Bernanke Warns of ‘Unsustainable’ Debt

Bernanke Warns of ‘Unsustainable’ Debt



Mark Wilson/Getty Images
Federal Reserve Board Chairman Ben S. Bernanke during a House Budget Committee hearing on


Wednesday in Washington.
By SEWELL CHAN
Published: June 9, 2010

WASHINGTON — The chairman of the Federal Reserve, Ben S. Bernanke, warned on Wednesday that “the federal budget appears to be on an unsustainable path,” but also recognized that the “exceptional increase” in the deficit had been necessary to ease therecession.

Mr. Bernanke’s comments, at a hearing of the House Budget Committee, reiterated his view that the economic recovery would most likely be slow and painful for many Americans. The Fed projects gross domestic product, the broadest measure of economic activity, to rise about 3.5 percent this year — a pace barely above that needed to keep pace with the growth in the labor force.

Mr. Bernanke noted some improvements in consumer spending, particularly on durable goods, and in business investments in software and equipment, but also cautioned that “underlying housing activity appears to have firmed only a little since mid-2009, with activity being weighed down, in part, by a large inventory of distressed or vacant existing houses and by the difficulties of many builders in obtaining credit.”

The chairman offered a somewhat positive assessment of the debt crisis in Europe.

“If markets continue to stabilize, then the effects of the crisis on economic growth in the United States seem likely to be modest,” he said. “Although the recent fall in equity prices and weaker economic prospects in Europe will leave some imprint on the U.S. economy, offsetting factors include declines in interest rates on Treasury bonds and home mortgages as well as lower prices for oil and some other globally traded commodities.”

In response to a question, Mr. Bernanke said that he expected to the economy to grow at a “modest pace” this year .

But what is likely to be the most closely watched part of Mr. Bernanke’s testimony, on fiscal policy and his comments about the budget, will offer little comfort to either Democrats or Republicans.

“A variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy,” Mr. Bernanke said, “show a structural budget gap that is both large relative to the size of the economy and increasing over time.”

During nearly two hours of questioning, Mr. Bernanke parried efforts by members of both parties to score political points, seeming to disappoint both sides. After saying “the budget deficit should narrow over the next few years,” he refused to make policy recommendations on how to do so, though he did caution against reacting hastily.

“This very moment is not the time to radically reduce our spending or raise our taxes, because the economy is still in a recovery mode and needs that support,” Mr. Bernanke told Representative Bob Etheridge, Democrat of North Carolina.

To Representative Jim Jordan of Ohio, one of several Republicans who accused the Obama administration of being profligate, Mr. Bernanke said that “increased taxes, cuts in spending that are too large would be a negative, would be a drag on recovery.”

To Representative Gerald E. Connolly, a Virginia Democrat who tried to get Mr. Bernanke to criticize the huge 2001 tax cuts signed into law by President George W. Bush, Mr. Bernanke said, “It probably did strengthen the economy, but it also raised the deficit.”

While defending the extraordinary responses to the recession as necessary, Mr. Bernanke has also emphasized the risks associated with the aging of the population. This year, he said, there are about five Americans between the ages of 20 and 64 for each person aged 65 or older. By the time most of the baby boomers have retired in 2030, he warned, there will be only three.

“In addition, government expenditures on health care for both retirees and nonretirees have continued to rise rapidly as increases in the costs of care have exceeded increases in incomes,” Mr. Bernanke said. “To avoid sharp, disruptive shifts in spending programs and tax policies in the future, and to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges.”

Mr. Bernanke did not disclose his views on either the timing or the composition of the steps to meet those challenges — in a question-and-answer session with the broadcast journalist, Sam Donaldson, on Monday night, Mr. Bernanke said he, like Congress, was awaiting the conclusions of a bipartisan fiscal commission appointed by President Obama.

http://www.nytimes.com/2010/06/10/business/economy/10fed.html?src=me&ref=business

BP CEO has made too many slips

http://www.breakingviews.com/2010/06/08/hayward.aspx?sg=nytimes

When to Buy Your Child a Cellphone

When to Buy Your Child a Cellphone

Andrew Sullivan for The New York Times


Caroline LaGumina, 11, of New York, wanted a phone so she could text her friends. She got one last Christmas.

By STEFANIE OLSEN
Published: June 9, 2010



David Poger had planned to buy his daughter Maya a cellphone when she was 15 and in high school, but last year he and his wife caved when she was 11.

“There was a lot of nagging and pleading,” said Mr. Poger, who lives in St. Louis, Miss. But for his wife, Stephanie, and him, he said, “Safety was a big issue because she was walking downtown with her school friends, going to movies and roller skating without us.” He added, “I still think she’s too young.”

Many parents these days face the same struggle as the Pogers: at what age should you buy your child a cellphone? And when you do buy that first phone, what kind should it be?

About 75 percent of 12- to 17-year-olds in the United States own a mobile phone, up from 45 percent in 2004, according to an April study by the Pew Internet and American Life Project, part of the Pew Research Center. And children are getting their phones at earlier ages, industry experts say. The Pew study, for example, found that 58 percent of 12-year-olds now own a cellphone, up from 18 percent in 2004.

Parents generally say they buy their child a phone for safety reasons, because they want to be able to reach the child anytime. Cost also matters to parents, cellphone industry experts say; phones and family plans from carriers are both becoming more affordable. Also, as adults swap out their old devices for newer smartphones, it is easier to pass down a used phone.

But for children, it is all about social life and wanting to impress peers. The Pew study found that half of 12- to 17-year-olds sent 50 text messages a day and texted their friends more than they talked to them on the phone or even face to face.

Experts say the social pressure to text can get acute by the sixth grade, when most children are 11 years old. Just ask Caroline LaGumina, 11, of New York, who got her phone last Christmas. “I wanted to be able to text because my friends all text each other.”

So when is the right time to buy that first phone?

There is no age that suits all children, developmental psychologists and child safety experts say. It depends on the child’s maturity level and need for the phone, and the ability to be responsible for the device — for example, keeping it charged, keeping it on, not losing it, not lending it. Instead of giving in to the argument that “everyone else has one,” parents should ask why the child needs one, how it will be used and how well the child handles distraction and responsibility.

“You need to figure out, are your kids capable of following your rules?” about using the phone, said Parry Aftab, executive director of the child advocacy group Wired Safety.

Ruth Peters, a child psychologist in Clearwater, Fla., said most children were not ready for their own phones until age 11 to 14, when they were in middle school. Often, that is when they begin traveling alone to and from school, or to after-school activities, and may need to get in touch with a parent to change activities at the last minute or coordinate rides.

Patricia Greenfield, a psychology professor at the University of California, Los Angeles, who specializes in children’s use of digital media, cautioned that at younger ages, parents might miss out on what was going on with their children because of a cellphone.

“Kids want the phone so that they can have private communication with their peers,” she said. “You should wait as long as possible, to maintain parent-child communication.”

When choosing a phone for a child, experts say, a big consideration is whether to buy a feature phone or a smartphone. A feature phone generally has a camera, Web access and a slide-out qwerty keyboard, but not the operating system with the applications that can be downloaded on a smartphone. With some carriers, you can buy a feature phone and not get a data plan, but others, like Verizon, have started to eliminate this combination.

Parents should realize that buying any kind of phone with Web access essentially allows their children unsupervised access to content and tools, like social networking and videos, that they may forbid on the home computer.

“Most parents want to give a cellphone to keep them safe, but that ignores the great majority of uses that kids are using cellphones for,” said James P. Steyer, the chief executive of the nonprofit group Common Sense Media, which rates children’s media. He said that with those added features can come addictive behavior, cyberbullying, “sexting” (sending nude photos by text message), cheating in class and, for older teenagers, distracted driving.

Dr. Peters suggested that parents avoid buying children younger than 13 a phone with a camera and Internet access. “If they don’t have access to it, it’s just cleaner,” she said.

Parents who do not want to buy a feature phone or smartphone might consider an inexpensive prepaid phone — Nokia, LG and Samsung have models like this — that comes without a contract and is not part of a family plan. For as little as $10, parents can load the phone with 30 minutes of calls. The Pew study reported that 18 percent of teenagers used these plans and that teenagers who did were typically more tempered in their use.

If parents do choose a smartphone or feature phone, it is important to set use restrictions on Internet, texting and calls until age 15 or 16, when presumably the child will be more mature and also have greater autonomy.

The April Pew study estimated that nearly half of American parents limited their 12- to 17-year- old’s phone use. It said that restrictions on text messaging correlated to lower levels of sexting and impulsive behavior.

Parents have several ways to set use restrictions. One way is to buy a plan through the carrier. For example, for $4.99 monthly, AT&T’s Smart Limits or Verizon’s Use Controls let parents set limits on minutes, restrict time-of-day use and even dictate whom the child can call or text. Parents can also request that their carrier block content or prevent a child from texting photos.

Parents can also buy software from other vendors like My Mobile Watchdog that can be loaded onto the child’s phone and will, for example, send a copy of a child’s texts or photos to the parent’s phone.

Some phones are made specially for children and include free parental controls, like the Firefly and the Kajeet, available online. But generally, the major wireless retailers focus on smartphones and feature phones, saying that children’s phones have proved less popular.

Anyone with a teenager or preteenager knows that most children covet the kinds of phones adults have. “No kid wants a dumbed-down phone,” said Julie A. Ask, vice president at Forrester Research.

In a Verizon store in Berkeley, Calif., recently, store clerks pointed to several feature phones, some of which are referred to as 3G multimedia phones that they said were attractive to teenagers — like the $130 LG enV3 and the $150 Motorola Cliq.

Common Sense Media and CTIA, the cellphone industry trade group, both have sites with advice on children and cellphones.

Parents might also consider cellphone alternatives like the iPod Touch, which for $199 offers music, games and applications. Technically, it is not a phone, but through a Wi-Fi hot spot, children can download applications like TextFree ($5.99 or free in ad-supported version) and Skype, and then text or call their friends free.

Mr. Poger’s daughter Maya has an LG Rumor2 with a keyboard through his family’s Sprint plan. He asked the carrier to block downloads, and he and his wife have talked to Maya about responsible use. Now Maya’s sister, who is 6, wants one.

“She’s going to wait until she’s 11,” he said.

http://www.nytimes.com/2010/06/10/technology/personaltech/10basics.html?ref=business

Taking their medicine

Taking their medicine

June 10, 2010
Most of those responsible wreaking havoc on the global economy have not owned up to their failures, writes Joseph Stiglitz.

IT HAS taken almost two years since the collapse of Lehman Brothers and more than three years since the beginning of the global recession brought on by the misdeeds of the financial sector, for the United States and Europe finally to reform financial regulation.

Perhaps we should celebrate these regulatory victories. After all, there is almost universal agreement that the crisis the world is facing today - and is likely to continue to face for years - is as a result of the excesses of the deregulation movement begun under Margaret Thatcher and Ronald Reagan 30 years ago.

Unfettered markets are neither efficient nor stable.

But the battle, and even the victory, has left a bitter taste. Most of those responsible for the mistakes - whether at the US Federal Reserve, the US Treasury, Britain's Bank of England and Financial Services Authority, the European Commission and European Central Bank, or in individual banks - have not owned up to their failures.

Banks that wreaked havoc on the global economy have resisted doing what needs to be done. Worse still, they have received support from the Federal Reserve, which one might have expected to adopt a more cautious stance, given the scale of its past mistakes.

This is important not just as a matter of history and accountability, but because much is being left up to regulators. And that leaves open the question: can we trust them? To me, the answer is an unambiguous ''no'', which is why we need to hard-wire more of the regulatory framework. The usual approach - delegating responsibility to regulators to work out the details - will not suffice.

And that raises another question. Whom can we trust? On complex economic matters, trust had been vested in bankers (if they make so much money, they obviously know something!) and in regulators, who often (but not always) came from the markets. But the events of recent years have shown that bankers can make megabucks, even as they undermine the economy and impose massive losses on their own firms.

Bankers have also shown themselves to be ''ethically challenged''. A court of law will decide whether Goldman Sachs' behaviour - betting against products that it created - was illegal. But the court of public opinion has already rendered its verdict on the far more relevant question of the ethics of that behaviour. That Goldman's CEO saw himself as doing ''God's work'' as his firm sold short products that it created, or disseminated scurrilous rumours about a country where it was serving as an ''adviser'', suggests a parallel universe, with different mores and values.

As always, the financial-sector lobbyists have laboured hard to make sure that the new regulations work to their employers' benefit. As a result, it will likely be a long time before we can assess the success of whatever law the US Congress ultimately enacts.

The new law must curb the practices that jeopardised the entire global economy, and reorientate the financial system towards its proper tasks: managing risk, allocating capital, providing credit (especially to small and medium-sized enterprises), and operating an efficient payments system.

We should toast the likely successes. Some form of financial-product safety commission will be established, more derivative trading will move to exchanges and clearing houses from the shadows of the murky ''bespoke'' market, and some of the worst mortgage practices will be restricted.

It also looks likely that the outrageous fees charged for every debit transaction - a kind of tax that fills only the banks' coffers - will be curtailed.

But the likely failures are equally noteworthy. The problem of too-big-to-fail banks is now worse than it was before the crisis. In the last crisis, US government ''blinked'', failed to use the powers that it had, and needlessly bailed out shareholders and bondholders because it feared that doing otherwise would lead to economic trauma. As long as there are banks that are too big to fail, it will most likely ''blink'' again.

It is no surprise that the big banks have succeeded in stopping some essential reforms; what was a surprise was a provision in the US Senate's bill that banned government-insured entities from underwriting risky derivatives. Such underwriting distorts the market, giving big banks a competitive advantage, not necessarily because they are more efficient, but because they are ''too big to fail''.

The Fed's defence of the big banks - that it is important for borrowers to be able to hedge their risks - reveals the extent to which it has been captured.

There are many ways of curbing the excesses of the big banks. A strong version of the so-called Volcker Rule (designed to force government-insured banks to return to their core mission of lending) might work. But the US government would be remiss to leave things as they are.

The Senate bill's provision on derivatives is a good litmus test: the Obama administration and the Fed, in opposing these restrictions, have clearly lined up on the side of big banks. If effective restrictions on the derivatives business of government-insured banks (whether actually insured, or effectively insured because they are too big to fail) survive in the final version of the bill, the general interest might indeed prevail over special interests, and democratic forces over moneyed lobbyists.

But if, as most pundits predict, these restrictions are deleted, it will be a sad day for democracy - and a sadder day for the prospects of meaningful financial reform.

Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in Economics.

Source: The Age

http://www.smh.com.au/business/taking-their-medicine-20100609-xwsq.html

Core-satellite Portfolio Management

The core-satellite portfolio strategy is a relatively new concept that bridges the never-ending debate between the respective benefits of active and passive portfolio management.

The core-satellite portfolio approach optimises both passive and active management strategies.

• Such a portfolio approach is divided into a core component, which usually forms the majority of the portfolio that is passively managed.  
• The rest of the portfolio is called the "satellite", which is an active component in an attempt to generate alpha returns, i.e. risk adjusted returns.  

The allocation mix between the core and the satellite components within the portfolio is flexible and it allows investors to select and optimal mix that would best represent their desired portfolio risk-return characteristics.

The core-satellite portfolio concept is very suitable for big investors who are often long-term investors.  

KL bourse out to woo retail investors

KL bourse out to woo retail investors
Published: 2010/06/09

Malaysia’s bourse said it’s seeking to lure individual investors who have shunned the market a decade after the Asian financial crisis.

Bursa Malaysia Bhd is working with brokerages and banks to “to reach out to retail investors in various towns and cities” to open up accounts and encourage online trading, chief executive officer Yusli Mohamed Yusoff said in an interview in Kuala Lumpur.

Trading by individuals fell to as low as 20 per cent of trading value from more than half before the start of the Asian financial crisis in 1997, when the benchmark index slumped by a record 52 per cent.

“A lot of retailers lost a substantial amount,” Yusli said yesterday. The result is that the market is now “dominated by the local institutions,” he said.

Most individual savings started shifting to mutual funds and unit trusts since Malaysia’s economy went into a recession in 1998, Yusli said. They haven’t returned to stock trading even as the economy expanded at an annual average of 5 per cent over the past decade and the benchmark index more than doubled.

The FTSE Bursa Malaysia KLCI Index has climbed 1.2 per cent so far this year, paring a gain of as much as 5.8 per cent amid concern austerity measures in Europe will reduce demand for the Malaysia’s technology and commodity exports.

Lagging Behind

The KLCI’s 45 per cent gain last year lagged behind Southeast Asian neighbors even after the government announced stimulus plans totaling RM67 billion to help pull Southeast Asia’s third-largest economy out of a recession.

Trading slumped by half to an average US$375 million a day over the six months ended May from the same period 13 years ago, right before the start of the regional financial crisis in July 1997, according to data compiled by Bloomberg. Neighboring Singapore’s figures have quadrupled to US$1.1 billion over that time, data from the city-state’s exchange show.

“People’s risk appetite is not there anymore, not like those days,” said Lye Thim Loong, who helps manage US$500 million at Avenue Invest Bhd in Kuala Lumpur. “Those who traded recklessly with no fundamental reasons got burnt.”

The slump in trading by individuals coincided with an exodus by foreigners from Southeast Asia’s second-biggest stock market, leaving Bursa more reliant on domestic institutional funds. Overseas investors have sold a net RM1.36 billion of Malaysia’s equities this year, adding to RM8.57 billion withdrawn in 2009 and RM38.6 billion ringgit that flowed out in 2008, according to exchange data. In 2007, they bought a net RM24.7 billion.

Foreigners

The exit left foreigners holding 20.6 per cent of local stocks at the end of April, down from 27.5 per cent in April 2007, according to stock exchange data. Overseas investors held 9.33 per cent of Tenaga Nasional Bhd at the end of April, compared with 27 per cent in April 2007, according to data from Malaysia’s biggest power producer.

The state-controlled Employees Provident Fund accounts for 50 per cent of daily trading volume in the equity and bond markets, Prime Minister Najib Razak said on March 30. More than half of the RM417.1 billion of market value in the benchmark stock index is owned by government-linked funds, according to calculations by Bloomberg.

“We’d rather see a more balanced distribution, so that one particular sector doesn’t dominate the market so much,” Yusli said.

Retail investors’ share of trading is low by comparison with at least one neighbor, Thailand, where individuals accounted for 56 per cent of turnover so far this year, according to data compiled by Bloomberg. Exchanges in neighboring Indonesia and Singapore don’t track the figures.

“There has been some increase in the total of retail account sign-ups recently, but the amount is negligible,” Alex Hwang, chief executive officer of HwangDBS Investment Bank Bhd in Kuala Lumpur, said in an e-mailed reply to questions. Investors are “more careful these days due to the volatile market,” he said. -- Bloomberg


Read more: KL bourse out to woo retail investors http://www.btimes.com.my/Current_News/BTIMES/articles/20100609084947/Article/index_html#ixzz0qLed7Wsg

Buy and hold until fundamentals change is safe for selected stocks.

Selected Stock Performance Review
http://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdGZuWktpR2dvQUhhSmpkNElXY0NvWmc&output=html

Historical Investment Data for Padini (8.6.2010)

Historical Investment Data for Padini (8.6.2010)
http://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdEdfYjM4Tk5sYXZreTczSGp2MVFib1E&output=html

Kenmark suffers RM137m pre-tax loss

Business Times
Kenmark suffers RM137m pre-tax loss


2010/06/07

Kenmark Industrial Co (M) Bhd posted a pre-tax loss of RM137.022 million for its full year ended March 31, 2010 from a pre-tax profit of RM4.066 million before.

Its revenue also dropped slightly to RM213.224 million from RM250.926 million previously. -- Bernama

How are you allocating your money in this volatile period?

How has the recent turmoil on global markets affected how you allocate money in your fund?

1. Shifted some or all to less risky assets (such as cash)
2. No change yet, but I'm planning to choose less risky investments
3. Holding firm or planning to buy more shares - these fears are overblown

Flash: Govt yet to issue sport betting licence

Flash: Govt yet to issue sport betting licence

Written by Chua Sue-Ann
Monday, 07 June 2010 18:04


KUALA LUMPUR: The government has yet to issue a sports betting licence and it has also yet to finalise the terms of the licence to Ascot Sports Sdn Bhd, says Prime Minister Datuk Seri Najib Razak.

He said this in a written reply in Parliament on Monday, June 7.


http://www.theedgemalaysia.com/political-news/167463-flash-govt-yet-to-issue-sport-betting-licence.html

Historical Investment Data of Integrax (7.6.2010)

Historical Investment Data of  Integrax (7.6.2010)
http://spreadsheets.google.com/pub?key=tZj_Lmc9qKtzpFRFfTu8iEw&output=html

Historical Investment Data of Genting Malaysia GENM (7.6.2010)

Historical Investment Data of  Genting Malaysia GENM (7.6.2010)
http://spreadsheets.google.com/pub?key=tnwEh7I1JjIN3EviG6ZylQg&output=html

Historical Investment Data for Parkson (7.6.2010)

Historical Investment Data for Parkson (7.6.2010)
http://spreadsheets.google.com/pub?key=to3QELB1TK3GBvszqFfJBdw&output=html

Historical Investment Data for Coastal (7.6.2010)

Historical Investment Data for Coastal (7.6.2010)
http://spreadsheets.google.com/pub?key=t2V7YCN7GFYfboe6OYDJYpA&output=html

Historical Investment Data for UMW (7.6.2010)

Historical Investment Data for UMW (7.6.2010)
http://spreadsheets.google.com/pub?key=tOedmb48POVTSD45xSQHWpQ&output=html

Historical Investment Data for Latexx (7.6.2010)

Historical Investment Data for Latexx (7.6.2010)
http://spreadsheets.google.com/pub?key=t73kBT7EVW5Ca8Jxrct4ADw&output=html

Historical Investment Data of LPI (6.6.2010)

Historical Investment Data of  LPI (6.6.2010)
http://spreadsheets.google.com/pub?key=t2Nr2da6bA6VYYpXZT28xeA&output=html

Historical Investment Data of iCap (6.6.2010)

Historical Investment Data of  iCap (6.6.2010)
http://spreadsheets.google.com/pub?key=tabklggxjRBwWBjk9zbdimg&output=html

Historical Investment Data of Petronas Dagangan (6.6.2010)

Historical Investment Data of  Petronas Dagangan (6.6.2010)
http://spreadsheets.google.com/pub?key=tTnachNyggdEpwkw8WoYpHg&output=html

Historical Investment Data of Public Bank (6.6.2010)

Historical Investment Data of  Public Bank (6.6.2010)
http://spreadsheets.google.com/pub?key=tomlkx-CzLQC5pU4zTjbeGA&output=html

Historical Investment Data of Guinness (6.6.2010)

Historical Investment Data of  Guinness (6.6.2010)
http://spreadsheets.google.com/pub?key=tem-b3yiUnbRUIT1ZeZagbg&output=html

Historical Investment Data of Hing Yiap (6.6.2010)

Historical Investment Data of  Hing Yiap (6.6.2010)
http://spreadsheets.google.com/pub?key=tN3-xhvss_dmr7p3P3wsjHA&output=html

Historical Investment Data of Dutch Lady (6.6.2010)

Historical Investment Data of  Dutch Lady (6.6.2010)
http://spreadsheets.google.com/pub?key=tfBgUux9Lgr74vMAGgUygEw&output=html

Historical Investment Data of Nestle (6.6.2010)

Historical Investment Data of  Nestle (6.6.2010)
http://spreadsheets.google.com/pub?key=tvQ6p-ho1Y6CO1ayJFIJW6A&output=html

Historical Investment Data of KLSE 1993 to 2010 (6.6.2010)

Historical Investment Data of  KLSE 1993 to 2010
http://spreadsheets.google.com/pub?key=tVCJOWP_2GLeToC9ioAeuZw&output=html


Here are some interesting observations:

KLCI Index 
Beginning of 1994:   1275.32
Beginning of 2010:   1259.16  :-(

Market Returns
During the period, the average annual capital appreciation of the stock market was 4.26%.  Assuming a DY of 3%, the total return of the market was 7.26%.

Of the 17 years from 1994 to 2010:

• There were 5 Bear Markets when the market index went down >20% from the beginning of the year.
• There were 4 Bull Markets when the market went up > 20% from the beginning of the year.
• The rest of the period (8 years), the market fluctuated between +/- 20%; there were 6 positive years and 2 negative years.
• The market was very volatile at times.  For example, the KLCI was down 53.19% in 1997 and was up 55.91% in 1999.  In the year 2008, it was down 36.52% and in 2009, it rebounded 42.37%.

What can we learn from studying the KLCI?

What investment strategies can be employed to safeguard your investments in the local stock market?  What investment strategies can be used to maximise your investment gains?

How to be a wiser investor

Saturday June 5, 2010

How to be a wiser investor
Review by ERROL OH
errol@thestar.com.my

How to Smell a Rat: The Five Signs of Financial Fraud

Author: Ken Fisher, with Lara Hoffmans

Publisher: John Wiley & Sons

WHICH kind of investor are you – Confident Clark, Hobby Hal, Expert Ellen, Daunted Dave, Concerned Carl or Avoidance Al? If you’re one of the first three, there’s little chance that you’ll lose money in a scam, according to Ken Fisher, head of Fisher Investments, a California-based money management firm, and a longtime Forbes columnist.

But he believes that Dave, Carl and Al ought to be extra vigilant in making investment decisions, particularly when it comes to choosing advisers.

He warns: “Con artists love Dave, Carl, even Al. If you see yourself in one of them, you’re more likely to hire a pro, but you’re also more likely to be conned.”

Having spent decades managing money, and writing and speaking on investments, Fisher has learnt plenty about investors. With some clever use of alliteration, he divides them into six categories .

Clark is the sort who thinks he’s the best person to decide where to put his money; he won’t trust somebody else to do that job. Hal is dead serious about investing and is always honing his skills and knowledge in this field. Even when he has an investment adviser, he’ll be in the thick of things. Fraudsters tend to stay away from Hal because he’s too involved in his investments.

Like Clark and Hal, Ellen knows a thing or two about investments and enjoys the challenge of extracting the best returns. However, she’s usually too busy to do it all on her own and will leave it to the professionals. Still, because she’s not easily fooled by fake profits and she’s more questioning than most investors, she’s not your typical fraud victim.

But Dave is, because he’s intimidated by the complexity of investing and prefers to hand his funds over to others to manage. Carl is similar except that his dependence on professional help is driven mainly by the worry that he can’t achieve his investing goals on his own.

Then there’s Al, who will have nothing to do with investments if he can help it. He doesn’t even like thinking about hiring an adviser, but when he does appoint one, he won’t bother keeping track at all.

“Rats are looking for financial illiterates. They want victims who won’t question too hard – either because they’re busy, intimidated, or easily distracted by outsized performance claims,” wrote Fisher.

Not-so-common sense

If you see yourself as Clark, Hal or Ellen, don’t be too quick to think that you’ll never be cheated. Fisher likens such false sense of security to a guy not taking care of his health just because his doctor has declared that he has a low risk of heart failure.


Ken Fisher

He explains: “You may feel like Clark or Ellen right now. But the same investor can actually morph over time into someone else – happens all the time. The way investors see their needs can easily change.”

For example, during bull markets, investors may be assured and aggressive in wanting growth, but when the bears are on the prowl, the same investors sing a different tune as they turn wary and instead focus on capital preservation.

It’s this kind of deep insight and understanding that makes How to Smell a Rat a worthwhile read. It essentially peddles common sense, but Fisher’s vast experience and expertise makes all the difference.

There will always be crooks on the prowl for easy marks, and there will never be a shortage of people who can be seduced by promises of generous returns on their money. As such, anything that helps us avoid investment scams is useful.

Fisher shows the goods very early in the game. On page 5, he lists the five signs (see box) referred to in the book’s subtitle.

“Note: Just because your manager displays one or a few signs, it doesn’t mean they should immediately be clapped in irons. Rather, these are signs your adviser may have the means to embezzle and a possible framework to deceive. Always better to be suspicious and safe than trusting and sorry,” he advises.

If you had committed these signs to memory, you might be tempted to ditch the book at this point, but you would have extracted only a fraction of its value.

Mere awareness of the red flags is inadequate protection; an enlightened and responsible investor should have a reasonable grasp of how con artists operate and of the weaknesses they exploit.

Critical signs

This is where the book comes in most handy. When elaborating on the five signs, Fisher illustrates with examples that highlight commonalities among infamous swindlers such as Charles Ponzi, Ivar Kreuger, Robert Vesco, Bernard Madoff and R. Allen Stanford.

Through this, you appreciate the fact that though the specifics vary, the scamsters’ game plans are pretty much alike. The investment schemes are typically structured in such a away that the advisers have way too much control over the money and the investments.

The advisers promise returns that are almost too good to be true, and they often have trouble articulating their strategies in simple terms. They prey upon the same types of people. If you’re wholly mindful of what these warning signs mean, consider yourself inoculated against the investment fraud virus.

How to Smell a Rat is in part a self-improvement title. It is enriching because Fisher discusses the foibles and circumstances that enable con games to thrive.

When writing about how the culprit behind a hedge fund scam used impressive-sounding gobbledygook to dupe people, Fisher is actually telling us that our pride can lead us down the path to financial ruin.

“Remember, his victims weren’t stupid. But folks who consider themselves smart may not always question -- they don’t want to reveal they don’t understand. Many smart people have a hard time getting their egos to openly admit they don’t understand,” he tells the readers.

Another lesson: The investor himself must do due diligence before handing over his money to the adviser. “(Due diligence is) not complicated, but enough folks won’t do the check – and con artists count on that. It’s your money – you alone must do the check. Don’t let anyone in the middle,” urges Fisher.

Of knights and the Net

Often droll and cutting, the author is an engaging guide and teacher.

A target of his barbs is Stanford, chairman of Stanford Financial Group. In February last year, the US Securities and Exchange Commission filed an action, alleging that Stanford and his companies orchestrated a US$8bil fraud and that he was conducting a Ponzi scheme.

In making his point that fraudsters are fond of crafting flashy facades, Fisher likens Stanford’s knighthood from Antigua to a Cracker Jack box prize. “Elton John’s been knighted – but at least he was knighted by the Queen of England. Still, do you want him managing your money?” he asks.

His opinions are always firm and passionately argued, but at times, they can be rather eccentric, such as his blithe dismissiveness towards the influence of New Media.

“I would never believe things I read on blogs about anyone, ever, good or bad. You have no way to know what’s behind them, and often it’s nonsense. Actually, more often than not, it is nonsense! The Internet and its natural feature of anonymity bring out the very worst in a great many people,” he grumbles.

“Don’t ever believe Internet blog postings or comments on articles on even major websites. There isn’t integrity there, so don’t buy it, either way – whether it’s helping the reputation or defaming it.”

Here he sounds out of step with what’s happening out there, but this shouldn’t detract from the wisdom that Fisher offers in How to Smell a Rat.

According to Ken Fisher, there are ways to tell if your investment adviser may be a swindler or may evolve into one. In How to Smell a Rat, he provides a checklist:

1. The biggest red flag – your adviser also has custody of your assets.

2. Returns are consistently great.

3. The investing strategy isn’t understandable.

4. Your adviser promotes benefits (such as exclusivity) that don’t impact results.

5. You didn’t do your own due diligence, but a trusted intermediary did.


http://biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6327254&sec=business

Are remisiers still necessary?

Wednesday June 2, 2010

Are remisiers still necessary?
Personal Investing - By Ooi Kok Hwa


Online trading cheaper so remisiers should offer better and value-added services


MEMBERS of the general public have been complaining about the services of remisiers as they feel there is no difference between buying shares through remisiers and online trading. They feel that remisiers do not provide any value-added services.

Whenever they call to buy or sell shares, remisiers let the investors decide themselves whether to buy or sell stocks at the current prices.

They say remisiers seldom provide their views on whether to buy now or later as sometimes investors may be able to get better prices if they purchase the stocks later.

Some investors prefer online trading as some stockbroking firms provide the minimum brokerage cost of about RM10 per trade compared with the minimum brokerage cost of RM40 per trade if they use the services of remisiers.

On the other hand, a lot of remisiers have been complaining about their business. Some complain that the minimum brokerage cost of about RM10 per trade for online trading has put them at a disadvantage as their services are more expensive at the minimum brokerage cost of RM40 per trade.

In addition, despite the high stock market trading volume, they also notice that not many retail investors are actively involved in the stock market.

As a result, some remisiers are quite negative about their own profession.

The Securities Commission launched the Continuing Professional Education (CPE) programme and has made it mandatory for all licensed persons in the Malaysian capital market since 2001.



'You still need me'? asks a remiser.

Given that remisiers are licensed holders and have been attending classes over the past 10 years, we notice that their investment and financial knowledge has improved over the years.

At present, remisiers are looking for more advanced courses instead of simple courses like introduction to investment or financial knowledge or products. Hence, we feel that remisiers have the ability to provide better and value-added services to investors.

There are two main transaction costs when purchasing stocks, namely explicit and implicit costs.

• Explicit costs refer to direct costs of trading like brokerage commissions, stamp duty and clearing fees whereas 
• implicit costs refer to indirect costs of trading like market impact (or price impact), delay cost and missed-trade opportunity costs.

Market impact refers to the price movement caused by placing the trade in the market, delay cost is the inability to complete the trade immediately due to the order size and market liquidity, while missed-trade opportunity cost is related to the unrealised profits or losses attributed to the failure to complete the trades.

For example, Stock A is currently selling at RM1.98 (buying price) to RM2 (selling price). Mr B intends to buy 50 lots of Stock A and to save on brokerage commission by buying online. However, he is not aware that there is some good news on and strong buying interest in Stock A.

A good remisier should be able to advise Mr B to give market order and buy Stock A at the best available selling price of RM2, rather than give a limit order of RM1.98. If the day’s closing price for Stock A is RM2.10 and Mr B did not manage to accumulate the stocks at RM1.98, the missed-trade opportunity to Mr B is 5% ((RM2.10-RM2)/RM2).

This missed-trade opportunity cost of 5% is much greater than 0.6% that he pays on the brokerage commission.

We tend to agree with the general public view that not all remisiers are willing to commit themselves to get the best prices for their clients. One reason may be the difficulty in judging whether the buying interest will persist throughout the whole day.

As a remisier, his key role is to get the best execution prices for his clients. We feel the minimum brokerage cost of RM40 per trade is fair to the remisier as the implicit cost of buying a stock is much greater than this explicit cost.

The RM40 is also used to cover the time required to monitor and to get the best prices; time spent on reading market developments and corporate news; costs required to acquire market information and attend classes; and administrative work involved in helping their clients on rights issues or any other corporate exercises.

In Malaysia, we have about 8,000 remisiers and dealers with a population of 28 million versus 3,000 remisiers with a population of about 4 million in Singapore. We strongly believe that the remisiers’ services are still required and have the potential to grow.

Nevertheless, remisiers need to upgrade and add more value to their services, on top of providing the best execution of trades to their clients, to differentiate their services from online trading.

The writer is one of the active CPE course trainers. He is also an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2010/6/2/business/6381518&sec=business

Lessons from Malaysia: Why Singapore needs a strong and stable government

Lessons from Malaysia: Why Singapore needs a strong and stable government
June 2nd, 2010 | Author: Your Correspondent
OPINION

When Law Minister Shanmugam spoke about the need for Singapore to have a “strong and stable” government which makes “quick and effective” decisions a few months ago in Parliament, he was greeted with a dose of cynicism and derision by some netizens who saw it as another lame attempt to justify the PAP’s dominant position in Singapore politics.

The latest developments in neighboring Malaysia have provided us ample lessons on why it is important for Singapore to have a strong government and a weak opposition in order not to hamper the decision-making process for the greater good of the nation.

For over 50 years, Malaysia is governed by the ruling Barisan Nasional coalition (formerly known as the Alliance) which enjoyed two-thirds majority in the Dewan Rakyat (Malaysia’s Parliament) till the 2008 elections when the opposition won an unprecedented 82 out of 222 seats in Parliament and lost control of 5 states including the two richest states of Penang and Selangor. (the number is now reduced to 72 after a spate of defections and resignations of MPs from Parti Keadilan Rakyat)

Malaysia used to be an attractive investment destination for MNCs, but the political uncertainty has made a dent on foreign investment with net portfolio and direct investment outflows reaching US$61 billion in 2008 and 2009. Little money has also flowed into equities, according to central bank statistics.

Investments into the opposition-controlled states have slowed down too as investors are unsure if the state governments will survive till the next election after the Perak fiasco which saw Barisan wrestling control of the state back from the Pakatan Rakyat following the “defection” of three lawmakers.

The recent spate of resignations of PKR MPs from the states of Kedah and Selangor have spooked potential investors who are left wondering if business deals signed with the present state governments will be honored in the event that there is a change in government.

At the Federal level, the resurgent opposition has kept the Malaysian government on its toes, preventing it from implementing much needed reforms to liberalize the economy.

Malaysia spent 15.3 per cent of total federal government operating spending on subsidies in its 2009 budget when its deficit surged to a 20-year high of 7 per cent of GDP.

A Minister warned recently that unless Malaysia cut back on the subsidies, it will become bankrupt in 2019.

Prime Minister Najib Razak, an economist by training, has proposed the New Economic Model (NEM) to replace a four-decades old Malay affirmative policy known as the New Economic Policy (NEP) which gave a wide array of economic benefits to the “bumiputras” or ethnic Malays sometimes at the expense of other races.

Investors have long complained that abuse of the policy spawned a patronage-ridden economy, promoted corrupted practices, retarded Malaysia’s competition and causing foreign investors to favour Indonesia and Thailand.

Najib’s moves to roll back the NEP have met with stiff opposition from Malay rights group Perkasa which rejected the NEM outright and called on the NEP to be preserved.

Though cutting back on subsidies will have an immediate impact on low-income Malaysians, it will benefit the country in the long run leading to increased competitiveness and foreign direct investment.

Unfortunately, many analysts believe that the proposed reforms will be delayed, watered down or even abandoned altogether to avoid losing votes.

With the ethnic Chinese firmly behind the opposition Pakatan Rakyat, Barisan needs the votes of the Malays to shore up its flagging support base.

Rolling back the NEP at such a crucial juncture will definitely cause Barisan to lose the support of the Malays which may cause it to be voted out of office in the next general election due to be called by 2013.

Najib’s hands are tied out of political considerations to the detriment of the entire nation.

Malaysia will not be in such a conundrum if it had a strong and stable government like Singapore as well as a weak and non-existent opposition to create trouble for the ruling party.

Unpopular policies which are beneficial to the nation can be implemented swiftly on the ground without the lingering fear of losing votes in the next election.

Singapore’s economy took off between the years 1968 – 1980 when the PAP controlled all the seats in Parliament without a single opposition member.

Critical and sometimes painful decisions are made and policies implemented quickly and efficiently with no opposition from other parties.

For example, the Chinese language and vernacular schools were closed down and replaced by national schools during this period of time.

In Malaysia, this archaic system of education divided by language has remained because no Malaysian Prime Minister has the courage or determination to deal with the expected outcry from Malay rights groups and Chinese clans.

As such, Malaysia’s standard of education continues to lag behind Singapore to this very day.

Singapore does not have any natural resources like Malaysia to fall back on. That is why we need a strong and stable government to make quick and effective decisions for the good of the nation.

The present system has served us well for the last fifty years and has delivered unprecedented economic success and prosperity to our nation. Let us not go down the slippery slope of multi-party partisan politics which have ruined our neighbors like Thailand, Philipines and Malaysia.


http://www.temasekreview.com/2010/06/02/lessons-from-malaysia-why-singapore-needs-a-strong-and-stable-government/

Kenmark stock an easy buy after force-selling

Saturday June 5, 2010

Stock an easy buy after force-selling
By IZWAN IDRIS
izwan@thestar.com.my


MORE than half of Kenmark Industrial Co (M) Bhd’s entire paid up share capital were pledged as collateral at various financial institutions by the main shareholders of the company, based on information from the company’s latest annual report.

It is believed that large blocks of these shares were force-sold into the market in recent days, which had paved the way for a shrewd former shareholder to gain control of the troubled furniture maker.

The force-selling on Kenmark shares gained momentum on Monday after some clients failed to top up their margin accounts in the aftermath of the stock’s sudden price collapse the week before, according to several stockbrokers contacted by StarBizWeek.

Kenmark’s annual report 2009 showed that as at Aug 6 last year, about 55% of the company’s total 181.75 million shares were pledged as collateral for the margin financing facilities. That works out to about 100 million shares held in custody by several banks and stockbrokers.

A chunk of these shares belonged to managing director James Hwang, director Chen Wen-Ling @ Dolly Chen, as well as several privately held companies. Executives from two stockbroking firms confirmed that they no longer hold any Kenmark shares as they had dumped the shares in the market.

Another broker confirmed that his firm had to force sell shares in Kenmark earlier this week after a client failed to top up his margin account. An industry observer said that it is highly likely that these institutions would have to bear significant losses as the stock price had plunged considerably.

Kenmark made headlines last week after its key management went missing and bankers demanded the company pay back it loans. Its failure to submit its latest quarterly financial account fuelled speculation the company was deep in a financial quagmire.

Kenmark’s counter has been on a wild roller coaster ride since then. Shares in Kenmark were suspended from trading by the exchange on Monday after just over an hour of trade on extended sell-down to a paltry 10.5 sen which led to a massive surge in trading volume to 71.9 million shares.

Trading resumed on Tuesday and the stock closed at a record low of 6 sen on 191.1 million shares transacted. However, it rebounded on Wednesday to close at 11.5 sen with 138 million shares changing hands.

The stock was suspended for the second time this week on Thursday, and resumed trading yesterday; it shot up 14.5 sen to close at 26 sen on trading volume of 101 million shares.

On Thursday, the market was in for another shock when it was revealed that Datuk Ishak Ismail had acquired a huge block of shares in Kenmark, a company he had helped list back in 1997. He had mopped up some 57.7 million shares in the open market at near rock bottom prices.

Based on press statement issued on Thursday by managing director James Hwang, Ishak had bought the shares on Tuesday and Wednesday. Recent filings to Bursa Malaysia did not offer any indication about Ishak’s purchase cost, but the stock’s average price over the two-day period was well below 10 sen a piece.

The week before Ishak had resurfaced, Kenmark’s share price was trading at 83 sen on May 25 with a mere 55,000 shares transacted. The stock had kept within a tight trading range of RM1 and 80 sen for the past four years right, up until late May this year.

It is however unclear at this stage, whether Hwang’s stakes in Kenmark has been reduced following the recent sell-off.

Based on the latest availaible information on Kenmark’s shareholding structure, Hwang owned 49.48 million shares, or 27.61% stake in Kenmark as at Aug 6 last year.

It was estimated that Hwang had pledged about 13% of his interest in Kenmark as collateral to several financial institutions including Kenanga Investment Bank, Alliance Group, Maybank and SJ Securities. Company director Chen owned 33.5 million shares, or 18.7% stake in Kenmark, with about 10% of her total stake pledged as collateral.

The annual report showed stockbroker A.A. Anthony held 12 million Kenmark shares that was pledged by Paduan Gangsa Sdn Bhd, while TA Enterprise held 8.34 million shares put up by Rancak Bernas Sdn Bhd and 7.28 million shares pledged by a shareholder Mohd Noh Ibrahim.


http://biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6406163&sec=business

Kenmark - A bizarre run of events

Saturday June 5, 2010

A bizarre run of events

An implausible series of happenings at Kenmark requires that the authorities take note and do the needful

ANYONE following the strange sequence unfolding at furniture manufacturer Kenmark Industrial Co (M) Bhd can be forgiven for thinking that there is more – much more – than meets the eye.

A disappearing managing director and senior management saw its share price collapsing and in its aftermath, a new controlling shareholder emerged, along with the re-emergence of the MD made known via a press release.

First indications of trouble came when the share price collapsed on the eve of Wesak day, on Thursday May 27 and again on Monday, May 31, there being no trading on Friday because of the public holiday. From nearly 80 sen a share, it had collapsed to about 10 sen, in just over a day, wiping out nearly nine tenths of its value.

On Monday morning – 10.10am – after one hour and 10 minutes of trading, Bursa Malaysia suspended the shares and shot a query to the company on the unusual market activity.

Back came the shocking reply on the same day: Kenmark said its independent directors, Zainabon @ Zainab Abu Bakar and Yeunh Wee Tiong, were the only ones present at an audit committee meeting that was to be held at 10.30am on May 27, incidentally, the day the share prices collapsed.

Neither managing director James Hwang nor another executive and non-executive director, all from Taiwan, could be contacted. The deputy general manager and the finance and administration manager had resigned. There was no management representation at the meeting and therefore the meeting could not proceed.

The independent directors visited the company’s premises in Port Klang on May 29 and found it sealed and the premises secured by a guard. In a further announcement the same day, the independent directors revealed that there were letters of demand for borrowings which totalled over RM60mil and that they were unable to ascertain the financial position of the company or offer any other opinion.

And the independent directors said the company would enter PN17 status requiring its operations to be regularised. They also said that the company would be unable to release its quarterly report in time and that the shares would be suspended five trading days later on June 8. This was confirmed by Bursa Malaysia. All these announcements were made on May 31.

In short, it was utter chaos and no one knew what was happening with key board members and senior management having resigned or disappeared or otherwise unable to be located. That must have been a sort of record even for the Kuala Lumpur stock exchange where strange things have sometimes been known to happen and set the stage for a sell-off.

Incredibly, with such a state of uncertainty surrounding the company, the suspension of the shares was lifted the following day, June 1. Prudence should have dictated that the suspension be maintained until more information was forthcoming so that all shareholders could act from a position of equal information.

That would have discouraged needless speculation and ensured that insiders did not have a trading advantage. If syndicates were in the market, they could have been flushed out as more information about the company came into the public domain.

On May 31 when trading was shortened by the suspension, turnover of the company’s shares had already ballooned to an incredible 72 million shares from 1.5 million shares the previous trading day, May 27 and just 55,000 shares on May 26. That 72 million represented nearly 40% of Kenmark’s issued shares, enough to tell anyone that activity was not just unusual but terribly, terribly unusual, considering the shares changed hands in just one hour and ten minutes of trading. .

If you thought turnover was high on May 31, wait for the next day when the suspension was lifted. It shot up to a massive 190 million plus, more than the entire paid-up capital of Kenmark, implying the same shares were changing hands several times. The following day it was still an incredible 138 million shares.

And then came the next shocking announcement on June 2, when the shares were suspended from trading at the awkward time of 4.43pm and remained suspended until yesterday, June 4

Suddenly, managing director Hwang was contactable. He even issued a press release. He had been sick and unconscious, he said, and his family had barred all calls. But he did not explain why his other directors could not be contacted as well. He apologised for the confusion caused.

“I have spoken with a friendly party who has already acquired a substantial stake in the company and there will be new appointments of directors, including two executive directors to manage the situation there,” he said.

He did not say when he spoke to the friendly party.

His letter to the independent directors said that four new directors should be immediately appointed to the board. They were Ho Soo Woon, Ahmed Azhar Abdullah, Woon Wai En and Datuk Abd Gani Yusuf. The last was appointed executive chairman. The independent directors then resigned.

It transpired that the friendly party and new major shareholder was Datuk Ishak Ismail, who managed to pick up some 32% from the market on June 1 and June 2. Ishak, at his own admission, was the bumiputra partner when Kenmark was listed in 1997.

Yesterday, trading continued to be active and the share closed at 29.5 sen, more than double the previous close of 11.5 sen, on a turnover of 100.8 million shares but still well below its recent price of around 80 sen.

The series of events can only be termed incredible and highly volatile. Any reasonable person who follows the case closely will have serious questions to ask at each juncture of the transactions.

It is now up to the authorities, Bursa Malaysia and the Securities Commission to investigate and establish what happened and bring those responsible to book.

At the very least, there was gross negligence in terms of corporate governance and the proper running of a company.

But things could be a lot worse than that.

l Managing editor P Gunasegaram says that smoke usually indicates fire.

http://biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6407063&sec=business

Institutional and retail investors in the GCC have short time horizons compared to global benchmarks

Friday 4th, June 2010 -- 23:20 GMT
Invesco Middle East Asset Management Study finds a consistently high demand for emerging markets across the region

Posted: 26-05-2010 , 09:35 GMT

Invesco Asset Management Limited today unveiled the findings of its inaugural Invesco Middle East Asset Management Study. This regional study is the first of its kind and reveals a fascinating insight into the complex and sophisticated investment habits of this continually evolving region. The company, who opened its Dubai office in 2005, has been working with Middle East clients for decades, offering financial institutions and investment professionals access to global investment expertise.

Surveying the attitudes and behaviours of both institutional and retail markets across the six Gulf Co-operation Council (GCC) countries, the study revealed a number of key findings:
• There is currently a consistently high demand for emerging markets across all companies and territories
• Institutional and retail investors in the GCC have short time horizons compared to global benchmarks
• Investor location within the GCC has a strong influence on exposure to investment sectors


Interestingly, the study also indicated that both the institutional and retail market are becoming increasingly risk averse.

Nick Tolchard, Head of Invesco Middle East commented: “The Middle East is often portrayed as a homogenous region; this report clearly shows this is not the case, though there are some surprising similarities. The influence of investor location over asset allocation makes it quite clear that the Middle East is a highly diverse investment region.”

He continued: “We believe that this diversity is explained by access to investment products, which varies across the region. Certain markets, such as Saudi Arabia, have restricted access to international investments whereas others, such as the UAE, are dominated by offshore life wrappers with large international fund ranges.”

Investor type also plays a key role in asset allocation, according to the study. In the growing retail market, preferences vary according to distributer. Private client portfolio managers favour global equities and alternative assets, while retail banks prefer local equities and cash and IFAs opt for global equities and cash.

On the institutional side, preferences are even more diverse:
o Sovereign Wealth Funds prefer alternative investments (private equity and hedge funds)
o Institutional investors tend to invest in mainstream asset classes (equities, bonds and cash)
o Corporates (commercial banks and diversified financial services) prefer local over international assets.
o Asset managers prefer property

Commenting on these asset allocation preferences, Nick Tolchard said: “Sovereign Wealth Funds’ preference for private equity and hedge funds may align to opportunistic investment strategies to exploit any short-term market volatility and below average allocations to local securities and commodities is expected given that the source of funding for Sovereign Wealth Funds (government revenue) is heavily dependent on commodity prices and the performance of the local economy.”

In addition, one of the most striking findings is the universal preference for emerging market assets. Across all participants 82% of respondents forecast exposure to emerging markets over the next 3-5 years compared to 30% for North America, 14% for Europe and 8% for Japan. The key driver for this appears to be simply that GCC investors expect returns to exceed those in developed markets.

The Retail and institutional respondents in the GCC are also unified by their perceptions of change in risk appetite – they have indicated that 79% of institutional and 70% of retail investors have changed their attitude to risk in the last six to twelve months and in both cases, more investors have become increasingly risk averse.

In addition, the study indicated that the respondents also share similar very short-term investment time horizons, 38% of retail respondents have a time horizon of less than a year compared to 33% in the institutional market. Of those surveyed, only 12% of institutional respondents have an investment horizon beyond 5 years, significantly below global comparatives for institutional markets.* Invesco believes that the short retail time horizons in the retail market can be explained by the transient nature of retail expatriate clients, investment losses during the global financial crisis and the coverage on Dubai’s debt restructuring. Looking forward it expects retail time horizons to lengthen as markets stabilise, but to remain shorter than global retail benchmarks.

Nick Tolchard explained: “Perhaps the most surprising finding was the short term and highly volatile investment attitudes in the institutional sector. However, this could be explained by nimble and fast moving investment behaviour of Sovereign Wealth Funds in the GCC region, in contrast to other institutional markets which are typically dominated by large insurance and pension funds managing a high proportion of their assets against long-term liabilities.”

He concluded: “The Middle East is a growing investor force in the world and we see this research as part of our strategic commitment to understanding the perspective of investors, as well as the investment and savings culture of the Middle East. We intend to carry out this research on a regular basis, monitoring the retail investment market as it continues to grow, and learning even more about the behaviour and preferences of the highly sophisticated institutions operating in the GCC.”
© 2010 Mena Report (www.menareport.com)

http://www.menareport.com/en/business/316494


Summary:

This research studied the investment and savings culture of the Middle East. It highlights the growing retail investment market and the behaviour and preferences of the highly sophisticated institutions operating in the GCC.

The study indicated that the respondents share similar very short-term investment time horizons, 

• 38% of retail respondents have a time horizon of less than a year compared to 33% in the institutional market. 
• Of those surveyed, only 12% of institutional respondents have an investment horizon beyond 5 years, significantly below global comparatives for institutional markets.

* Invesco believes that the short retail time horizons in the retail market can be explained by

• the transient nature of retail expatriate clients,
• investment losses during the global financial crisis and 
• the coverage on Dubai’s debt restructuring. 

Looking forward it expects retail time horizons to lengthen as markets stabilise, but to remain shorter than global retail benchmarks.

Perhaps the most surprising finding was the short term and highly volatile investment attitudes in the institutional sector. 

• However, this could be explained by nimble and fast moving investment behaviour of Sovereign Wealth Funds in the GCC region, in contrast to other institutional markets which are typically dominated by large insurance and pension funds managing a high proportion of their assets against long-term liabilities.”

Market in Turmoil Again

Is this a healthy correction?
Is this another bear market?
Will you be seeking for shelter?
Will you be seizing this as an opportunity to buy?

Who were the sellers of Kenmark shares?

Before the recent crisis, Kenmark was trading at 83 sen per share (market capitalization of RM 148.63 million).

On 2.6.2010, Kenmark was trading at 6 sen per share (market capitalization of RM10.74 million)

Mr. Ishak bought 57.6919 million shares on 1.6.2010 and 2.6.2010 (32.36% of total market shares).

Surely this buying is based on unequal information which he possesses.

Who were the sellers of these shares?

Pity the shareholders whose shares were pledged as securities for loans which were forced sold.

How can this market be better regulated?

Here is an attempt at estimating the liquidation value of Kenmark:
http://spreadsheets.google.com/pub?key=tZ7l9at-gaLGGpM4h5RaOsw&output=html



Ref:
http://announcements.bursamalaysia.com/EDMS/edmsweb.
nsf/LsvAllByID/337D2BBAB10029B248257737003B6066?OpenDocument

Announcement Details :

Name

Date Acquired ... No. of shares ... %

BHLB Trustee Berhad for a discretionary trust

for the family of Ishak Bin Ismail

1.6.2010 ... 10,000,000 ... 5.61%

2.6.2010 ... 20,000,000 ... 11.22%

Unioncity Enterprises Ltd

2.6.2010 ... 27,691,900 ... 15.53%

Also read:
http://whereiszemoola.blogspot.com/2010/06/
more-incredible-news-flow-from-kenmark.html


----

Business Times
Ishak now a major investor in Kenmark
By Azlan Abu Bakar
alan@nstp.com.my
2010/06/04

Datuk Ishak Ismail, former KFC deputy executive chairman bought 32.36 per cent of Kenmark, a furniture maker, on June 1 and 2

DATUK Ishak Ismail, KFC Holdings (Malaysia) Bhd's former deputy executive chairman, is now a major shareholder of financially-troubled Kenmark Industrial Co (M) Bhd (7030) as he bought while others were busy dumping the stock.

He bought 32.36 per cent of Kenmark, a furniture maker, on June 1 and 2, as the stock hit record lows of between 3.5 sen and 4.5 sen. The group did not say who were the sellers.

Kenmark also did not say how much he paid for the stake but based on the closing and last traded prices of the two days, Ishak could have spent about RM6 million. He may have even paid much less, or probably half of that, if he had bought the stake at the days' lows.

Kenmark, a PN17 company, has yet to report its fourth quarter numbers for the period to March 31 2010 as its managing director and major shareholder James Hwang, a Taiwanese, went missing since last week.

From then on, the group went into a tailspin as two banks said it defaulted on loans, named a receiver to a subsidiary while all operations ground to a halt and some 400 of its workers were uncertain of their future.

Kenmark is now the subject of Securities Commission (SC) probe while Bursa Malaysia has ordered it to appoint a special auditor to ascertain if there are any irregularities.

The group has hired Messrs UHY Diong as its special auditor.

In 2001, Ishak was fined RM400,000 by the Sessions Court for giving false information to the SC.

A former politician, he was once involved in a battle with the Lau brothers for control of KFC. Ishak was firmly in control of KFC until the Asian financial crisis hit Malaysia in 1997.

Kenmark also named new directors yesterday. They are executive chairman Datuk Abd Gani Yusof, executive director Ho Soo Woon, and independent non-executive directors Ahmed Azhar Abdullah and Woon Wai En.

Kenmark's independent directors Zainabon @ Zainab Abu Bakar and Yeunh Wee Tiong have tendered their resignations yesterday.

"The new directors are currently assessing the current situation of the Kenmark Group and are in discussion with the receivers of Kenmark Paper Sdn Bhd to allow the re-activation of business operations at the business and corporate office at Port Klang soonest possible and restore market confidence," Kenmark said in a statement to Bursa Malaysia.

The new directors also stressed that all employees have been paid salaries up to May 2010 and all payments to statutory bodies have also been made.

On June 2, Kenmark said Hwang fell ill in China from May 24 and he could not be reached as his family barred all calls. The group's new directors hope that he could return by next month.

As for the other two Taiwanese directors, Chang Chin-Chuan and Chen Wen-Ling who were also said to be missing, they have made contact with Kenmark.

Shares of Kenmark have been suspended since June 2 and its last traded price was 11.5 sen.

http://www.btimes.com.my/Current_News/BTIMES/articles/kenshak/Article/index_html

The Coming Bubble of 2010, and How to Avoid It

The Coming Bubble of 2010, and How to Avoid It


Adam J. Wiederman
May 30, 2010


Even though it has been barely two years since the latest investing bubble burst, sending the stocks of Fannie Mae and Freddie Mac to their knees, there's yet another bubble forming. And I believe it will burst this year.

Don't just take my word for it; even world-renowned investor George Soros agrees.

Just ahead, I'll tell you how to completely avoid it, and I'll present an alternative strategy you can adopt instead of following the crowd into this bubble.

But first, let's take a look at this bubble and how it formed.

All that glitters
Congress has spent billions of dollars in stimulus funds to jump-start the economy. This influx of dollars was funded almost entirely with debt. As the national debt level rises, the dollar becomes weaker, because currency investors shy away from high-debt countries. This causes higher inflation, which most everyone agrees is coming.

But the consensus right now is that the best way to counteract inflation is by investing in gold.

And the consensus is dead wrong!
Alas, gold is a luxury commodity. It has no coupon rate or growth prospects, and it can rise in price only as much as demand for it grows.

It's also difficult to value. Some believe the price of gold per ounce should match the Dow Jones Industrial Average. Others believe it must reflect the price of a top-tier man's suit. Still others believe it must account for global supply and demand.

In spite of this inherent confusion, many prominent investors -- John Hathaway of the Tocqueville Gold Fund, Jim Rogers of Quantum Fund fame, and even top hedge fund managers like David Einhorn and John Paulson, to name a few -- believe gold can do well right now.

Even more shockingly, a recent Value Investors Congress was full of lectures on how to profit in precious metals.

Even the best can be fooled
The average investor is blindly following these noteworthy financial wizards. That's why more than $12 billion of new money was invested in the SPDR Gold Trust in 2009 alone. I'm the first to admit that falling prey to other investors' moves is an easy pitfall, but it can set you up for disaster.

So what exactly are all these investors -- and their followers -- overlooking? These two key facts:

1. When gold demand rises, supply does, too, which brings gold prices back down.
Fortune magazine reports that gold miners invested more than $40 billion into new projects since 2001, and they "are now bearing fruit." Bullion dealer Kitco "predicts that these new mining projects will add 450 tons annually -- or 5% -- "to the gold supply through 2014, enough to move prices lower." The demand also brings out sellers of scrap gold, which adds even more to the supply.

All this while demand for gold (other than as an investment) dropped 20% in 2009.

2. Gold is historically a poor investment.
Perhaps the most damning fact is that, from 1833 through 2005, gold and inflation had nearly perfect correlation, according to Forbes. This means that, after taxes, you would have actually lost money in gold.

Warren Buffett once quipped:

It gets dug out of the ground. ... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Truth be told, the only way to get the price of gold to rise is to get other investors to buy into the idea -- like a giant Ponzi scheme. And as we know from watching the unraveling of Bernie Madoff's empire, that can't last forever.

No wonder the vice governor of the Chinese central bank recently announced that the bank is holding off on purchasing gold.

All of this explains why buying gold today is a horrible decision -- and why investors would be better off looking elsewhere.

The absolute best place to look
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).

Here are six solid candidates that fit that bill, all of which have a long history of dividends -- through periods of inflation and deflation alike:

Company
Market Cap
Dividend Yield
5-Year Compounded Annual Growth Rate of Dividends
Liabilities-to-Assets Ratio
Dividends Paid Since

United Technologies (NYSE: UTX)
$64 billion
2.5%
16.2%
66%
1936

McDonald’s (NYSE: MCD)
$72 billion
3.3%
30.7%
53%
1976

Abbott Laboratories (NYSE: ABT)
$74 billion
3.7%
9.2%
61%
1926

Coca-Cola (NYSE: KO)
$118 billion
3.4%
10.1%
48%
1893

Chevron (NYSE: CVX)
$149 billion
3.9%
11.4%
44%
1912

Johnson & Johnson (NYSE: JNJ)
$163 billion
3.7%
11.4%
43%
1944

Data from Capital IQ and DividendInvestor.com.

These are exactly the sorts of dividend-paying stocks that former hedge-fund analyst and current Motley Fool Income Investor advisor James Early looks for in his market-beating service.

In his newsletter, James has put together a "core portfolio" of top dividend stocks, consisting of six dividend stocks he believes every investor should use as a platform to profitable dividend investing.

This article was originally published Nov. 6, 2009. It has been updated.

http://www.fool.com/investing/dividends-income/2010/05/30/the-coming-bubble-of-2010-and-how.aspx


Take home message:
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).