necessary to give your idea a fighting chance.
Smart Tip: Make sure you have a dedicated, private area to work. This area should be free of noise and distraction.
Create A Business Plan
Numerous studies have shown that one of the major reasons new businesses fail is poor planning. If you are planning on starting up a business, you must have a business plan. This will serve as a road map to guide you, and communicate with your bank and/or investors what you're doing and why they should invest in you. It should include a mission statement, executive summary, product or service offerings, target market, marketing plan, industry and competitive analysis, pro-forma financials, resumes for the company's principals, your offering, and an appendix with any other pertinent information.
Find The Right Funding
Most businesses require startup income. Ideally, this investment will help you break even after a year, but keep in mind that even successful businesses can remain in debt for the first few years. Potential sources of funding include a small-business loan from your local bank, tapping into your savings, money from other investments, borrowing from family/friends and, as a last resort, credit cards.
Smart Tip: Try to avoid racking up costly credit card debt that could cost 20% or more in yearly interest fees. You should also avoid borrowing against your 401(k) or other similar plans as this could adversely affect your retirement.
Plan Your Company Budget
Without a budget, a business runs the risk of spending more money than it is taking in, or not spending enough money to grow the business and compete. There are a number of ways you can plan your budget. These include researching industry standards, giving yourself a cushion, reviewing the budget periodically, and shopping around for services and suppliers. For more, read Six Steps To A Better Business Budget.
Smart Tip: While many firms draft a budget yearly, small business owners should do so more often. In fact, many find themselves planning just a month or two ahead when unexpected expenses throw off revenue assumptions.
Get All The Help You Can Find
A number of resources are available to help entrepreneurial hopefuls get off to a great start. Free information and assistance is available from your local Small Business Development Center (SBDC) and SCORE offices. Both are associated with the U.S. Small Business Administration (SBA). The IRS can even provide free assistance, including accounting and record-keeping, through the Small Business Tax Education Program.
http://www.investopedia.com/slide-show/tips-start-your-own-small-business/default.aspx
Wouldn't it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible! Here we'll examine some important steps to follow when starting your own business.
Do You Have What It Takes?
Not everyone is cut out for the challenge of starting their own business. There are several personality traits that are common among successful entrepreneurs, including discipline, frugality, self-confidence, good communication skills, humility, honesty and integrity, superb record-keeping skills, motivation, good health, optimism and more. For more on these characteristics, read Are You An Entrepreneur?
Creating The Concept
Before you quit your job to become an entrepreneur, you must first think of a concept, product or service that will generate a steady stream of income. This may sound easy, but for most people, this is actually the hardest part. You should conceive a plan that puts your knowledge, experience and expertise to use in the most profitable way possible. Once you settle on an idea, research the marketplace to see how similar businesses have fared.
Smart Tip: Start with areas you already have a great deal of interest in, and equipment and materials for. This will help cut down startup costs.
Make Sure You Have Support
If you're married and/or have kids, you should also be asking your family how they feel about your working from home, as your decision will affect them both financially and psychologically. If the response is negative, spend time addressing any concerns and decide whether your goal is worth continuing against their wishes if you are unable to change their minds.
Develop A Work Space
If you are considering a home-based business, remember that your home's primary function is to serve as a dwelling for you and your family - not as a warehouse or meeting place for your business and its clients. If you're considering a computer-based business, make sure you have the technology necessary to give your idea a fighting chance.
Smart Tip: Make sure you have a dedicated, private area to work. This area should be free of noise and distraction.
Create A Business Plan
Numerous studies have shown that one of the major reasons new businesses fail is poor planning. If you are planning on starting up a business, you must have a business plan. This will serve as a road map to guide you, and communicate with your bank and/or investors what you're doing and why they should invest in you. It should include a mission statement, executive summary, product or service offerings, target market, marketing plan, industry and competitive analysis, pro-forma financials, resumes for the company's principals, your offering, and an appendix with any other pertinent information.
Find The Right Funding
Most businesses require startup income. Ideally, this investment will help you break even after a year, but keep in mind that even successful businesses can remain in debt for the first few years. Potential sources of funding include a small-business loan from your local bank, tapping into your savings, money from other investments, borrowing from family/friends and, as a last resort, credit cards.
Smart Tip: Try to avoid racking up costly credit card debt that could cost 20% or more in yearly interest fees. You should also avoid borrowing against your 401(k) or other similar plans as this could adversely affect your retirement.
Plan Your Company Budget
Without a budget, a business runs the risk of spending more money than it is taking in, or not spending enough money to grow the business and compete. There are a number of ways you can plan your budget. These include researching industry standards, giving yourself a cushion, reviewing the budget periodically, and shopping around for services and suppliers. For more, read Six Steps To A Better Business Budget.
Smart Tip: While many firms draft a budget yearly, small business owners should do so more often. In fact, many find themselves planning just a month or two ahead when unexpected expenses throw off revenue assumptions.
Get All The Help You Can Find
A number of resources are available to help entrepreneurial hopefuls get off to a great start. Free information and assistance is available from your local Small Business Development Center (SBDC) and SCORE offices. Both are associated with the U.S. Small Business Administration (SBA). The IRS can even provide free assistance, including accounting and record-keeping, through the Small Business Tax Education Program.
http://www.investopedia.com/slide-show/tips-start-your-own-small-business/default.aspx
8 Signs Of A Doomed Stock
Are Your Stocks Doomed?
Few people seem to spot the early signs of a company in distress. Remember WorldCom and Enron? Not so long ago, these companies were worth hundreds of billions of dollars. Today, they no longer exist. Their collapses came as a surprise to most of the world, including their investors. Even large shareholders, many of them with an inside track, were caught off guard. So is there any way to know that your stock may be on a crash course to nowhere? The answer is yes. Read on to find out how.
1. Negative Cash Flows
Cash flow is a company's lifeline; investors who keep an eye on it can protect themselves from ending up with a worthless share certificate. When a company's cash payments exceed its cash receipts, the company's cash flow is negative. If this occurs over a sustained period, it's a sign that the company's cash in the bank may be getting dangerously low. Without fresh injections of capital from shareholders or lenders, a company in this situation can quickly find itself insolvent.
2. High Debt-Equity Ratio
Interest repayments place pressure on cash flow, and this pressure is likely to be exacerbated for distressed companies. Because they have a higher risk of default, struggling companies must pay a higher interest rate to borrow money. As a result, debt tends to shrink their returns. The total debt-to-equity (D/E) ratio is a useful measure of bankruptcy risk. It compares a company's combined long- and short-term debt to shareholders' equity or book value. Companies with D/E ratios of 0.5 and above deserve a closer look.
3. Interest Coverage Ratio
The debt/equity (D/E) ratio doesn't always say much on its own. It should be accompanied by an examination of the debt interest coverage ratio. For example, suppose that a company has a D/E ratio of 0.75, which signals a low bankruptcy risk, but that it also has an interest coverage ratio of 0.5. An interest coverage ratio below 1 means that the company is not able to meet all of its debt obligations with the period's earnings before interest and tax (operating income). It's also a sign that a company is having difficulty meeting its debt obligations.
4. Share Price Decline
Savvy investor should also watch out for unusual share price declines. Almost all corporate collapses are preceded by a sustained share price decline. Enron's share price started falling 16 months before it went bust. That said, while a big share price decline might signal trouble ahead, it may also signal a valuable opportunity to buy an out-of-favor business with solid fundamentals. Before deciding whether the stock is a buy or sell, be sure to examine the additional factors we discuss next.
5. Profit Warnings
Investors should take profit warnings very, very seriously. While market reaction to a profit warning may appear swift and brutal, there is growing academic evidence to suggest that the market systematically underreacts to bad news. As a result, a profit warning is often followed by a gradual share price decline.
6. Insider Trading
Companies are required to report, by way of company announcement, purchases and sales of shares by substantial shareholders and company directors (also known as insiders). Executives and directors have the most up-to-date information on their company's prospects, so heavy selling by one or both groups can be a sign of trouble ahead. Admittedly, insiders don't always sell simply because they think their shares are about to sink in value, but insider selling should give investors pause.
7. Resignations
The sudden departure of key executives (or directors), and/or auditors can also signal bad news. While these resignations may be completely innocent, they demand closer inspection. Auditor replacement can also mean a deteriorating relationship between the auditor and the client company, and perhaps more fundamental difficulties within the client company's business. Warning bells should ring the loudest when the individual concerned has a reputation as a successful manager or a strong, independent director.
8. SEC Investigations
Formal investigations by the Securities and Exchange Commission (SEC) normally precede corporate collapses. That's not surprising; many companies guilty of breaking SEC and accounting rules do so because they are facing financial difficulties. While many SEC investigations turn out to be unfounded, they still give investors good reason to pay closer attention to the financial situations of companies that are targeted by the SEC.
http://www.investopedia.com/slide-show/signs-doomed-stock/default.aspx
Few people seem to spot the early signs of a company in distress. Remember WorldCom and Enron? Not so long ago, these companies were worth hundreds of billions of dollars. Today, they no longer exist. Their collapses came as a surprise to most of the world, including their investors. Even large shareholders, many of them with an inside track, were caught off guard. So is there any way to know that your stock may be on a crash course to nowhere? The answer is yes. Read on to find out how.
1. Negative Cash Flows
Cash flow is a company's lifeline; investors who keep an eye on it can protect themselves from ending up with a worthless share certificate. When a company's cash payments exceed its cash receipts, the company's cash flow is negative. If this occurs over a sustained period, it's a sign that the company's cash in the bank may be getting dangerously low. Without fresh injections of capital from shareholders or lenders, a company in this situation can quickly find itself insolvent.
2. High Debt-Equity Ratio
Interest repayments place pressure on cash flow, and this pressure is likely to be exacerbated for distressed companies. Because they have a higher risk of default, struggling companies must pay a higher interest rate to borrow money. As a result, debt tends to shrink their returns. The total debt-to-equity (D/E) ratio is a useful measure of bankruptcy risk. It compares a company's combined long- and short-term debt to shareholders' equity or book value. Companies with D/E ratios of 0.5 and above deserve a closer look.
3. Interest Coverage Ratio
The debt/equity (D/E) ratio doesn't always say much on its own. It should be accompanied by an examination of the debt interest coverage ratio. For example, suppose that a company has a D/E ratio of 0.75, which signals a low bankruptcy risk, but that it also has an interest coverage ratio of 0.5. An interest coverage ratio below 1 means that the company is not able to meet all of its debt obligations with the period's earnings before interest and tax (operating income). It's also a sign that a company is having difficulty meeting its debt obligations.
4. Share Price Decline
Savvy investor should also watch out for unusual share price declines. Almost all corporate collapses are preceded by a sustained share price decline. Enron's share price started falling 16 months before it went bust. That said, while a big share price decline might signal trouble ahead, it may also signal a valuable opportunity to buy an out-of-favor business with solid fundamentals. Before deciding whether the stock is a buy or sell, be sure to examine the additional factors we discuss next.
5. Profit Warnings
Investors should take profit warnings very, very seriously. While market reaction to a profit warning may appear swift and brutal, there is growing academic evidence to suggest that the market systematically underreacts to bad news. As a result, a profit warning is often followed by a gradual share price decline.
6. Insider Trading
Companies are required to report, by way of company announcement, purchases and sales of shares by substantial shareholders and company directors (also known as insiders). Executives and directors have the most up-to-date information on their company's prospects, so heavy selling by one or both groups can be a sign of trouble ahead. Admittedly, insiders don't always sell simply because they think their shares are about to sink in value, but insider selling should give investors pause.
7. Resignations
The sudden departure of key executives (or directors), and/or auditors can also signal bad news. While these resignations may be completely innocent, they demand closer inspection. Auditor replacement can also mean a deteriorating relationship between the auditor and the client company, and perhaps more fundamental difficulties within the client company's business. Warning bells should ring the loudest when the individual concerned has a reputation as a successful manager or a strong, independent director.
8. SEC Investigations
Formal investigations by the Securities and Exchange Commission (SEC) normally precede corporate collapses. That's not surprising; many companies guilty of breaking SEC and accounting rules do so because they are facing financial difficulties. While many SEC investigations turn out to be unfounded, they still give investors good reason to pay closer attention to the financial situations of companies that are targeted by the SEC.
http://www.investopedia.com/slide-show/signs-doomed-stock/default.aspx
Give the Gift of Smart Investing
Received an email commercial in my post today.
Stocks have history running in their favor, averaging 11-12% a year, and they outperform just about every type of investment. The trade-off is that stocks come with greater risk. Average market returns are no comfort if you buy at the market peak and sell during the graveyard. Still investing in stocks is no longer as mysterious or as elite an activity as it used to be. Armed with the desire to learn, you can make stocks a powerful source of returns in your portfolio.
Financial success requires an understanding of the investment process and the various factors affecting stocks, bonds, & other financial securities. The Forbes Stock Market Course compiles the information you need to increase your wealth over time.
Since you are already a member of the Forbes family, we'd like to offer you a special deal. If you order the Forbes Stock Market Course today, you will get $50 off the regular price!
http://www.forbesinc.com/stockmarketcourse/FSMC-TOC.pdf
Comment:
The course content includes all the standard topics essential for those interested in investing. These topics are also dealt with by most investing books.
It is unlikely that one can get enough information by attending a half day session to learn investing. At most you can only have a glimpse of this wide field. Interestingly, a recent course by a blogger widely advertised before the talk was deafly silent post-course! Just wondering.
Merry Xmas folks.
Stocks have history running in their favor, averaging 11-12% a year, and they outperform just about every type of investment. The trade-off is that stocks come with greater risk. Average market returns are no comfort if you buy at the market peak and sell during the graveyard. Still investing in stocks is no longer as mysterious or as elite an activity as it used to be. Armed with the desire to learn, you can make stocks a powerful source of returns in your portfolio.
Financial success requires an understanding of the investment process and the various factors affecting stocks, bonds, & other financial securities. The Forbes Stock Market Course compiles the information you need to increase your wealth over time.
Since you are already a member of the Forbes family, we'd like to offer you a special deal. If you order the Forbes Stock Market Course today, you will get $50 off the regular price!
http://www.forbesinc.com/stockmarketcourse/FSMC-TOC.pdf
Comment:
The course content includes all the standard topics essential for those interested in investing. These topics are also dealt with by most investing books.
It is unlikely that one can get enough information by attending a half day session to learn investing. At most you can only have a glimpse of this wide field. Interestingly, a recent course by a blogger widely advertised before the talk was deafly silent post-course! Just wondering.
Merry Xmas folks.
Friday 18 December 2009
Evaluating your property investment
Evaluating your property investment
Mon Dec 14, 2009 9:12am
Investing requires discipline - one can’t blindly invest money without knowing what one is getting into. Investing into Real Estate is no different. Here is a checklist that you should use when evaluating your property investment.
1. Desirability of the location: This is the single most important criterion to value real estate.
2. Reputation of the builder and quality of construction: Properties by some developers are worth a lot more than others because of quality. Don’t always go for the lower price because there could be huge execution risk with less reputed builders
3. Payment terms: Time-linked or construction linked payment plan, and cash vs. cheque component. This will affect your cashflow in other aspects of your personal finances. (Click here to know more)
4. Project approvals and licenses: This might affect your ability to get a home loan if project approvals have not come through yet.
5. Contractual guarantees: For assured return schemes get a written guarantee from the builder and post-dated cheques in your name. Understand the delivery date of your project
6. Demand and supply: Over or under-supply will affect both the capital appreciation potential and the rental yield you might expect.
7. Floor space index and carpet area: Local rules on the built up area and the available square footage (carpet area) might reduce the usable area. Recognize that what you pay for might not be what you get
Tips on the process of Real Estate Investing
When it comes to the process of making a property investment and exiting from it, there are a few things that you must keep in mind.
1. Transaction costs: When you buy or sell property, there are many transaction costs associated with these activities. You might have to pay a brokerage fee to the intermediary. If you have made a gain on the sale, there will also likely be a resulting capital gains tax liability.
You will also face some expenses related to the stamp duty at the time of the transfer and registration costs of the property. All these costs can add a material amount to the purchase or sale price of your investment.
2. Liquidity: Unlike stocks that you can sell readily and convert into money in the hand within a couple of days, buying and selling property takes time. Your ability to convert your investment into cash in hand is quite restricted.
Its not uncommon for deals to take up to one year, and still fall through at the last minute. So if you feel that you can sell your property to pay for your child’s education abroad once he/she gets admission, you might be in for a shock. To have easy access to this money, you might be better off putting it into a financial asset that you can access at a short notice (e.g., fixed deposit, or liquid fund).
3. Cash: Property investments are not always the cleanest when it comes to cash versus cheque component of paying for deals. Unlike mutual funds where KYC norms require that the investment be made in cheque and the PAN card details be shared, real estate investments can have a huge cash component to them. This might not suit everyone.
http://in.reuters.com/article/personalFinance/idINIndia-43604720091214?sp=true
Mon Dec 14, 2009 9:12am
Investing requires discipline - one can’t blindly invest money without knowing what one is getting into. Investing into Real Estate is no different. Here is a checklist that you should use when evaluating your property investment.
1. Desirability of the location: This is the single most important criterion to value real estate.
2. Reputation of the builder and quality of construction: Properties by some developers are worth a lot more than others because of quality. Don’t always go for the lower price because there could be huge execution risk with less reputed builders
3. Payment terms: Time-linked or construction linked payment plan, and cash vs. cheque component. This will affect your cashflow in other aspects of your personal finances. (Click here to know more)
4. Project approvals and licenses: This might affect your ability to get a home loan if project approvals have not come through yet.
5. Contractual guarantees: For assured return schemes get a written guarantee from the builder and post-dated cheques in your name. Understand the delivery date of your project
6. Demand and supply: Over or under-supply will affect both the capital appreciation potential and the rental yield you might expect.
7. Floor space index and carpet area: Local rules on the built up area and the available square footage (carpet area) might reduce the usable area. Recognize that what you pay for might not be what you get
Tips on the process of Real Estate Investing
When it comes to the process of making a property investment and exiting from it, there are a few things that you must keep in mind.
1. Transaction costs: When you buy or sell property, there are many transaction costs associated with these activities. You might have to pay a brokerage fee to the intermediary. If you have made a gain on the sale, there will also likely be a resulting capital gains tax liability.
You will also face some expenses related to the stamp duty at the time of the transfer and registration costs of the property. All these costs can add a material amount to the purchase or sale price of your investment.
2. Liquidity: Unlike stocks that you can sell readily and convert into money in the hand within a couple of days, buying and selling property takes time. Your ability to convert your investment into cash in hand is quite restricted.
Its not uncommon for deals to take up to one year, and still fall through at the last minute. So if you feel that you can sell your property to pay for your child’s education abroad once he/she gets admission, you might be in for a shock. To have easy access to this money, you might be better off putting it into a financial asset that you can access at a short notice (e.g., fixed deposit, or liquid fund).
3. Cash: Property investments are not always the cleanest when it comes to cash versus cheque component of paying for deals. Unlike mutual funds where KYC norms require that the investment be made in cheque and the PAN card details be shared, real estate investments can have a huge cash component to them. This might not suit everyone.
http://in.reuters.com/article/personalFinance/idINIndia-43604720091214?sp=true
How to construct a stock portfolio – do’s & don’ts
How to construct a stock portfolio – do’s & don’ts
Thu Jun 4, 2009 1:33pm
Constructing and managing a stock portfolio is hard. Just ask any professional fund manager. So, what should retail investors keep in mind when it comes to their stock portfolio?
First of all, retail investors must recognize that they are competing against the pros. Therefore, you should not do this if you do not have the time or resources to match the research and analytics done by the pros.
Secondly, you must have an investing philosophy that guides you irrespective of the prevailing market conditions. Recognize whether
Thirdly, understand your risk profile. Are you risk averse? Or are you willing to take on extra risk in order to earn higher returns? High returns aren’t possible without taking on additional risk, and you might not be comfortable with too much risk. Your portfolio should match your risk profile.
Finally, what are you doing towards risk management? This is where the pros really stand out because they understand that managing a portfolio is all about risk management on a daily basis.
Here are some steps that retail investors must take when constructing a stock portfolio?
1) Diversify: Just buying stocks in 1 or 2 companies is not enough. You could be taking on too much risk through a concentrated portfolio, akin to putting all your eggs in one basket. Ideally, your portfolio should have no more than 20-25 names. However, this also does not mean that you can have just say 5 shares of one company and 2 shares of another, because that is all you can afford because you can’t create wealth through just purchasing a handful of shares in a company.
2) Review Your Exposure Frequently: While one investment strategy is to buy and hold, that does not imply that you do not manage your exposure by ignoring your portfolio. Market prices move, sometimes dramatically. As a result, you might have too much or too little exposure to one sector or stock. Get into the discipline of reviewing your exposure regularly, especially during dramatic market movements.
3) Create your own set of rules to guide you: Formulate your own rules for when to buy or sell a stock. Don’t just follow the herd or come under peer pressure. What is good for others might not be suitable for you or your portfolio because your risk, investment criteria, tax situation and entry price might be different.
4)Keep some cash available: Again this is one area where the pros stand out. They recognize that good investment opportunities come unannounced, but in order to take advantage of them they need to have cash available to make these investments. So make sure that you keep some cash available in your portfolio to pounce on these ideas.
If the above sounds challenging and tough for you to follow, then a do-it-yourself portfolio management is not recommended. As an alternative you might be better off investing in the markets through mutual funds, where you can take advantage of the resources and risk management skills of the pros, rather than compete against them.
http://in.reuters.com/article/personalFinance/idINIndia-40066820090604?sp=true
Thu Jun 4, 2009 1:33pm
- you are a day trader, punting on every rumour that you come across, or
- if you are a value investor who buys and holds for at least a minimum of 4-5 years.
- When the price moves higher or lower than your expectation, do you buy more or do you start selling?
- Do you recognize that your exposure to one sector or stock might have gone up or down a lot due to market price changes?
How do professionals invest?
How do professionals invest?
Mon Nov 9, 2009 12:33pm
Ask any professional and they will tell you that they never make an investing decision without the discipline of following a framework.
Here we suggest some criteria that all investors must use when making an investment, to help you avoid getting into investments you don’t understand or losing money in the long run.
- Risk taking capacity: Suitability of the investment for your unique situation
- Financial goals: What do you need to generate returns for
- Time horizon: By when do you want to exit the investment
- Liquidity: How quickly you want to convert your investment into ready cash
- Capital growth or regular income: Whether it provides you adequate protection against inflation
- Taxability: What kind of tax liability do you create
Professionals recognize that not all investments are suited for them. Just like not all medicines are suited to all patients, you must also realize that not all investments are suitable for you.
A common question that newcomers ask is “tell me the best investment for my money” and immediately expect a one sentence answer. It’s like a patient asking the doctor for the best medicine.
Before the doctor prescribes a medicine or the relevant dosage a thorough investigation of the symptoms, allergies and pre-existing condition has to be conducted.
You wouldn’t feel confident with a doctor who blindly prescribes medication to you.
It is similar when it comes to investing. You need to do a through analysis of your unique situation before you or any advisor can choose the “best investment”.
Its for this reason that an investment made by those around you might not be the right investment for you, because you might be at a different stage of your life, with a different risk profile and financial assets and liabilities.
http://in.reuters.com/article/personalFinance/idINIndia-43714520091109?sp=true
Mon Nov 9, 2009 12:33pm
Ask any professional and they will tell you that they never make an investing decision without the discipline of following a framework.
Here we suggest some criteria that all investors must use when making an investment, to help you avoid getting into investments you don’t understand or losing money in the long run.
- Risk taking capacity: Suitability of the investment for your unique situation
- Financial goals: What do you need to generate returns for
- Time horizon: By when do you want to exit the investment
- Liquidity: How quickly you want to convert your investment into ready cash
- Capital growth or regular income: Whether it provides you adequate protection against inflation
- Taxability: What kind of tax liability do you create
Professionals recognize that not all investments are suited for them. Just like not all medicines are suited to all patients, you must also realize that not all investments are suitable for you.
A common question that newcomers ask is “tell me the best investment for my money” and immediately expect a one sentence answer. It’s like a patient asking the doctor for the best medicine.
Before the doctor prescribes a medicine or the relevant dosage a thorough investigation of the symptoms, allergies and pre-existing condition has to be conducted.
You wouldn’t feel confident with a doctor who blindly prescribes medication to you.
It is similar when it comes to investing. You need to do a through analysis of your unique situation before you or any advisor can choose the “best investment”.
Its for this reason that an investment made by those around you might not be the right investment for you, because you might be at a different stage of your life, with a different risk profile and financial assets and liabilities.
http://in.reuters.com/article/personalFinance/idINIndia-43714520091109?sp=true
Mistakes to avoid in the next stock market rally
Mistakes to avoid in the next stock market rally
Mon Jun 8, 2009 9:48am
So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….
1. Don’t be unrealistically optimistic: Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.
2. Understand your risk appetite – you cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.
3. There is no substitute for quality: Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.
4. Don’t invest blindly – invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.
5. You cannot successfully time the market: If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.
http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?sp=true
Mon Jun 8, 2009 9:48am
So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….
1. Don’t be unrealistically optimistic: Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.
2. Understand your risk appetite – you cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.
3. There is no substitute for quality: Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.
4. Don’t invest blindly – invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.
5. You cannot successfully time the market: If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.
http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?sp=true
How to manage a stock portfolio
How to manage a stock portfolio
Thu Jul 30, 2009 1:15pm
Retails investors often trade in stocks without understanding the deeper implications of their buy or sell decisions. When you invest in stocks, you implicitly are building a stock portfolio.
Here is a set of actionable steps that you must keep in mind to help you with building your stock portfolio.
1. Diversify: Just buying stocks in 1 or 2 companies is not enough. You could be taking on too much risk through a concentrated portfolio, akin to putting all your eggs in one basket. Ideally, your portfolio should have no more than 20-25 names to give you the benefits of diversification.
However, this also does not mean that you can have just say 5 shares of one company and 2 shares of another, because that is all you can afford because you can’t create wealth through just purchasing a handful of shares in a company.
Good stockpicking is about knowing how to allocate your capital efficiently across your best ideas in a diverse portfolio.
2. Review Your Exposure Frequently: While one investment strategy is to buy and hold, that does not imply that you do not manage your exposure by ignoring your portfolio. Market prices move, sometimes dramatically.
As a result, you might have too much or too little exposure to one sector or stock. Avoid this by being disciplined about setting aside some time to review your exposure. This will help you understand if you need to trim or add to the exposure to a certain sector or stock in your portfolio and take care of risk management.
3. Create your own set of rules to guide you: Formulate your own rules for when to buy or sell a stock based on an investment philosophy that you can be disciplined about. Don’t just follow the herd or come under peer pressure.
What is good for others might not be suitable for you or your portfolio because your risk, investment criteria, tax situation and entry price might be different. If a stock has met your price target, have some rules that guide you whether you will take money off the table or stay invested.
If a stock is a constant underperformer, will you continue holding on to it because psychologically you are unwilling to admit that you made a poor decision, or will you be unemotional and make the rational decision to cut your losses and sell?
4. Keep some cash available: This is one area where the professional investors stand out. They recognize that good investment opportunities come unannounced, but in order to take advantage of them they need to have cash available to make these investments.
So make sure that you keep some cash available in your portfolio to pounce on these ideas. If you are fully invested, you might miss good opportunities due to lack of liquidity.
If the above sounds challenging and tough for you to follow, then a do-it-yourself portfolio management is not recommended. As an alternative you might be better off investing in the markets through mutual funds, where you can take advantage of the resources and risk management skills of the pros, rather than compete against them.
http://in.reuters.com/article/personalFinance/idINIndia-41405020090730?pageNumber=2&virtualBrandChannel=0&sp=true
Thu Jul 30, 2009 1:15pm
Retails investors often trade in stocks without understanding the deeper implications of their buy or sell decisions. When you invest in stocks, you implicitly are building a stock portfolio.
Here is a set of actionable steps that you must keep in mind to help you with building your stock portfolio.
1. Diversify: Just buying stocks in 1 or 2 companies is not enough. You could be taking on too much risk through a concentrated portfolio, akin to putting all your eggs in one basket. Ideally, your portfolio should have no more than 20-25 names to give you the benefits of diversification.
However, this also does not mean that you can have just say 5 shares of one company and 2 shares of another, because that is all you can afford because you can’t create wealth through just purchasing a handful of shares in a company.
Good stockpicking is about knowing how to allocate your capital efficiently across your best ideas in a diverse portfolio.
2. Review Your Exposure Frequently: While one investment strategy is to buy and hold, that does not imply that you do not manage your exposure by ignoring your portfolio. Market prices move, sometimes dramatically.
As a result, you might have too much or too little exposure to one sector or stock. Avoid this by being disciplined about setting aside some time to review your exposure. This will help you understand if you need to trim or add to the exposure to a certain sector or stock in your portfolio and take care of risk management.
3. Create your own set of rules to guide you: Formulate your own rules for when to buy or sell a stock based on an investment philosophy that you can be disciplined about. Don’t just follow the herd or come under peer pressure.
What is good for others might not be suitable for you or your portfolio because your risk, investment criteria, tax situation and entry price might be different. If a stock has met your price target, have some rules that guide you whether you will take money off the table or stay invested.
If a stock is a constant underperformer, will you continue holding on to it because psychologically you are unwilling to admit that you made a poor decision, or will you be unemotional and make the rational decision to cut your losses and sell?
4. Keep some cash available: This is one area where the professional investors stand out. They recognize that good investment opportunities come unannounced, but in order to take advantage of them they need to have cash available to make these investments.
So make sure that you keep some cash available in your portfolio to pounce on these ideas. If you are fully invested, you might miss good opportunities due to lack of liquidity.
If the above sounds challenging and tough for you to follow, then a do-it-yourself portfolio management is not recommended. As an alternative you might be better off investing in the markets through mutual funds, where you can take advantage of the resources and risk management skills of the pros, rather than compete against them.
http://in.reuters.com/article/personalFinance/idINIndia-41405020090730?pageNumber=2&virtualBrandChannel=0&sp=true
Pinewood Shepperton gets Malaysia film studio deal
Pinewood Shepperton gets Malaysia film studio deal
Wed Dec 16, 2009 1:13pm IST
* To get consultancy and brand licence fees
* 2010 fees to be offset by infrastructure set-up
* 2009 trading remains in line with mkt view
Dec 16 (Reuters) - Film studios Pinewood Shepperton Plc (PWS.L: Quote, Profile, Research) said it had entered into an agreement for the development of a new studio facility in southern Malaysia and that its trading for 2009 remained in line with market expectations.
The British firm said it would get consultancy and brand licence fees for sales and marketing services as part of its agreement with Khazanah Nasional Berhad, the investment holding arm of the Government of Malaysia.
The company, whose facilities in south east England were used for the production of Oscar winner Slumdog Millionaire and the Harry Potter films, said the fees due in 2010 would be largely offset by setting up the sales and marketing infrastructure.
Pinewood Shepperton had recently concluded a long-term sales and marketing agreement with Pinewood Toronto Studios. "Following our deal for Pinewood Toronto and now Pinewood Malaysia, we are exploring further opportunities in this new and growing market," the company said in a statement. The company's shares closed at 131.50 pence on Tuesday on the London Stock Exchange. (Reporting by Purwa Naveen Raman in Bangalore; Editing by Deepak Kannan)
Wed Dec 16, 2009 1:13pm IST
* To get consultancy and brand licence fees
* 2010 fees to be offset by infrastructure set-up
* 2009 trading remains in line with mkt view
Dec 16 (Reuters) - Film studios Pinewood Shepperton Plc (PWS.L: Quote, Profile, Research) said it had entered into an agreement for the development of a new studio facility in southern Malaysia and that its trading for 2009 remained in line with market expectations.
The British firm said it would get consultancy and brand licence fees for sales and marketing services as part of its agreement with Khazanah Nasional Berhad, the investment holding arm of the Government of Malaysia.
The company, whose facilities in south east England were used for the production of Oscar winner Slumdog Millionaire and the Harry Potter films, said the fees due in 2010 would be largely offset by setting up the sales and marketing infrastructure.
Pinewood Shepperton had recently concluded a long-term sales and marketing agreement with Pinewood Toronto Studios. "Following our deal for Pinewood Toronto and now Pinewood Malaysia, we are exploring further opportunities in this new and growing market," the company said in a statement. The company's shares closed at 131.50 pence on Tuesday on the London Stock Exchange. (Reporting by Purwa Naveen Raman in Bangalore; Editing by Deepak Kannan)
Thursday 17 December 2009
Glove sector on heat today!
Top Gainers
HAIO
1750 7.490 0.300 4.17%
ADVENTA
64836 2.910 0.230 8.58%
HLFG
5638 7.790 0.220 2.91%
LATEXX-WA
3440 2.330 0.160 7.37%
KOSSAN
4593 5.160 0.160 3.20%
TOPGLOV
13096 9.650 0.150 1.58%
EONCAP
10089 6.540 0.140 2.19%
LATEXX
24384 2.850 0.120 4.40%
AIRPORT
1194 3.920 0.120 3.16%
AFG
31268 2.750 0.120 4.56%
HAIO
1750 7.490 0.300 4.17%
ADVENTA
64836 2.910 0.230 8.58%
HLFG
5638 7.790 0.220 2.91%
LATEXX-WA
3440 2.330 0.160 7.37%
KOSSAN
4593 5.160 0.160 3.20%
TOPGLOV
13096 9.650 0.150 1.58%
EONCAP
10089 6.540 0.140 2.19%
LATEXX
24384 2.850 0.120 4.40%
AIRPORT
1194 3.920 0.120 3.16%
AFG
31268 2.750 0.120 4.56%
Bracing for sea-change in taxation
Bracing for sea-change in taxation
Tags: Chew Theam Hock | CIMB | Deloitte Malaysia | Dewan Rakyat | goods and services tax | GST | GST Bill 2009 | Income Tax Act 1967 | Khoo Chin Guan | KPMG Tax Services Sdn Bhd | Lee Heng Guie | OSK Research | Tan Eng Yew | Tan Theng Hooi
Written by Ellina Badri & Isabelle Francis
Wednesday, 16 December 2009 22:46
KUALA LUMPUR: Professional consultancies have cautioned about "grey areas" in the implementation of the government's proposed 4% goods and services tax (GST), while other corresponding measures, such as lowering of income tax, may need to be taken.
They also said companies must prepare for the new tax regime early to estimate its potential impact on their businesses and how they could manage it.
Deloitte Malaysia country managing partner Tan Theng Hooi said GST would help the government address the drop in tax revenue in line with lower revenue from petroleum as well as broadening the tax base.
"However, there must be sufficient time given for businesses and the general public to get ready for the system rollout," Tan told The Edge Financial Daily today.
"The level of acceptance by businesses and the public on the implementation of the GST will be higher if there is a corresponding decrease in the income tax rates."
The government tabled the GST Bill 2009 for the first reading in the Dewan Rakyat today, projecting implementation in mid-2011. Though not specified in the bill, the government has said the rate would be fixed at 4%.
Based on the bill, the tax would be charged and levied on any supply of goods or services made in Malaysia, including anything treated as a supply under the act, and any importation of goods into Malaysia.
Businesses that are taxable include any trade, commerce, profession, vocation, or any other similar activity, whether or not it is for a pecuniary profit.
Businesses to be taxed under the GST were liable to register at the end of any month, and those who failed to register would be liable to a fine not exceeding RM50,000 or to an imprisonment for a term not exceeding three years, or both.
Tan said while there would be price increases in some items, there could also be lower prices for others, where savings from taxes on intermediate inputs would be passed by producers to the consumers.
He said under the GST, the tax would be collected at value-added points from production to the final point of sales, as opposed to the current system where the sales tax was only collected at the point of import, or when the local manufacturer sold the goods for the first time, while the service tax was only imposed on taxable services.
"The tax imposes additional compliance costs for businesses. These come in the form of additional work to account for the tax, tracking of input taxes paid, undertaking reconciliations and filings of GST returns.
"There is also a need to review and change the IT systems to accommodate the implementation of the GST," Tan said.
In a statement, KPMG Tax Services Sdn Bhd executive director Khoo Chin Guan said businesses would need to be pro-active in ensuring their transition to the new system was smooth and successful.
"The GST rate is lower than the existing service tax rate (5%) and significantly lower than the existing sales tax rate (10%). However, the impact on the revenue collection of the government of the drop in rates should be offset by the wider footprint of GST as well as its collection along the supply chain as opposed to only at the manufacturing or importation stage," Khoo said.
Chew Theam Hock, also an ED at KPMG, said the GST Bill followed the approach of tax rates adopted by a number of other countries, although overseas experience had shown there could be grounds for dispute where the provision of combined services fell in a "grey area", whether it was zero-rated, exempt, standard rated or a combination of those rates.
He said with the revenue floor at RM500,000, a number of small businesses would be outside the scope of the GST, although those businesses could voluntarily register for it to claim input tax credits, and they could also be compelled to be licensed by their business customers who wanted to ensure input credits along the supply chain were fully reclaimed.
KPMG's other ED Tan Eng Yew said businesses had to start reviewing their operations at a strategic and functional level so decisions could be made, while additional obligations imposed by law could be dealt with in order for the business to be GST-compliant.
"Although there is expected to be an 18 month-window before the GST becomes chargeable, businesses must address the additional challenges imposed by GST now.
"For example, where businesses make both taxable and non-taxable supplies (also known as mixed supplies), this is an opportune time to identify potential GST costs and how the supply chain should be structured in the light of the GST Bill," he said.
Khoo added that with the GST viewed internationally as a self-policing tax system, given the claim for input tax credits required registration and compliance through the submission of GST returns, the registration and compliance requirements could in turn lead to increased compliance with obligations under the Income Tax Act 1967.
As for the impact of the GST on consumers, CIMB chief economist Lee Heng Guie had in a recent note said the proposed rate of 4%, which was lower than the current SST of between 5% and 10%, was deemed appropriate to avoid dampening consumer spending and its impact on inflation.
"There will never be a good time to implement a new tax reform. When the economic environment is more conducive with stable revenue growth, we can have a virtually neutral and relatively low-rate GST introduction. More critically, there must be a strong political will to implement the unpopular consumption-based tax," he said.
He said it could result in higher private consumption expenditure initially, as households brought forward consumption expenditure prior to the tax's implementation, although this would be followed by a significant unwinding immediately following its rollout.
He added the resulting increase in inflation would likely be small in the medium term, causing a one-time price "blip".
"Businesses can expect GST implications for each transaction they make, regardless of the profits or losses. However, a better management of GST processes can improve cashflow of businesses, which in turn can translate to cost savings," he said.
He also said a comprehensive tax reform must be accompanied by lower personal and corporate income taxes, a stronger household safety net and other targeted assistance programmes for the need groups.
"Stated simply, create a simpler, fairer and more efficient tax system to facilitate greater private sector initiatives as well as drive higher economic growth and foreign investments," he said.
Meanwhile, OSK Research wrote recently that while some essential items and services were GST-exempt and despite the rate being lower than those in other Asia, it believed the tax would dampen consumer purchasing power to a certain extent.
It said based on its simple calculations from the Household Expenditure Survey 2005 data, the most affected group of consumers comprised the hardcore poor with monthly income of below RM430, poor households with monthly income below RM720 and the vulnerable poor with monthly income below RM1,500 in Peninsular Malaysia.
It added these groups could see a significant increase in their cost of living should the government impose the tax in the usage of utilities, basic communication consumption and clothing and footwear, given the possibility of inefficient delivery of new subsidy schemes for those groups.
Today's tabling of the tax bill showed that its exemptions included paddy, vegetables, rice, sugar, flour, cooking oil and meats.
"Apart from consumers, businessmen and retailers may also encounter some difficulties in the short-term, considering that these groups will act as tax collectors of the new tax on behalf of the government.
"Needless to say, the businesses would need to revamp their accounting systems accordingly and submit the collection to the related government agencies on time," OSK also said. It added those still using traditional accounting or payment systems would be forced to upgrade and attend training.
"Nonetheless, retailers of luxury goods, such as luxury cars and jewellery, or privileged services would probably be hardest hit in the short-term as the 4% GST would result in a price increase for the end-user," it said.
http://www.theedgemalaysia.com/business-news/155865-bracing-for-sea-change-in-taxation.html
Tags: Chew Theam Hock | CIMB | Deloitte Malaysia | Dewan Rakyat | goods and services tax | GST | GST Bill 2009 | Income Tax Act 1967 | Khoo Chin Guan | KPMG Tax Services Sdn Bhd | Lee Heng Guie | OSK Research | Tan Eng Yew | Tan Theng Hooi
Written by Ellina Badri & Isabelle Francis
Wednesday, 16 December 2009 22:46
KUALA LUMPUR: Professional consultancies have cautioned about "grey areas" in the implementation of the government's proposed 4% goods and services tax (GST), while other corresponding measures, such as lowering of income tax, may need to be taken.
They also said companies must prepare for the new tax regime early to estimate its potential impact on their businesses and how they could manage it.
Deloitte Malaysia country managing partner Tan Theng Hooi said GST would help the government address the drop in tax revenue in line with lower revenue from petroleum as well as broadening the tax base.
"However, there must be sufficient time given for businesses and the general public to get ready for the system rollout," Tan told The Edge Financial Daily today.
"The level of acceptance by businesses and the public on the implementation of the GST will be higher if there is a corresponding decrease in the income tax rates."
The government tabled the GST Bill 2009 for the first reading in the Dewan Rakyat today, projecting implementation in mid-2011. Though not specified in the bill, the government has said the rate would be fixed at 4%.
Based on the bill, the tax would be charged and levied on any supply of goods or services made in Malaysia, including anything treated as a supply under the act, and any importation of goods into Malaysia.
Businesses that are taxable include any trade, commerce, profession, vocation, or any other similar activity, whether or not it is for a pecuniary profit.
Businesses to be taxed under the GST were liable to register at the end of any month, and those who failed to register would be liable to a fine not exceeding RM50,000 or to an imprisonment for a term not exceeding three years, or both.
Tan said while there would be price increases in some items, there could also be lower prices for others, where savings from taxes on intermediate inputs would be passed by producers to the consumers.
He said under the GST, the tax would be collected at value-added points from production to the final point of sales, as opposed to the current system where the sales tax was only collected at the point of import, or when the local manufacturer sold the goods for the first time, while the service tax was only imposed on taxable services.
"The tax imposes additional compliance costs for businesses. These come in the form of additional work to account for the tax, tracking of input taxes paid, undertaking reconciliations and filings of GST returns.
"There is also a need to review and change the IT systems to accommodate the implementation of the GST," Tan said.
In a statement, KPMG Tax Services Sdn Bhd executive director Khoo Chin Guan said businesses would need to be pro-active in ensuring their transition to the new system was smooth and successful.
"The GST rate is lower than the existing service tax rate (5%) and significantly lower than the existing sales tax rate (10%). However, the impact on the revenue collection of the government of the drop in rates should be offset by the wider footprint of GST as well as its collection along the supply chain as opposed to only at the manufacturing or importation stage," Khoo said.
Chew Theam Hock, also an ED at KPMG, said the GST Bill followed the approach of tax rates adopted by a number of other countries, although overseas experience had shown there could be grounds for dispute where the provision of combined services fell in a "grey area", whether it was zero-rated, exempt, standard rated or a combination of those rates.
He said with the revenue floor at RM500,000, a number of small businesses would be outside the scope of the GST, although those businesses could voluntarily register for it to claim input tax credits, and they could also be compelled to be licensed by their business customers who wanted to ensure input credits along the supply chain were fully reclaimed.
KPMG's other ED Tan Eng Yew said businesses had to start reviewing their operations at a strategic and functional level so decisions could be made, while additional obligations imposed by law could be dealt with in order for the business to be GST-compliant.
"Although there is expected to be an 18 month-window before the GST becomes chargeable, businesses must address the additional challenges imposed by GST now.
"For example, where businesses make both taxable and non-taxable supplies (also known as mixed supplies), this is an opportune time to identify potential GST costs and how the supply chain should be structured in the light of the GST Bill," he said.
Khoo added that with the GST viewed internationally as a self-policing tax system, given the claim for input tax credits required registration and compliance through the submission of GST returns, the registration and compliance requirements could in turn lead to increased compliance with obligations under the Income Tax Act 1967.
As for the impact of the GST on consumers, CIMB chief economist Lee Heng Guie had in a recent note said the proposed rate of 4%, which was lower than the current SST of between 5% and 10%, was deemed appropriate to avoid dampening consumer spending and its impact on inflation.
"There will never be a good time to implement a new tax reform. When the economic environment is more conducive with stable revenue growth, we can have a virtually neutral and relatively low-rate GST introduction. More critically, there must be a strong political will to implement the unpopular consumption-based tax," he said.
He said it could result in higher private consumption expenditure initially, as households brought forward consumption expenditure prior to the tax's implementation, although this would be followed by a significant unwinding immediately following its rollout.
He added the resulting increase in inflation would likely be small in the medium term, causing a one-time price "blip".
"Businesses can expect GST implications for each transaction they make, regardless of the profits or losses. However, a better management of GST processes can improve cashflow of businesses, which in turn can translate to cost savings," he said.
He also said a comprehensive tax reform must be accompanied by lower personal and corporate income taxes, a stronger household safety net and other targeted assistance programmes for the need groups.
"Stated simply, create a simpler, fairer and more efficient tax system to facilitate greater private sector initiatives as well as drive higher economic growth and foreign investments," he said.
Meanwhile, OSK Research wrote recently that while some essential items and services were GST-exempt and despite the rate being lower than those in other Asia, it believed the tax would dampen consumer purchasing power to a certain extent.
It said based on its simple calculations from the Household Expenditure Survey 2005 data, the most affected group of consumers comprised the hardcore poor with monthly income of below RM430, poor households with monthly income below RM720 and the vulnerable poor with monthly income below RM1,500 in Peninsular Malaysia.
It added these groups could see a significant increase in their cost of living should the government impose the tax in the usage of utilities, basic communication consumption and clothing and footwear, given the possibility of inefficient delivery of new subsidy schemes for those groups.
Today's tabling of the tax bill showed that its exemptions included paddy, vegetables, rice, sugar, flour, cooking oil and meats.
"Apart from consumers, businessmen and retailers may also encounter some difficulties in the short-term, considering that these groups will act as tax collectors of the new tax on behalf of the government.
"Needless to say, the businesses would need to revamp their accounting systems accordingly and submit the collection to the related government agencies on time," OSK also said. It added those still using traditional accounting or payment systems would be forced to upgrade and attend training.
"Nonetheless, retailers of luxury goods, such as luxury cars and jewellery, or privileged services would probably be hardest hit in the short-term as the 4% GST would result in a price increase for the end-user," it said.
http://www.theedgemalaysia.com/business-news/155865-bracing-for-sea-change-in-taxation.html
Wall Street Struggles After Fed Statement
Wall Street Struggles After Fed Statement
By THE ASSOCIATED PRESS
Published: December 16, 2009
Shares struggled Wednesday — ending the day mixed — after the Federal Reserve reminded investors that it would end several of its extraordinary supports for the economy in the coming year.
Investors had anticipated that several programs would be wound down as expected next year, but policy makers had not confirmed the precise timing.
The Fed said it would leave interest rates near zero, as the market had expected, but policy makers also noted that weakness in the job market is “abating.” Fed governors made the assessment in a statement following a two-day meeting to discuss interest rate policy.
Investors parse those statements closely to see how the Fed is viewing the state of the economy and for clues about when it might raise interest above their historic lows. .Ultra-low borrowing costs have been a factor behind a massive rally in stocks this year, as well as a weakening of the dollar against other currencies.
Money managers are seeking any and all clues about when the Fed may feel the economy is strong enough to tolerate higher interest rates, which will help keep inflation in check.
Stocks had been higher ahead of the Fed’s announcement after a benign reading on consumer price inflation eased concerns that the Fed would be forced to raise interest rates any time soon. The statement from the central bank reinforced that notion. Policymakers repeated that inflation is likely to remain under control and that interest rates would remain low for “an extended period.”
Earlier Wednesday the government reported that consumer prices excluding food and energy were flat in November, signaling that inflation isn’t working its way into the economy. It was the first time that “core” inflation was unchanged after 10 monthly increases.
On Tuesday, stocks fell for the first time in five days and Treasurys slipped after a jump in wholesale prices led to speculation that the Fed would have to raise interest rates sooner than expected.
At the close, the Dow Jones industrial average was down 10.88 points, or 0.10 percent, at 10,441.12.
The broader Standard & Poor’s 500-stock index rose 1.25 points, to 1,109.18, and the Nasdaq rose 5.86 points, or 0.27 percent, to 2,206.91.
Bond prices mostly fell, pushing yields higher, following the Fed’s more upbeat assessment of the economy. The yield on the benchmark 10-year Treasury note rose to 3.61 percent from 3.60 percent late Tuesday. Prices had been higher ahead of the Fed’s announcement.
A drop in the dollar from a two-month high boosted commodity prices. Gold climbed, while crude oil rose $2.45 to $73.14 per barrel on the New York Mercantile Exchange.
http://www.nytimes.com/2009/12/17/business/17markets.html?ref=business
By THE ASSOCIATED PRESS
Published: December 16, 2009
Shares struggled Wednesday — ending the day mixed — after the Federal Reserve reminded investors that it would end several of its extraordinary supports for the economy in the coming year.
Investors had anticipated that several programs would be wound down as expected next year, but policy makers had not confirmed the precise timing.
The Fed said it would leave interest rates near zero, as the market had expected, but policy makers also noted that weakness in the job market is “abating.” Fed governors made the assessment in a statement following a two-day meeting to discuss interest rate policy.
Investors parse those statements closely to see how the Fed is viewing the state of the economy and for clues about when it might raise interest above their historic lows. .Ultra-low borrowing costs have been a factor behind a massive rally in stocks this year, as well as a weakening of the dollar against other currencies.
Money managers are seeking any and all clues about when the Fed may feel the economy is strong enough to tolerate higher interest rates, which will help keep inflation in check.
Stocks had been higher ahead of the Fed’s announcement after a benign reading on consumer price inflation eased concerns that the Fed would be forced to raise interest rates any time soon. The statement from the central bank reinforced that notion. Policymakers repeated that inflation is likely to remain under control and that interest rates would remain low for “an extended period.”
Earlier Wednesday the government reported that consumer prices excluding food and energy were flat in November, signaling that inflation isn’t working its way into the economy. It was the first time that “core” inflation was unchanged after 10 monthly increases.
On Tuesday, stocks fell for the first time in five days and Treasurys slipped after a jump in wholesale prices led to speculation that the Fed would have to raise interest rates sooner than expected.
At the close, the Dow Jones industrial average was down 10.88 points, or 0.10 percent, at 10,441.12.
The broader Standard & Poor’s 500-stock index rose 1.25 points, to 1,109.18, and the Nasdaq rose 5.86 points, or 0.27 percent, to 2,206.91.
Bond prices mostly fell, pushing yields higher, following the Fed’s more upbeat assessment of the economy. The yield on the benchmark 10-year Treasury note rose to 3.61 percent from 3.60 percent late Tuesday. Prices had been higher ahead of the Fed’s announcement.
A drop in the dollar from a two-month high boosted commodity prices. Gold climbed, while crude oil rose $2.45 to $73.14 per barrel on the New York Mercantile Exchange.
http://www.nytimes.com/2009/12/17/business/17markets.html?ref=business
When Good Customers Become Bad Bill Payers
When Good Customers Become Bad Bill Payers
By CAITLIN KELLY
Published: December 16, 2009
When credit markets seized up more than a year ago, many small businesses were caught flat-footed. Their clients were not paying, or were paying more slowly, and the owners were left emotionally stressed and financially damaged.
Cindy White, whose ribbon knitted jackets sell for upward of $800 in fashion boutiques, says she’s reluctant to press nonpayers too hard. “They’re my bread and butter,” she said.
But after the initial shock wore off, those owners have come up with a variety of ways to make sure they do get paid.
The National Federation of Independent Business, which has 350,000 members, signed up 200 members for a Web seminar on collections, said Karen Harned, executive director for the organization’s small-business legal center. “This is always a big issue for small-business owners.”
Arne Salkin, an account executive with Transworld Systems, a 39-year-old national collections agency, said the problem was felt by owners in an array of businesses. “Our clients include cigarette wholesalers, pest management companies, nursing homes and private day schools,” he said
With 150 offices and 75,000 customers across the United States, Transworld sends out customized demand letters, he said. Its customers, most of them small businesses, pay $750 for a series of five letters asking for payment, each escalating in intensity. Typically, they are sent out every two weeks, matching a standard pay period.
This system worked, in one instance, for David Neal, assistant corporate controller for Hoover Treated Wood Products, a lumber wholesaler in Thomson, Ga., when a client owing $15,000 paid the entire amount after receiving two letters. “I was shocked,” Mr. Neal said. “We were very surprised that it worked.”
But another client — a longtime customer, Mr. Neal said — was in arrears for $45,000, ignored all five letters and then went out of business in late October. “It will have to be written off,” he said.
That is painful for a low-margin industry like his, which typically bills within 15 days and in which 95 percent of clients pay promptly, Mr. Neal said. His firm typically has $4.5 million a week in receivables, he said, and payments started slowing in November 2008.
Geoffrey Wilson, owner of 352 Media, a 10-year-old Web development firm in Gainesville, Fla., lost $165,000 in early 2008 when three clients did not pay. The three firms were start-ups, he said, two in Florida, one in Michigan.
“It was devastating,” he said. “It damaged our cash flow and really hurt us.” The company, with major companies like Microsoft and American Express, did not have to lay off any of its 40 employees, but the experience left scars, Mr. Wilson said.
“It makes you really angry,” he said. “These were clients we had extensive interactions with over several months, sometimes with as many as 50 meetings. It felt very personal. Suddenly you have to threaten them, sue them.”
Today, Mr. Wilson is much more cautious about accepting new clients and is clear from the outset about payment terms — 33 percent upfront, raised from 25 percent in August 2008. Clients are now classified as standard or preferred, the latter being firms with 15 employees and at least two years in business. Standard clients must pay in full before material is delivered, and the business owner will be asked for a personal guarantee, he said.
Some customers are newly candid about their own financial woes, “which we’d never seen before,” he said. “They’ve become very truthful. As a business owner, I really appreciate their honesty. It allows us to better plan our situation. I need an accurate understanding of what’s coming in instead of having a client simply go silent.”
Lisa Brock, head of Brock Communications in Tampa, Fla., is taking a personal approach to managing late payers, recently visiting the chief executives of two local clients to negotiate payment. Now, more than ever, Ms. Brock said, she wants to know whom she is dealing with before entering into any business deal. A free consultation allows her to decide if a client’s values match hers. If so, she delves deeply into their references. “We’ve done more of this recently than in the 14 years we’ve been in business,” she said. “There are a number of ways to check people out: annual reports, a Dun & Bradstreet report, ask for personal and professional references.”
Cindy White, whose 11-year-old company manufactures knitted ribbon jackets that are sold in 40 high-end boutiques nationwide for $800 to $1,000, has been owed $5,000 for six months from several clients, forcing her to lay off employees. She has also fallen behind in the rent on her Phoenix design studio. “I have a lot of stores out there who owe me money, but they’re my bread and butter. You don’t want to upset them by suing or sending out collection letters.”
The decision whether to hold back or escalate demands for payment was made for her recently after a seven-year client, a store that closed, refused to communicate with her and did not pay for the jackets she had shipped. “I was furious,” Ms. White said. “This was a store I had a longstanding relationship with.”
Ever since, she said, “I have been on the phone every few days with all the stores that owe me money, just keeping tabs and making sure they are still viable.” She said she is hopeful that the economy will come back, and “I am willing to work with them because they are my lifeblood.”
Such attentiveness is necessary, agreed Ms. Brock. “I look at our profit and loss statements biweekly.” She advises scrutinizing client lists to predict potential trouble spots. “Even having two slow payers is significant.”
When a client refuses to pay, last-ditch options include
“Sometimes people can’t pay. Sometimes it’s a matter of straight-out fraud, where buyers are not doing enough due diligence. People are desperate to do the deal,” he said. Mr. Friedman takes on only cases worth more than $10,000.
“I try to resolve everything without filing a suit,” he said. His success rate is still only 20 percent, he warned. “My clients know better than I do if the client is really likely to settle.”
http://www.nytimes.com/2009/12/17/business/17markets.html?ref=business
By CAITLIN KELLY
Published: December 16, 2009
When credit markets seized up more than a year ago, many small businesses were caught flat-footed. Their clients were not paying, or were paying more slowly, and the owners were left emotionally stressed and financially damaged.
But after the initial shock wore off, those owners have come up with a variety of ways to make sure they do get paid.
- hiring a collections agency — which typically recoup in full only 11 percent of the time —
- hiring a collections lawyer, who may claim one-third of what they recover, or
- filing a case in small-claims court. Joshua Friedman, a collections lawyer in Beverly Hills, Calif., said his business had been booming since last fall, with clients coming to him “in every field you can imagine.”
Wednesday 16 December 2009
Outlook 2010: Emerging Markets to lead the recovery
Outlook 2010: Emerging Markets to lead the recovery
Investors who held their nerve have seen great returns as emerging economies continue to out-perform their developed counterparts. We ask those in the know whether 2010 offers the same investment opportunties?
Compiled by Emma Wall
Published: 3:58PM GMT 15 Dec 2009
India's vibrant economy has produced a 250m-strong middle class Photo: HEATHCLIFF O'MALLEY
When The Association of Investment Companies (AIC) asked investment company fund managers to tip their top performing region for 2010, emerging markets came top with 35pc of the vote. Second and third were also sectors that can be included in the emerging markets umbrella- Latin America and the Far East excluding Japan respectively with 22pc and 18pc of the vote.
Dr Slim Feriani, chief executive of Advance Emerging Capital and manager of Advance Developing Markets said: “The performance of emerging market equities has handsomely outpaced that of developing markets in the past five years and we expect that outperformance to continue over the next five years.
Emerging countries have emerged as the “relative winners” from the subprime crisis and resulting recession for two prime reasons: the quality of their sovereign and household balance sheets has never looked so strong compared with developed countries as it does currently; and their economic and corporate earnings growth is and will continue to easily outstrip that of the developed world in both real and nominal terms for the foreseeable future."
Following Schroders’ annual outlook for 2010 media presentation, Alan Brown and Keith Wade predicted that the current global rally is likely to continue into 2010 with emerging markets leading the economic recovery. However, they warned that there are a number of potential monetary and economic factors that could derail the global recovery.
To protect against these, Schroders recommended a more dynamic approach to asset management involving greater diversification and flexibility in order to protect clients’ portfolios.
Close Asset Management believe that emerging markets here to stay. "The growing strain on Western consumers and government finances are likely to be reflected in weaker macroeconomic data and pressure on revenues for many years to come," said Stuart Dyer, head of distribution for Close. "Equity market valuations do not look well underpinned in an environment of low or faltering growth.
For investors seeking long-term growth emerging markets are likely to look increasingly attractive and we are already seeing a sea-change in risk attitudes to investment in these markets; expect this to continue and exposure to these markets to increase."
Fidelity International's Mr Teera Chanpongsang, portfolio manager for their India Focus Fund and Emerging Markets Fund agreed. He said that emerging markets would continue to offer strong long term investment opportunities and stable governments and developing industry will fuel growth.
He said: “Early signs of a recovery are visible in recent economic indicators and earnings upgrades. The region has one of the strongest GDP growth rates in the world, driven by favourable demographics and healthy population growth, which means more people are added to the region’s work force."
http://www.telegraph.co.uk/finance/personalfinance/investing/6817246/Outlook-2010-Emerging-Markets-to-lead-the-recovery.html
Investors who held their nerve have seen great returns as emerging economies continue to out-perform their developed counterparts. We ask those in the know whether 2010 offers the same investment opportunties?
Compiled by Emma Wall
Published: 3:58PM GMT 15 Dec 2009
India's vibrant economy has produced a 250m-strong middle class Photo: HEATHCLIFF O'MALLEY
When The Association of Investment Companies (AIC) asked investment company fund managers to tip their top performing region for 2010, emerging markets came top with 35pc of the vote. Second and third were also sectors that can be included in the emerging markets umbrella- Latin America and the Far East excluding Japan respectively with 22pc and 18pc of the vote.
Dr Slim Feriani, chief executive of Advance Emerging Capital and manager of Advance Developing Markets said: “The performance of emerging market equities has handsomely outpaced that of developing markets in the past five years and we expect that outperformance to continue over the next five years.
Emerging countries have emerged as the “relative winners” from the subprime crisis and resulting recession for two prime reasons: the quality of their sovereign and household balance sheets has never looked so strong compared with developed countries as it does currently; and their economic and corporate earnings growth is and will continue to easily outstrip that of the developed world in both real and nominal terms for the foreseeable future."
Following Schroders’ annual outlook for 2010 media presentation, Alan Brown and Keith Wade predicted that the current global rally is likely to continue into 2010 with emerging markets leading the economic recovery. However, they warned that there are a number of potential monetary and economic factors that could derail the global recovery.
To protect against these, Schroders recommended a more dynamic approach to asset management involving greater diversification and flexibility in order to protect clients’ portfolios.
Close Asset Management believe that emerging markets here to stay. "The growing strain on Western consumers and government finances are likely to be reflected in weaker macroeconomic data and pressure on revenues for many years to come," said Stuart Dyer, head of distribution for Close. "Equity market valuations do not look well underpinned in an environment of low or faltering growth.
For investors seeking long-term growth emerging markets are likely to look increasingly attractive and we are already seeing a sea-change in risk attitudes to investment in these markets; expect this to continue and exposure to these markets to increase."
Fidelity International's Mr Teera Chanpongsang, portfolio manager for their India Focus Fund and Emerging Markets Fund agreed. He said that emerging markets would continue to offer strong long term investment opportunities and stable governments and developing industry will fuel growth.
He said: “Early signs of a recovery are visible in recent economic indicators and earnings upgrades. The region has one of the strongest GDP growth rates in the world, driven by favourable demographics and healthy population growth, which means more people are added to the region’s work force."
http://www.telegraph.co.uk/finance/personalfinance/investing/6817246/Outlook-2010-Emerging-Markets-to-lead-the-recovery.html
Outlook 2010: UK Equities
Outlook 2010: UK Equities
The past year will be remembered for extreme market volatility- few predicted the crash of March when the FTSE hit 3,512, but those who held their nerve would have greatly gained from the subsequent rise to 5,383 in November. We ask the experts- will the UK continue to grow in 2010?
Compiled by Emma Wall
Published: 12:34PM GMT 16 Dec 2009
"The outlook for 2010 is far from certain. The Government has to walk a tightrope between ongoing fiscal and monetary support for the economy and handing over to the private sector again as growth resurfaces.
Too much support could cause inflation to spike upwards and too little could cause the economy to fall back into recession.
Government intervention in markets and the economy has prevented the huge deflation feared at the start of the year. Sentiment has turned positive following an improvement in key leading economic indicators and corporate earnings.
Market direction for 2010 will be determined ultimately by a return of volume growth feeding through into corporate earning. The focus of the portfolio will be upon finding companies capable of growing their profits in an uncertain environment
David Stevenson, founding partner of Cartesian Capital Partners
“Stock selection from here should, therefore, focus on companies that can exhibit sustained sales and earnings growth in a post-stimulus environment.
Although the UK market has been hitting new highs in 2009, there have been recent signs of a change in mix within the overall index. Mid and small cap companies have lost some momentum after significantly outperforming large cap companies for most of 2009.
Having been the focus for risk and recovery appetite amongst investors, the underperformance of mid and small caps may mark the beginning of a broader market dynamic for 2010.
The recent preference for large cap includes many non-cyclical growth companies which have lagged the 2009 rally, and also internationally exposed companies, which are proving more attractive as domestic sentiment struggles under the prospective tightening of government policy.
We will continue to focus on an investment theme of visible earnings, spread across genuine recovery companies and durable growth companies where both are undervalued. The range of sectors involved is likely to be diverse, but with a leaning towards international plays until the UK economic picture becomes clearer.”
David Jane, head of multi-asset M&G
“Sterling and US dollar based assets are likely to suffer due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook.
A long period of low UK interest rates and continued money printing from the Bank of England is unlikely to help the pound.
However, my negative view on sterling does not include UK equities, which I am positive on owing to their status as a real asset offering attractive long-term returns as well as the very international nature of the UK stockmarket.
Most FTSE 100 companies are large global blue-chips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling.”
http://www.telegraph.co.uk/finance/personalfinance/investing/6817247/Outlook-2010-UK-Equities.html
The past year will be remembered for extreme market volatility- few predicted the crash of March when the FTSE hit 3,512, but those who held their nerve would have greatly gained from the subsequent rise to 5,383 in November. We ask the experts- will the UK continue to grow in 2010?
Compiled by Emma Wall
Published: 12:34PM GMT 16 Dec 2009
"The outlook for 2010 is far from certain. The Government has to walk a tightrope between ongoing fiscal and monetary support for the economy and handing over to the private sector again as growth resurfaces.
Too much support could cause inflation to spike upwards and too little could cause the economy to fall back into recession.
Government intervention in markets and the economy has prevented the huge deflation feared at the start of the year. Sentiment has turned positive following an improvement in key leading economic indicators and corporate earnings.
Market direction for 2010 will be determined ultimately by a return of volume growth feeding through into corporate earning. The focus of the portfolio will be upon finding companies capable of growing their profits in an uncertain environment
David Stevenson, founding partner of Cartesian Capital Partners
“Stock selection from here should, therefore, focus on companies that can exhibit sustained sales and earnings growth in a post-stimulus environment.
Although the UK market has been hitting new highs in 2009, there have been recent signs of a change in mix within the overall index. Mid and small cap companies have lost some momentum after significantly outperforming large cap companies for most of 2009.
Having been the focus for risk and recovery appetite amongst investors, the underperformance of mid and small caps may mark the beginning of a broader market dynamic for 2010.
The recent preference for large cap includes many non-cyclical growth companies which have lagged the 2009 rally, and also internationally exposed companies, which are proving more attractive as domestic sentiment struggles under the prospective tightening of government policy.
We will continue to focus on an investment theme of visible earnings, spread across genuine recovery companies and durable growth companies where both are undervalued. The range of sectors involved is likely to be diverse, but with a leaning towards international plays until the UK economic picture becomes clearer.”
David Jane, head of multi-asset M&G
“Sterling and US dollar based assets are likely to suffer due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook.
A long period of low UK interest rates and continued money printing from the Bank of England is unlikely to help the pound.
However, my negative view on sterling does not include UK equities, which I am positive on owing to their status as a real asset offering attractive long-term returns as well as the very international nature of the UK stockmarket.
Most FTSE 100 companies are large global blue-chips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling.”
http://www.telegraph.co.uk/finance/personalfinance/investing/6817247/Outlook-2010-UK-Equities.html
Where was the smart money in 2009?
Where was the smart money in 2009?
Smart investors have managed to make money regardless of the recession and economic doom and gloom.
Emma Simon
Published: 6:44AM GMT 15 Dec 2009
For many families 2009 has been a tough year: unemployment is rising, pay packets have been squeezed and easy credit is hard to find, despite the fact that interest rates fell to a historic low.
But smart investors have managed to make money regardless of the prevailing recession and economic doom and gloom.
Gold has long proved to be the ultimate safe haven in times of global turbulence. And those who invested in this precious metal have enjoyed sparkling returns, with the gold price rising by almost a third.
It isn't just cautious investors who have profited. Those bold enough to stick with the stock market have, on the whole, enjoyed bumper returns.
The figures speak for themselves. On January 2, the FTSE100 stood at 4,434. For the first three months of 2009, share prices continued to fall, with the stock market hitting a low of 3,460 in March.
However, since then the market has enjoyed a sustained, and largely unexpected, recovery. Last week the FTSE100 closed at 5,261 – a return of almost 20 per cent on the whole of the year.
Those who have kept their money in cash have not fared so well. According to Moneyfacts, the financial information group, the average savings account is paying just 0.67 per cent after tax.
But beleaguered property owners have enjoyed a turnaround in fortunes. The slump in house prices bottomed out this year, with prices slowly starting to inch upwards again.
Property speculators may not be seeing the stellar gains that fuelled dinner party conversation a few years ago, but at least the home owner can end the year knowing the roof over their head is worth more than it was 12 months ago.
Below we take a closer look at where the smart money was invested this year, and examine the outlook for 2010.
Gold
Gold prices started rising in 2003 and did not lose their lustre this year. At the start of the year, gold prices stood at $869 per ounce and now hover about the $1,142 mark – a rise of 31 per cent.
But British investors have not seen such substantial gains. This is because gold is priced in dollars, and a weak dollar means that we lose out.
The prevailing exchange rate at the start of the year meant an ounce of gold cost £599; at the end of last week, this same ounce could be sold for £700 – a more modest rise of 17 per cent.
It is not hard to understand why gold prices have risen. It is seen as a safe asset in times of economic upheaval. Those spooked by recession, financial crisis and volatile stock markets not surprisingly prefer to invest in solid gold bars rather than paper share certificates.
Those concerned about inflation have also turned to gold: there are concerns that that "quantitative easing" measure adopted by central banks to kick-start the economy may causes prices to rise in future. In times of inflation, gold tends to keep its value far better than money simply saved in a bank account.
The price of gold has also been buoyed by strong demand from the emerging economic powerhouses of China, India and Russia.
Will it continue to perform well next year?
Analysts are split. Few assets deliver consistently over such sustained periods and many suggest that gold prices may be due a fall. However, others point out that while China keeps buying gold, the economy continues to falter and fears of inflation remains, gold will continue to shine as an investment.
British investors can either buy gold bars or coins through bullion dealers such as Baird & Co. Prices will be higher than the "spot" market price, due to investor demand. Coins currently attract a higher premium than bars, particularly larger ones where there are storage costs to consider.
Alternatively, investors can buy funds that invest in gold-related shares, such as mining companies, or exchange traded funds, which are securities traded on the stock market whose price closely follows the gold "spot" rate.
Equities
The stock market bounced back this year, and investors in the best-performing funds managed to triple their money. A look at the best-performing funds of the year reveals that it is those with their money in specialist high-risk areas that have raked in the biggest gains.
Top of the tree is the Special Situations fund run by Close Asset Management. This fund, which invests in smaller companies, rose in value by almost 250 per cent over the past year. So someone investing £,1000 at the beginning of January would now be sitting on a nest egg of £3,464, according to Morningstar UK, the fund analysts.
Aside from smaller company funds, those who invested in gold and oil have also done well. JP Morgan's Natural Resources fund and CF Ruffer Baker Steel Gold fund have both risen by about 100 per cent this year.
Rising commodity prices have also benefited funds focused on Russian markets, while other emerging market funds have also performed well.
Neptune Russia & Greater Russia fund is up 105 per cent, for example, and JP Morgan's New Europe fund has posted a 93 per cent rise.
Justin Modray, the director of candidmoney.com says: "2009 has been a good year for investors who have had exposure to oil and gold. It's therefore little surprise that funds with exposure to these commodities have performed well.
"Good opportunistic UK fund managers have also done well by seizing the lucrative investment opportunities thrown up by volatile markets.
"Deryck Noble-Nesbitt, manager of Close Special Situations has delivered exceptional returns by investing in small, unloved companies that bounced back into favour this year, and exposing about a third of his fund to commodities."
Jackie Beard, the director of fund research at Morningstar UK, added that the returns on such niche funds tended to be exaggerated. Those with money in Russia may have made spectacular gains this year, but twice in the last decade, investors could have lost 85 per cent of their money.
Will such sectors prove as profitable in 2010? Ms Beard urges caution: "The top-performing funds in one year rarely do so well in the next," she says. "And there is a danger you could simply be buying near the top.
"We aren't strong advocates of niche funds. Investors should only have a small portion of their portfolio in such funds. Investors should be taking a long-term view and opt for diversified investments."
Mr Modray says the outlook for 2010 is very uncertain. "The initial stock-market bounce, once investors realised the global banking system wouldn't collapse, has been and gone. Future returns will depend more heavily on economic fundamentals, which are all rather depressing in most Western markets.
"Emerging markets and commodities still offer some appeal, but the high potential risk involved means investors should only view them as a long-term play. If you want to invest in the UK stock market, I'd look for funds that offer some protection."
He recommends the Invesco Perpetual High Income fund, managed by Neil Woodford and the Cazenove UK Absolute Target fund.
http://www.telegraph.co.uk/finance/personalfinance/investing/6812083/Where-was-the-smart-money-in-2009.html
Smart investors have managed to make money regardless of the recession and economic doom and gloom.
Emma Simon
Published: 6:44AM GMT 15 Dec 2009
For many families 2009 has been a tough year: unemployment is rising, pay packets have been squeezed and easy credit is hard to find, despite the fact that interest rates fell to a historic low.
But smart investors have managed to make money regardless of the prevailing recession and economic doom and gloom.
Gold has long proved to be the ultimate safe haven in times of global turbulence. And those who invested in this precious metal have enjoyed sparkling returns, with the gold price rising by almost a third.
It isn't just cautious investors who have profited. Those bold enough to stick with the stock market have, on the whole, enjoyed bumper returns.
The figures speak for themselves. On January 2, the FTSE100 stood at 4,434. For the first three months of 2009, share prices continued to fall, with the stock market hitting a low of 3,460 in March.
However, since then the market has enjoyed a sustained, and largely unexpected, recovery. Last week the FTSE100 closed at 5,261 – a return of almost 20 per cent on the whole of the year.
Those who have kept their money in cash have not fared so well. According to Moneyfacts, the financial information group, the average savings account is paying just 0.67 per cent after tax.
But beleaguered property owners have enjoyed a turnaround in fortunes. The slump in house prices bottomed out this year, with prices slowly starting to inch upwards again.
Property speculators may not be seeing the stellar gains that fuelled dinner party conversation a few years ago, but at least the home owner can end the year knowing the roof over their head is worth more than it was 12 months ago.
Below we take a closer look at where the smart money was invested this year, and examine the outlook for 2010.
Gold
Gold prices started rising in 2003 and did not lose their lustre this year. At the start of the year, gold prices stood at $869 per ounce and now hover about the $1,142 mark – a rise of 31 per cent.
But British investors have not seen such substantial gains. This is because gold is priced in dollars, and a weak dollar means that we lose out.
The prevailing exchange rate at the start of the year meant an ounce of gold cost £599; at the end of last week, this same ounce could be sold for £700 – a more modest rise of 17 per cent.
It is not hard to understand why gold prices have risen. It is seen as a safe asset in times of economic upheaval. Those spooked by recession, financial crisis and volatile stock markets not surprisingly prefer to invest in solid gold bars rather than paper share certificates.
Those concerned about inflation have also turned to gold: there are concerns that that "quantitative easing" measure adopted by central banks to kick-start the economy may causes prices to rise in future. In times of inflation, gold tends to keep its value far better than money simply saved in a bank account.
The price of gold has also been buoyed by strong demand from the emerging economic powerhouses of China, India and Russia.
Will it continue to perform well next year?
Analysts are split. Few assets deliver consistently over such sustained periods and many suggest that gold prices may be due a fall. However, others point out that while China keeps buying gold, the economy continues to falter and fears of inflation remains, gold will continue to shine as an investment.
British investors can either buy gold bars or coins through bullion dealers such as Baird & Co. Prices will be higher than the "spot" market price, due to investor demand. Coins currently attract a higher premium than bars, particularly larger ones where there are storage costs to consider.
Alternatively, investors can buy funds that invest in gold-related shares, such as mining companies, or exchange traded funds, which are securities traded on the stock market whose price closely follows the gold "spot" rate.
Equities
The stock market bounced back this year, and investors in the best-performing funds managed to triple their money. A look at the best-performing funds of the year reveals that it is those with their money in specialist high-risk areas that have raked in the biggest gains.
Top of the tree is the Special Situations fund run by Close Asset Management. This fund, which invests in smaller companies, rose in value by almost 250 per cent over the past year. So someone investing £,1000 at the beginning of January would now be sitting on a nest egg of £3,464, according to Morningstar UK, the fund analysts.
Aside from smaller company funds, those who invested in gold and oil have also done well. JP Morgan's Natural Resources fund and CF Ruffer Baker Steel Gold fund have both risen by about 100 per cent this year.
Rising commodity prices have also benefited funds focused on Russian markets, while other emerging market funds have also performed well.
Neptune Russia & Greater Russia fund is up 105 per cent, for example, and JP Morgan's New Europe fund has posted a 93 per cent rise.
Justin Modray, the director of candidmoney.com says: "2009 has been a good year for investors who have had exposure to oil and gold. It's therefore little surprise that funds with exposure to these commodities have performed well.
"Good opportunistic UK fund managers have also done well by seizing the lucrative investment opportunities thrown up by volatile markets.
"Deryck Noble-Nesbitt, manager of Close Special Situations has delivered exceptional returns by investing in small, unloved companies that bounced back into favour this year, and exposing about a third of his fund to commodities."
Jackie Beard, the director of fund research at Morningstar UK, added that the returns on such niche funds tended to be exaggerated. Those with money in Russia may have made spectacular gains this year, but twice in the last decade, investors could have lost 85 per cent of their money.
Will such sectors prove as profitable in 2010? Ms Beard urges caution: "The top-performing funds in one year rarely do so well in the next," she says. "And there is a danger you could simply be buying near the top.
"We aren't strong advocates of niche funds. Investors should only have a small portion of their portfolio in such funds. Investors should be taking a long-term view and opt for diversified investments."
Mr Modray says the outlook for 2010 is very uncertain. "The initial stock-market bounce, once investors realised the global banking system wouldn't collapse, has been and gone. Future returns will depend more heavily on economic fundamentals, which are all rather depressing in most Western markets.
"Emerging markets and commodities still offer some appeal, but the high potential risk involved means investors should only view them as a long-term play. If you want to invest in the UK stock market, I'd look for funds that offer some protection."
He recommends the Invesco Perpetual High Income fund, managed by Neil Woodford and the Cazenove UK Absolute Target fund.
http://www.telegraph.co.uk/finance/personalfinance/investing/6812083/Where-was-the-smart-money-in-2009.html
Moody’s warns of 'social unrest’ as sovereign debt spirals
Moody’s warns of 'social unrest’ as sovereign debt spirals
Britain and other countries with fast-rising government debts must steel themselves for a year in which “social and political cohesiveness” is tested, Moody’s warned.
By Edmund Conway
Published: 7:35PM GMT 15 Dec 2009
Riot police clash with protestors during an anti G20 demonstration near the Bank of England. Moody's has warned future tax rises and spending cuts could trigger more social unrest.
In a sombre report on the outlook for next year, the credit rating agency raised the prospect that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world.
It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”.
It added that the sheer quantity of debt to be raised by Britain and other leading nations would increase the risk of investor fright.
Strikingly, however, it added that even if countries reached agreement on the depth of the cuts necessary to their budgets, they could face difficulties in carrying out the cuts. The report, which comes amid growing worries about Britain’s credit rating, said: “In those countries whose debt has increased significantly, and especially those whose debt has become unaffordable, the need to rein in deficits will test social cohesiveness. The test will be starker as growth disappoints and interest rates rise.”
It said the main obstacle for fiscal consolidation plans would be signs not necessarily of economic strength but of “political and social tension”.
Greece, where the government has committed to drastic cuts in public expenditure, has suffered a series of riots over the past year which are thought to have been fuelled by economic pressures.
http://www.telegraph.co.uk/finance/economics/6819470/Moodys-warns-of-social-unrest-as-sovereign-debt-spirals.html
Britain and other countries with fast-rising government debts must steel themselves for a year in which “social and political cohesiveness” is tested, Moody’s warned.
By Edmund Conway
Published: 7:35PM GMT 15 Dec 2009
Riot police clash with protestors during an anti G20 demonstration near the Bank of England. Moody's has warned future tax rises and spending cuts could trigger more social unrest.
In a sombre report on the outlook for next year, the credit rating agency raised the prospect that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world.
It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”.
It added that the sheer quantity of debt to be raised by Britain and other leading nations would increase the risk of investor fright.
Strikingly, however, it added that even if countries reached agreement on the depth of the cuts necessary to their budgets, they could face difficulties in carrying out the cuts. The report, which comes amid growing worries about Britain’s credit rating, said: “In those countries whose debt has increased significantly, and especially those whose debt has become unaffordable, the need to rein in deficits will test social cohesiveness. The test will be starker as growth disappoints and interest rates rise.”
It said the main obstacle for fiscal consolidation plans would be signs not necessarily of economic strength but of “political and social tension”.
Greece, where the government has committed to drastic cuts in public expenditure, has suffered a series of riots over the past year which are thought to have been fuelled by economic pressures.
http://www.telegraph.co.uk/finance/economics/6819470/Moodys-warns-of-social-unrest-as-sovereign-debt-spirals.html
Excellent corporate governance essential to good results
Excellent corporate governance essential to good results, says Teh
Tags: Bursa Malaysia Bhd | Excellent corporate governance | Good business performance | NUBS | Overall Excellence Award | Public Bank Bhd | TanSri Dr Teh Hong Piow | Transparency Index Award
Written by Financial Daily
Monday, 14 December 2009 11:21
KUALA LUMPUR: Excellent corporate governance is essential to good business performance as well as in ensuring that the interests of investors and all other stakeholders are well taken care of, said Tan Sri Dr Teh Hong Piow, the founder and chairman of one of Malaysia’s most renowned banking groups.
Teh and his management team should know about the correlation between good corporate governance and strong financial results given that PUBLIC BANK BHD [] has had an unbroken profit track record for over 40 years. The banking group has won numerous awards locally and overseas for its exemplary corporate governance.
“The board, management and staff of Public Bank will remain steadfast and committed in ensuring the highest level of corporate governance at Public Bank so that the interests of investors and all other stakeholders are well taken care of,” he said in a statement last Friday.
He said this after the banking group on Thursday yet again grabbed the top awards for excellence in corporate governance.
Teh lauded the Minority Shareholder Watchdog Group (MSWG) for launching the Malaysian Corporate Governance (MCG) Index, a premier index for investors to gauge corporate governance levels of public-listed companies in Malaysia.
Teh
The MCG Index is an extension of MSWG’s corporate governance survey collaboration with Nottingham University Business School (NUBS) in 2004 – 2008.
Teh expressed pride that Public Bank had won the Overall Excellence Award and the Best AGM Conducted in 2009 Award under the MCG Index 2009, especially as Public Bank had been ranked No 1 for four consecutive years in the MSWG–NUBS corporate governance surveys conducted in 2004–2008.
He said the Overall Excellence Award was a testimony to Public Bank’s strong corporate culture inculcated in the staff with everyone delivering as a team. Apart from Public Bank, BURSA MALAYSIA BHD [] was jointly awarded the Overall Excellence Award. Bursa also won the Best Governance and Transparency Index Award.
This article appeared in The Edge Financial Daily, December 14, 2009.
Tags: Bursa Malaysia Bhd | Excellent corporate governance | Good business performance | NUBS | Overall Excellence Award | Public Bank Bhd | TanSri Dr Teh Hong Piow | Transparency Index Award
Written by Financial Daily
Monday, 14 December 2009 11:21
Teh and his management team should know about the correlation between good corporate governance and strong financial results given that PUBLIC BANK BHD [] has had an unbroken profit track record for over 40 years. The banking group has won numerous awards locally and overseas for its exemplary corporate governance.
“The board, management and staff of Public Bank will remain steadfast and committed in ensuring the highest level of corporate governance at Public Bank so that the interests of investors and all other stakeholders are well taken care of,” he said in a statement last Friday.
He said this after the banking group on Thursday yet again grabbed the top awards for excellence in corporate governance.
Teh lauded the Minority Shareholder Watchdog Group (MSWG) for launching the Malaysian Corporate Governance (MCG) Index, a premier index for investors to gauge corporate governance levels of public-listed companies in Malaysia.
Teh
The MCG Index is an extension of MSWG’s corporate governance survey collaboration with Nottingham University Business School (NUBS) in 2004 – 2008.
Teh expressed pride that Public Bank had won the Overall Excellence Award and the Best AGM Conducted in 2009 Award under the MCG Index 2009, especially as Public Bank had been ranked No 1 for four consecutive years in the MSWG–NUBS corporate governance surveys conducted in 2004–2008.
He said the Overall Excellence Award was a testimony to Public Bank’s strong corporate culture inculcated in the staff with everyone delivering as a team. Apart from Public Bank, BURSA MALAYSIA BHD [] was jointly awarded the Overall Excellence Award. Bursa also won the Best Governance and Transparency Index Award.
This article appeared in The Edge Financial Daily, December 14, 2009.
LCL at historic low, more bad news ahead?
LCL at historic low, more bad news ahead?
Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd
Written by Joy Lee
Monday, 14 December 2009 11:26
KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.
LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.
The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.
The stock rose to a 52-week high of 95 sen on Aug 13, 2009.
Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.
CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.
LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.
It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.
LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.
“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.
“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.
“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.
News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.
“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.
“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.
It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.
Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.
This article appeared in The Edge Financial Daily, December 14, 2009.
http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html
Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd
Written by Joy Lee
Monday, 14 December 2009 11:26
KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.
LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.
The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.
The stock rose to a 52-week high of 95 sen on Aug 13, 2009.
Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.
CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.
LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.
It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.
LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.
“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.
“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.
“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.
News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.
“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.
“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.
It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.
Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.
This article appeared in The Edge Financial Daily, December 14, 2009.
http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html
The Future of Gold, the Dollar, and More
The Future of Gold, the Dollar, and More
By Jennifer Schonberger
December 11, 2009
The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.
As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?
For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.
Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.
Here's an edited transcript of our conversation:
Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?
Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.
Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?
Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.
Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?
Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.
When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...
Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?
Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.
Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.
Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?
Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.
But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...
Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?
Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.
Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.
Strong words from Peter Schiff.
Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. AFLAC is a Stock Advisor recommendation. Coke and Wal-Mart are Inside Value picks. Coke is also an Income Investor recommendation. The Motley Fool has a disclosure policy.
http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx
By Jennifer Schonberger
December 11, 2009
The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.
As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?
For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.
Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.
Here's an edited transcript of our conversation:
Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?
Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.
Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?
Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.
Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?
Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.
When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...
Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?
Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.
Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.
Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?
Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.
But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...
Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?
Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.
Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.
Strong words from Peter Schiff.
Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. AFLAC is a Stock Advisor recommendation. Coke and Wal-Mart are Inside Value picks. Coke is also an Income Investor recommendation. The Motley Fool has a disclosure policy.
http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx
Subscribe to:
Posts (Atom)