How stagnant house prices are sapping spending

Leith van Onselen

May 24, 2011 - 1:37PM

Comments 24

Your home as an ATM Photo: Glen Hunt GTH

Feedback loops are an important concept in finance and economics. In a nutshell, positive feedback loops are pro-cyclical in that they act to make an economy more volatile by accentuating booms and then busts.

By contrast, negative feedback loops are counter-cyclical in that they act to reduce volatility and make an economy more stable by mitigating boom/bust cycles.

Positive feedback loops come in various forms. With respect to the Australian housing market, there are two positive feedback loops that can dramatically impact the Australian economy via their effect on the level of credit growth, aggregate demand, and employment:

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Australian home equity withdrawals

1.mortgage hypothecation – the process whereby increases (decreases) in home values result in decreases (increases) in bank capital adequacy requirements, leading to increases (decreases) in mortgage lending; and

2.wealth effect - the process of rising (falling) asset prices leading to rising (falling) consumer confidence, borrowing, household expenditure and employment.

The topic of mortgage hypothecation has been explained in detail elsewhere on MacroBusiness, and I will not expand on it further in this column.

New Zealand home equity withdrawals

Rather, I want to focus on the second point – the link between Australian home values and consumer confidence, borrowing, household expenditure and employment.

As I have argued before throughout the 2000s, when global credit conditions were benign, household debt levels and asset prices rose continually. These conditions made Australians feel richer (the "wealth effect"), spurring consumer confidence, spending and employment growth.

With house prices rising inexorably, Australians began using their homes as ATMs, withdrawing large amounts of their new found home equity…Much of this money was spent on consumption, thus further boosting incomes and employment.

UK home equity withdrawals

However, the process of debt feeding asset prices feeding confidence, consumer spending and employment growth appears to have stalled now that house prices have flat-lined. Australians have, instead, begun reducing consumption and repaying debt…

The golden era for retailing that was 2000 to 2008 is now over and the age of frugality has begun.

Wealth effect loops

Recently, a number of reports have explained the "wealth effect" positive feedback loop in greater detail.

First, today's Australian Financial Review contains an interesting article entitled Falling house prices stifle shopping, which draws on research by Citigroup showing that changes in home values are a leading determinant of household consumption expenditure:

Retailers can blame the poor housing market for lacklustre consumer spending and should expect the weakness to continue…

Citigroup…found that changes in personal wealth, together with income and interest rates, play a big role in spending…

The largest determinant of household consumption is income… But changes in the value of household assets are a leading determinant too. Houses comprise about 60% of household assets…

A 10% increase in wealth translates to 1.7% growth in final consumption expenditure in the following quarter.

This means that when house prices go up, people spend more.

The problem for retailers has been that most peoples largest asset is their home, and property values have been falling, or have been at best flat in recent months.

Citigroup's findings are supported by recent experience in Australia, New Zealand and the United Kingdom (see charts showing home equity withdrawals), where the rapid rise in household net worth up until 2007, most of which was on the back of rising home values, led to households withdrawing large amounts of home equity between 2001 and 2008. Much of this borrowing was spent on consumption, which further boosted incomes and employment.

GFC and consumption

In all three countries, rising home values between 2002 and 2008 created a positive feedback loop whereby households borrowed against their homes to fund consumption expenditure.

However, as soon as the Global Financial Crisis hit, and housing prices corrected, households began reducing consumption and repaying debt, as evident by the increasing home equity injection.

Another recent report by Deutsche Bank also lends weight to the positive feedback loop created by rising (falling) asset values. The report argues that wealth and the terms of trade have been key determinants of household savings over the past 40 years, and sees these factors as being behind the recent rise in the household saving rate.

In regards to the "wealth effect"' discussed above, Deutsche provides data plotting the household savings rate against private sector wealth. Much of the decline in the household saving rate (the flip-side of which is increased borrowing) since the early 1980s can be attributed to a rapid increase in wealth over that period, much of which was due to rising home values. With the negative wealth shock seen during the GFC there's an associated increase in saving.

Once the positive feedback loop caused by rising (falling) home values is understood, it's easy to dismiss the common misconception that unemployment would need to rise before home values would fall. Rather, rising (falling) home prices tends to lead decreases (increases) in unemployment simply because of the wealth effects described above.

Put simply, as long as Australian housing values remain stagnant or falling, consumption expenditure, credit growth and job creation will remain subdued, even with Australia's terms of trade at 140-year highs.

Leith van Onselen writes daily as the Unconventional Economist at MacroBusiness (www.macrobusiness.com.au), Australia's economic superblog. He has held positions at the Australian Treasury, Victorian Treasury and currently works at a leading investment bank. This article was republished with permission.

Read more: http://www.brisbanetimes.com.au/business/how-stagnant-house-prices-are-sapping-spending-20110524-1f1uf.html#ixzz1NJRY73vu

Which direction for term deposits?

John Collett

May 21, 2011

Illustration: Rocco Fazzari.

Interest rate rises don't automatically translate to better deals on deposits, writes John Collett.

As everyone knows, the big banks have been the big winners out of the global financial crisis. Not only are they writing nine out of 10 new mortgages but they dominate the term-deposit market as well.

About 80 per cent of the $600 billion in term deposits is with the major banks. Yet, their term deposits pay between 0.5 percentage points and 0.7 percentage points less than the best rates in the market, says the managing director of term-deposit broker The Term Deposit Shop, Grant Goodier.

Those wanting to secure good interest rates may have to act soon as term-deposit interest rates have come down slightly over the past couple of months.

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A spokesman for InfoChoice, Dirk Hofman, says the top rates for one-year to five-year term deposits have all dropped this year.

Growth in lending for houses has dropped to its lowest level in 10 years because of last November's interest-rate increase and the big banks' top-up to their mortgage rates.

In recent years, the banks have secured other sources of funding and are not as reliant on retail investors.

Even though financial markets are expecting the official cash rate to rise by 0.25 percentage points once or twice this year, that does not mean the interest rates offered on term deposits will rise, Goodier says.

''In fact, the banks may use any increase in the cash rate to reduce the margin they pay for term borrowings from the retail market,'' he says.

Canstar Cannex's tables of term deposits show Teachers Credit Union, with an ''effective'' interest rate of 6.8 per cent a year, is the best-paying three-year term deposit for $25,000. Interest is paid monthly. The next best is Victoria Teachers Credit Union, which has interest paid annually, and RaboDirect, with interest paid monthly, each with effective rates of 6.75 per cent.

The effective rate is a better indicator than the nominal rate as the effective rate includes the frequency with which interest is paid. Two term deposits may have the same ''nominal'' rate but the term deposit with the highest frequency of interest payments has the highest actual, or effective, rate.

Credit unions

Some of the highest-paying term-deposit rates are offered by credit unions and building societies.

Yet the share of the term-deposit market held by credit unions and building societies is only about 5 per cent.

Credit unions and building societies are just as safe as banks. They are regulated to the same standards as the banks and are also covered by the government's retail deposit guarantee.

The guarantee covers each investor for cash deposits of up to $1 million per institution, provided the institution is an ''authorised deposit-taking institution'' regulated by the Australian Prudential Regulation Authority.

To help the non-banks compete with the banks, the government has said it will retain the guarantee after it is due to expire on October 12 this year. It is expected, though, that the government will lower the limit from $1 million.

Those with very large amounts should spread it between institutions in case the limit is lowered, Goodier says. They could also spread the money between term deposits with differing maturity dates.

''Put the money into smaller parcels over different terms - some short-term, some medium-term and some long-term - that way, you have a hedge against changes in interest rates paid on term deposits and access to at least some of the money,'' he says.

DIY term deposits

Investors do not just have to accept the term offered by financial institutions on their term deposits.

Banks will generally be flexible and the investor can specify their desired maturity date for term deposits, says a financial analyst at Canstar Cannex, Adam Beu.

Perhaps an investor wants to settle on a house purchase and the settlement date is in three months and 10 days' time. Investors can ask for a term deposit that matures then.

ING Direct, for example, has a calendar on its website where investors can put in the date they need to have their money returned - up to one year - and the interest rate is provided.

''A lot of the term-deposit market is negotiated,'' Beu says. ''Particularly for amounts of more than $100,000.

''Local bank branches also have manager specials from time to time, because the local bank branch has targets to hit.''

Beware rollover rates — don't let inertia cost you dearly

Investors may think there is no more simple investment than a term deposit. But in the race to secure the cash of small investors, financial institutions have been engaging in some slick and tricky practices.

Last year, the Australian Securities and Investments Commission released the results of a survey of term deposits that showed many financial institutions engaged in "dual pricing", where new savers are paid a higher rate to put their money in a term deposit than existing investors, who roll over into a new term deposit of the same term.

Dual pricing was found mostly in deposit terms of less than one year. The regulator warned investors not to allow themselves to be passively rolled over into lower-paying term deposits but to shop around.

Read more: http://www.smh.com.au/money/saving/which-direction-for-term-deposits-20110520-1ewlq.html#ixzz1NJR3kxdS

Innovation key to Nestlé long-term growth

Innovation key to Nestlé long-term growth
Published: 2011/05/22

Most Malaysians are familiar with MAGGI instant noodle, MILO ice and "NESCAFÉ tarik".

Their popularity is such that they are available in most Indian Muslim restaurants and on the shelves of sundry shops and hypermarkets.

It is not easy to maintain this position as the consumers’ tastes change and new products emerge, but MAGGI, MILO and NESCAFÉ are still popular and are the top products of Malaysia's leading food and beverage company, Nestlé.

The company started in Malaysia in 1912 as the Anglo Swiss Condensed Milk Co in Penang, and over the years has continued to ensure that Malaysians go for its products.

In an interview with Bernama, Nestlé Malaysia managing director, Peter R. Vogt, attributed this preference for Nestlé products to innovation and the fact that the company always understood what the locals wanted.

"When you analyse our products, like NESCAFÉ instant coffee, there are about 100 different variants worldwide," he said, pointing out that this was because Nestlé understood that taste was different between one market and another.

"You cannot sell the same products in different markets.

"Customers’ needs continue to change. For this reason, every few years, Nestlé reviews and improves the taste of its products," he said.

Vogt said innovation was the key strategy for Nestlé to achieve long-term profitable growth.

He said the company managed to sustain its brand here as it emphasised on sustainable sourcing of raw materials, cleanliness and high quality in production in order to have the winning taste.

On Nestle's innovation plans, he said: "We have different product categories like NESCAFÉ, MILO, MAGGI, yogurt drink and breakfast cereals and each has its own innovation plan. We have recently launched the new MILO Sejuk and NESTEA Iced Lemon Tea.”

He said although Nestlé was already looking at the next five years and would continuously work on innovation plans to give its consumers the best.

"Nestlé has spent a substantial amount on research and development (R&D) via its 29 R&D centres around the world.

"Innovation is a continuous effort. At the moment, we have around 50 ongoing innovation projects in different areas and categories. For each category, we have different plans. So, it is an on-going process," he said.

With its continuous innovation effort, Vogt said, the company was confident of sustaining its brand name in the market and remain profitable in the long term.

Vogt said another important area to maintain its market position was nutrition.

"People want to have good quality and nutritious food that tastes great," he said.

He said Nestlé was upbeat on its performance for this year, projecting a positive trend for the company based on strong sales both domestic and overseas.

It registered a higher pre-tax profit of RM191.1 million for the first quarter ended March 31, 2011, from the RM170.62 million in the same quarter last year. Revenue jumped 16.1 per cent to RM1.2 billion from the RM1.02 billion recorded previously.

For 2010, Nestlé posted a turnover of RM4 billion, 7.5 per cent higher than the year before, while pre-tax profit stood at RM465.7 million, a 5.8 per cent increase versus the previous year, driven by positive developments in the local and global economies.

"Based on the first-quarter performance, we are confident of achieving better growth driven by the positive economic development in the country with the spearheading of Economic Transformation Programme," he said.

This, he said, would support the export activity in the country as well as for the company to achieve better growth. -- Bernama


Read more: Innovation key to Nestlé long-term growth http://www.btimes.com.my/Current_News/BTIMES/articles/20110522131040/Article/index_html#ixzz1N5aiTukq

Dutch Lady eyes record year amid cost pressures

Dutch Lady eyes record year amid cost pressures

Written by Nadia S Hassan
Friday, 20 May 2011 12:44

KUALA LUMPUR: Dutch Lady Milk Industries Bhd is looking to sustain its current earnings momentum, but warns that the current high prices of raw materials globally will pile on the pressure.

“For 2011, the outlook for the market is definitely promising. The dairy market as far as we can see has grown by around 10% year-on-year [y-o-y] during the first quarter, and there is a shift... toward more premium products. But we do have to remain cautious,” said managing director Bas van den Berg.

According to Van den Berg, the company’s actual cost of raw materials such as sugar, oil and milk had increased by 29% since last year.

“Skim milk powder, an important component for Dutch Lady, for example, was around US$2,000 (RM6,040) per tonne in 2009. Now we are expecting that the price could reach around US$3,500 per tonne this year,” he said.

Last year, Dutch Lady reported its highest pre-tax profit in its history of RM90.1 million, 9.2% higher y-o-y. Its net profit for the period was RM63.9 million or 99.82 sen a share, 5.7% higher than the previous year when net profit came in at RM60.4 million.

It should be noted that revenue for the period only grew by 3% to RM710.6 million compared with RM691.8 million for FY09 ended Dec 31.

“This was achieved due to a mixture of us refocusing our business direction, keeping control of our costs and differentiating our portfolio. We will be keeping to this strategy for the coming year as well,” said Van den Berg.


Dutch Lady Milk Industries Bhd chairman Datuk Zainal Abidin Putih (left) and Van den Berg show off the company's products at its AGM in Petaling Jaya.
For the current financial year, he said that due to rising raw material costs, it would be inevitable that the prices of Dutch Lady’s products would go up.

“We have already started with price increases for some of our growing up milk products and more will follow in June. We are mindful, however, of the impact on our customers so we are working to minimise the impact. The price increases will be around 5% to 6%,” he said.

However, despite the cost pressures, Van den Berg said Dutch Lady is hoping to at least maintain the same level of dividend payout seen last year.

Last year, the company paid out RM46.4 million or 72.5 sen a share comprising normal dividends and a special interim dividend. The payout was about 73% of FY10 net profit. For 1QFY11, it declared a gross interim dividend of 30 sen per share. The stock closed at RM17.84 yesterday.

For 1QFY11, Dutch Lady saw its net profit increase to RM28.3 million from RM20.8 million reported in the previous corresponding period.

Asked if the company saw any opportunities for mergers and acquisitions in line with what is happening globally among food companies, Van de Berg did not rule out the possibility.

“Asia in general is an important region for us and one where [we] will continue to focus, so we do not exclude... acquisitions, not only in Malaysia but also in the region. However, there are no plans to do so at this time,” he said.

It should be noted that Dutch Lady’s parent company, FrieslandCampina is also the result of the merger between Friesland Foods and Campina in 2007.

Dutch Lady’s main divisions currently are powdered milk, liquid milk, yoghurt products and condensed milk.

On the possibility that the company may eventually hive off any non-performing unit, Van den Berg offered no comment.

“We do have a long-term business plan when it comes to our portfolio. However, if a division is not performing it will prompt us to take a look into that segment and maybe invest less,” he said.

He also would not comment on Dutch Lady’s capital expenditure for the year, simply saying that the company would continue to invest in research for its portfolio and in its facilities.


This article appeared in The Edge Financial Daily, May 20, 2011

CIMB positive on proposed Latexx-YTY merger

Written by Kamarul Azhar
Friday, 20 May 2011 12:48


KUALA LUMPUR: The proposed merger of YTY Industry Holdings Sdn Bhd’s wholly-owned subsidiaries with Latexx Partners Bhd is viewed as a positive surprise by analysts. It will create the largest nitrile glove player in the world and the third most profitable rubber glovemaker after Hartalega Corp Bhd and Top Glove Corp Bhd.

According to a CIMB report yesterday, the merged entity would have a combined capacity of 16.2 billion gloves with an estimated 12.8 billion pieces of nitrile capacity, which is a commanding 36% market share. YTY has been focusing on nitrile gloves that make up almost 90% of its production mix.

“We take a positive view of the merger as it could create the largest nitrile glove player in the world. The proposal values YTY at a historical price-earnings ratio of 11.3 times. Assuming FY12/13 earnings growth of 15% per year, in line with demand growth for nitrile gloves, YTY could be valued at a CY12 PER of 8.8 times, a slight premium over the sector’s 8.6 times,” said the report.

Latexx told Bursa Malaysia on Wednesday that it had received a merger proposal from YTY to acquire the latter’s four wholly-owned subsidiaries for RM1.37 billion to be satisfied by RM409.5 million cash from Latexx and 382.2 million new Latexx shares of 50 sen par value at an issue price of RM2.50 per share.

The offer will remain open for acceptance for 21 days.

The proposal arrived just two days after the proposed buyout by Navis Asia VI Management Co Ltd for RM852 million fell through.

CIMB said the proposed Latexx-YTY merger could create an entity that can match Hartalega based on profitability and valuation. Based on CIMB’s pro forma net profit forecast for Latexx of RM162.3 million for the last four quarters, the merged entity could have exceeded Top Glove’s profitability and narrow its valuation as a discount to Hartalega.

“Both Latexx and YTY’s factories are located in Perak; Latexx in Kamunting and YTY in Sitiawan. Note that our pro forma net profit of RM162.3 million has not adjusted for potential cost and revenue synergies arising from the merger,” CIMB said, adding that cost savings of 10% could raise the merged company’s net profit to circa RM180 million.

CIMB also expects the proposed merger to result in Latexx’s existing shareholders enjoying a 20.2% rise in the value of their shares, assuming their equity interest in Latexx is valued at 10.7 times forward PER.

The research house maintained its “neutral” call on Latexx, and recommended a switch to Kossan Rubber Industries Bhd and Hartalega.

This article appeared in The Edge Financial Daily, May 20, 2011.

Is Your Psyche Ready For A Bull Market?

by David Allison 

The psychological hardwiring that helped us survive in primitive times also make us vulnerable to dangerous errors and biases when handling our investments in both bull and bear markets. Read on to learn about the catch phrases to watch for in a bull market, and some of the mental errors and biases they could signal.

"I know investment markets are going to pull back. I will put the money to work then."  When you hear a phrase like this, the investor could be suffering from "confirmation bias." Confirmation bias is a result of our brains trying to avoid cognitive dissonance, or having two conflicting thoughts. It occurs when investors filter out relevant evidence about their investments that contradicts their beliefs. With all of the information available about the direction of investment markets and theeconomy, it is easy to latch on to what you want to hear and filter out information that contradicts your past judgment. In a new bull market this bias can cause investors to ignore information that the economy and the financial markets are recovering. It would mean that they were wrong about their recent decision to sell or not buy certain investments. It can cause them to "sit on the sidelines" too long while investment opportunities pass them by. It is always good to think independently when investing, but make sure that you keep your ego in check and have an alternative plan if markets do not go your way.

"I finally had a profit, so I sold that investment."There is nothing wrong with taking profits, but keep in mind that investors are constantly fearing regret and seeking pride. This is what is called the "disposition effect." It is a result of the pain of an investment loss hurting much worse than the pleasure of a gain. Academic research has shown that investment losses hurt about two and a half times more than the positive feeling you get from an equivalent investment gain. Net of taxes, whether you have a gain or a loss in an investment says absolutely nothing about its future prospects. In a new bull market this bias causes investors to sell winners too early (seeking pride). Also, the painful regret associated with taking losses can keep investors from selling past bear market losers to buy new bull market leaders. To help yourself avoid this bias, make sure that you have a process for buying and selling investments that is disciplined, fundamentally sound and repeatable. The bragging rights associated with quick gains are great, but the future profits you may miss could have been even better.

"The market has gone up too far and too fast. We are due for a market correction"This phrase could signal what is known as "anchoring" or "reference point." Anchoring occurs when someone assigns a number, like a 52-week high or low, to compare the price of an investment. Most academics and investment professionals would agree that the stock market is at least weak form efficient, meaning that past price movements are poor predictors of future price performance. Long-term investing using past price patterns alone can be compared to driving your car forward while using your rearview mirror as a guide.

In a new bull market, anchoring can lead to "market acrophobia," where investors believe that because investment markets went up quickly from their lows they are due for a largecorrection. It can also give investors a false sense of value and lead to excessive risk taking in the initial stages of a bull market. Because investors have a tendency to believe that an investment is "cheap" or not as risky if it has already fallen a lot in price. Keep in mind that prices and investment fundamentals are constantly changing. Whether or not an investment has risen or fallen in the past tells you very little about its current fundamental valuation and long-term investment prospects today. (To learn more about the different levels of market efficiency and what they mean see Working Through The Efficient Market Hypothesis.)

"I will never buy stocks again"This phrase could signal the "snake bite effect." Snake bite effect occurs when investors take large losses in a certain asset class, like stocks, and become more risk adverse. The emotional toll from their past bear market losses can be so great that they feel the need to reduce exposure to the asset class or abandon it all together. It is important to think about your investment objectives, risk tolerance, and capital market expectations, and invest accordingly. In a new bull market this bias can lead to an under-diversified portfolio, or a portfolio that does not match the investor’s objectives. It may stink, but if it meets your long- term investment goals sometimes you just have to hold your nose and buy.

ConclusionFamed investor Benjamin Graham once said, "Individuals who cannot master their emotions are ill-suited to profit from the investment process." Mr. Graham knew that having control over your emotions when investing can mean the difference between success and failure.

It is important to understand that, because we are all humans and not computers; we will not always make perfectly rational and timely investment decisions. Knowing some of the catch phrases to look for and the mental errors and biases that they may signal can help you make more rational investment decisions and suppress your inner "Captain Caveman" when investing in a new bull market. (To continue learning about investor behavior read Taking A Chance On Behavioral Finance and Understanding Investor Behavior.)

by David Allison (Contact Author | Biography)

David L. Allison is vice president and the founding partner at Allison Investment Management LLC, an investment advisory firm offering managed accounts to high-net-worth investors and institutions. He received a bachelor's degree from the University of North Carolina at Wilmington where he majored in finance. He currently holds the Series 7 and Series 66. David has earned both the Chartered Financial Analysts (CFA) and the Certificate in Investment Performance Measurement (CIPM) designations. He is an advisor to CFA Institute serving on the CIPM Examination Review Panel. He is a member of the CFA Institute, the CIPM Association, the North Carolina Society of Financial Analysts (NCSFA), and the CFA Society of South Carolina, where he currently serves as President. In addition, he is First Chair on the Coastal Carolina University Wall College of Business Finance Advisory Board. Securities are offered though Triad Advisors, Inc. Member FINRA & SIPC.

UK house prices predicted to fall further amid drop in mortgage lending

House prices predicted to fall further amid drop in mortgage lending
Mortgage lending plunged 14 per cent last month as the bank holidays removed the focus on house buying, figures have suggested.

House prices predicted to fall further amid drop in mortgage lending Photo: PA

By Myra Butterworth, Personal Finance Correspondent11:59AM BST 20 May 2011

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The Council of Mortgage lenders said gross lending fell to £9.8 billion in April, down from £11.4 billion in March, and 5 per cent lower than a year ago.

The bank holidays last month – including Easter and the Royal Wedding - saw many workers enjoy extended holidays in exchange for taking just a few days annual leave.

Bob Pannell, CML chief economist, said: “It represents an unfortunate temporary loss of signal, at a time when it would be useful to gauge the resilience of house purchase demand to economic uncertainties and the pressure on household incomes.

“Levels of activity look set to remain broadly flat over the near-term. It now seems unlikely that interest rates will rise much, if at all, this year and this should help keep the market on an even keel.”

Analysts warned reduced activity in the housing market would translate into falling house prices. The average value of a home in Britain has already dropped to £160,000, down from £200,000 four years ago before the beginning of the credit crisis.

Howard Archer, an economist at Global Insight, said housing market activity remained low compared with long-term norms, even if it had edged up from its recent lows.

He said: “We suspect that further modest falls in house prices are more probable than not over the coming months as tighter fiscal policy and the possibility of gradually rising interest rates before the end of 2011 maintains pressure on the housing market.”

http://www.telegraph.co.uk/finance/personalfinance/8525831/House-prices-predicted-to-fall-further-amid-drop-in-mortgage-lending.html

Investors turn their backs on emerging markets as returns disappoint

Investors turn their backs on emerging markets as returns disappoint


Formerly fashionable emerging markets have fallen from favour with investors, with an eye-stretching £185m being withdrawn from these funds in March.

Emerging markets include Brazil, Russia (above), India and China Photo: REUTERS

By Ian Cowie 6:00AM BST 19 May 2011

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The net outflow for the month, the last for which the Investment Management Association (IMA) has figures, compares with inflows of £337m into strategic bond funds, £136m into North America and £96m into UK Equity Income funds during March, the last month of the Isa season.

One reason emerging markets – such as Brazil, Russia, India and China – have gone out of fashion is that returns during the last year have lagged behind more developed economies.

According to independent statisticians Financial Express, unit trusts and open-ended investment companies (Oeics) invested in continental Europe delivered average returns of 17pc over the last year while those in Britain returned 16pc and America managed 10pc.

By contrast, China lagged behind with total returns of less than 5pc over the last year, while Brazil delivered less than 3.5pc and Indian funds shrank by more than 4pc.

Despite dismal short-term returns, some experts argue that investors cashing out of emerging markets today may be making an expensive mistake.

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John Kelly of independent financial advisers Chelsea Financial Services said: "There will always be plenty of hot money sloshing around the markets as short-term investors try to capture opportunities between the margins of asset class and sector volatility.

"But investors should consider the context of their investment before jumping ship. The investment case for emerging markets is underpinned by a long-term projection of sustained economic growth with a few wobbles along the way. If an investor gets the jitters when encountering the first bump on the road, this investment was probably not the right one for them in the first place."

Similarly, Richard Saunders, chief executive of the IMA, said: "If you're going into the stock market you need to have an eye to the long term. The best way to accumulate a long-term nest egg is by regular saving over a long period of time – in other words, getting into the savings habit.

"The sums you need to accumulate to fund a comfortable retirement can seem intimidating in isolation, and for most of us the slow and steady strategy is the most realistic way to get there. Regular saving has the added advantage of providing a way to handle a volatile market that can go up and down in the short term in unpredictable ways.

"Investing a lump sum at one time leaves you exposed to the vagaries of the market, which may be unusually high or unusually low on that day. But investing a little every month helps to smooth out these ups and downs and deliver a steadier return over time."

For now, fear has replaced greed as the dominant factor in investor sentiment but Ash Misra, head of investment strategy at Lloyds TSB Private Banking, predicted that those willing to take a longer view might profit from doing so.

He said: "Once sentiment swings back and the valuation imbalances between developed and emerging markets disappear, investors will focus once more on fundamentals. The emerging market advantages of a younger demographic, stronger banking systems and healthier private sector balance sheets are compelling.

"Also, emerging government policies including fiscal conservatism, lower taxes and reduced spending will further buttress the case for emerging markets. In time, money should flow back into emerging markets as the relative valuations between the two markets equalise and the fundamental strengths of emerging markets will be attractive once again."

http://www.telegraph.co.uk/finance/personalfinance/investing/8521913/Investors-turn-their-backs-on-emerging-markets-as-returns-disappoint.html

Public Bank best-managed company

Nazir voted best CEO, Public Bank best-managed company
By Hamisah HamidPublished: 2011/05/17


Read more: Nazir voted best CEO, Public Bank best-managed company http://www.btimes.com.my/Current_News/BTIMES/articles/16ASIABEST/Article/#ixzz1MfOWuUI3

KUALA LUMPUR: Public Bank Bhd emerged top in four out of nine categories under FinanceAsia's "Asia's best managed companies" country listings, while CIMB Group chief executive officer (CEO) Datuk Seri Nazir Razak was voted the "Best CEO".

Maxis' chief Sandip Dass was the runner-up for the "Best CEO", followed by Public Bank chief Tan Sri Tay Ah Lek in third place.

Malaysia's third largest bank in terms of asset and market capitalisation, Public Bank was polled the "Best managed company", "Best corporate governance", "Best corporate social responsibility" and "Most committed to a strong dividend policy".

The country's second largest lender CIMB Group, which topped the polls in "Best investor relations" category, came second after Public Bank in the four categories.

AirAsia Bhd was voted the "Best mid-cap", while integrated media group Media Prima Bhd came second in that category.
Gloves maker Latexx Partners Bhd was voted the "Best small-cap".

Malayan Banking Bhd chief finance officer (CFO) Khairussaleh Ramli was polled the "Best CFO".

Hong-Kong based FinanceAsia revealed the poll results for India and Malaysia on its website yesterday.

The publication has tallied votes from over 300 investors and analysts across the region for its 11th annual poll of Asia's top companies. 

Read more: Nazir voted best CEO, Public Bank best-managed company http://www.btimes.com.my/Current_News/BTIMES/articles/16ASIABEST/Article/#ixzz1MfOFzehO

Bankers also do national service

Wednesday May 18, 2011

Bankers also do national service
Plain Speaking - By Yap Leng Kuen


POST financial crisis, a lot of “casualties'' especially in the form of loan restructuring and recovery. There are many instances of brave souls slogging away into the wee hours to come up with major restructuring schemes.

Famous examples include Danaharta, Danamodal and the Corporate Debt Restructuring Committee (CDRC). That was Malaysia's experience during the 1997 Asia financial crisis. On a wider scale, the US Federal Deposit Insurance Corp and the US Government undertook massive restructuring of troubled mortgages and bank assets during the 2008 subprime crisis.

These are experiences of large organisations that are set up for the specific purpose of restructuring. They are backed by the government and exert considerable powers in the process.

But when Jamelah Jamaluddin joined Kuwait Finance House Malaysia Bhd (KFH) early last year, it was already some time after the financial crisis and many banks were already on the recovery path. At KFH Malaysia, it was different story. Overwhelmed by rising non-performing finance and a pile of debts, KFH Malaysia was in dire need of a revamp.

Why did Jamelah, who was already in a good position helming RHB Islamic Bank, jump into KFH Malaysia and its messy loan debt situation? Can't she just sit back and enjoy life? Instead, she found herself thick in the middle of an RM800mil debt pile at KFH Malaysia.

Unravelling that has taken a lot of her time while she also has to focus on building up the bank to offer the full suite of products under its universal banking licence. “When I first came in, I didn't know where to start,'' she said, looking visibly happier now that she has taken stock of all the assets.

Her journey at KFH Malaysia began one fine day when she received a call from one of the bosses from the headquarters. “He said We are in town and want to see you,” recalls Jamelah. Four high-profile men in business suits showed up and told her in no uncertain terms that they only wanted her for the job even though she had suggested some other names.

They all knew it would be no easy task to clean up the bank, which had been set up with much fanfare but was suffering under big losses. The business and management had to be revamped while an internal audit was conducted. Hers was a tough job and there was no time for a popularity contest.

“I like challenges and to do things differently,'' she said. Work satisfaction and personal achievement are important to her. Already a successful merchant banker of 25 years, she decided to switch career path to Islamic banking and was deputy CEO of KFH Malaysia when it started five years ago. “There are a lot of new and exciting things to learn in Islamic banking,'' she said. “It's all up to the person. Passion is what drives an Islamic banker to excel and learn new things everyday.''

Next, she is going into retail banking for KFH Malaysia - a new field for her which she finds interesting and stimulating.

Apart from personal achievement, Jamelah also sees her work at KFH Malaysia as part of national service. “It is not for the money,'' she said. “It is also our duty to ensure that the interests of foreign investors, in this case the Kuwaitis, are looked after well as they have poured into a huge amount into this investment.''

In the context of national service, a lot of names come to mind. Within the banking fraternity, Datuk Seri Hamidy Hafiz who retired as CEO of Affin Bank, is chairman of the revived CDRC and national guarantee corporation, Danajamin.

Tan Sri Amirsham Abdul Aziz, who retired as Maybank president and CEO, was appointed chairman of the National Economic Advisory Council (NEAC) in June 2009.

Associate editor Yap leng Kuan is happy that money is not the only buzz word in the corporate world.

http://biz.thestar.com.my/news/story.asp?file=/2011/5/18/business/8703279&sec=business

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Wednesday May 18, 2011

Kuwait Finance House recovery on track
By YAP LENG KUEN
lengkuen@thestar.com.my




Islamic bank carrying out revamp under 5-year plan

KUALA LUMPUR: Kuwait Finance House (M) Bhd (KFH), the largest Islamic bank in terms of capital, aims to get back into the limelight for the right reasons. The last time it attracted media interest was following news of an internal audit on a net loss and surge in non-performing finance (NPF).

Prior to that, news that it had discontinued the rating services by RAM Ratings, to be in line with the rating practices of the parent and group.

Having engaged the services of Malaysian Rating Corp Bhd (MARC). this decision was part of its cost rationalisation; nevertheless, it had sparked speculation as to what else could be going on at KFH.


Jamelah Jamaluddin
“We have taken stock of all our assets,'' CEO Jamelah Jamaluddin told StarBiz. “We feel more comfortable now as we know which are the accounts that need to be restructured.''

Declining to divulge further details, she said that of the total group assets of RM10.9bil, “only a fraction'' needed to be restructured or recovered.

“The recovery process is doing well since it started last year,'' she said. More than RM100mil out of debts of RM792mil has been recovered or restructured.

The internal audit has been completed and findings handed over to the authorities.

“The board is aware of the findings,'' Jamelah said. “We have not taken any legal action as more groundwork is to be done. Whether there will be a legal case eventually, we do not know. It is too preliminary.''

Under its five-year transformation plan, the focus this year will be three-pronged branding, building up human resource capability and change in corporate culture.

Under its current emphasis to grow retail business in line with its universal banking concept, more branding activities are targeted. Staff quality, competency and diversity will also be strengthened while the mentoring process is under way.

Meanwhile, the culture should reflect the values and expectations of an Islamic bank, she said. “It's in the way we behave, dress and take care of our clients. We must show fairness, integrity and honesty,'' she said.

“We believe the numbers will come once we have diversified the business, and set up the correct focus and system of values,'' she said. Last year, the emphasis was on improving asset quality, recovery and business growth.

KFH Malaysia, which has 10 branches, returned to the black in the fourth quarter ended Dec 31, 2010 with a profit of RM13mil from a net loss of RM35.5mil in the previous corresponding quarter but reported a full year (FY10) net loss of RM75.6mil which more than double its net loss the year before.

As part of its group-wide strategic planning, KFH Malaysia aims to enhance its position as the hub for South-East Asia with a possible presence in Indonesia.

In Australia, KFH is pursuing deals via its advisory licence with an expected bilateral loan signing in the horizon. “The loan will be structured in an Islamic way and we are working with a bank in Australia,'' she said,

Under its five-year plan which ends in 2014, KFH Malaysia targets to grow both the retail and wholesale business. “We started five years ago on the wholesale business and are now picking up on retail banking. More branches will be set up along with alternative distribution channels, new products and services.

“A year ago, we started to enhance our policies, the respective standard operating procedures, credit control and risk management. We are now embarking on portfolio or industry focus,'' said Jamelah.

In the wholesale area, the focus will be building quality assets and driving fee-based income; in the capital markets, it will be issuance of local and foreign denominated sukuk.

Among the winning retail strategies at KFH Malaysia is the introduction of the gold account, which sells physical gold and acts as a deposit account.

“Leveraging on the expertise of our sister company in Turkey, we have mastered the procedure for managing the gold account,'' she said, adding that the bank hoped to sell one tonne of gold by year-end compared with 500kg currently.

“We will innovate and ride on our group-wide suite of products which we will adapt for local use,'' she said.

http://biz.thestar.com.my/news/story.asp?file=/2011/5/18/business/8696207&sec=business

Long-Term Financial Analysis Of Coca-Cola

Long-Term Financial Analysis Of Coca-Cola
May 16, 2011

Here is a long-term analysis of the Coca-Cola Company (KO). The article gives investors an overview of the company’s financial history, business diversification as well as the valuation level and dividend policy.

Company Profile: 

The Coca-Cola Company is a non-alcoholic beverage company that serves more than 500 non alcoholic brands. Coca-Cola Company has operations in more than 200 countries and employs more than 139,600 people. It owns and markets sparkling beverage brands, including Diet Coke, Fanta and Sprite. In addition, Coca-Cola manufactures, markets and sells beverage concentrates.

Business Diversification: 

As of the latest quarter, the company operated in six segments: Eurasia & Africa (6% of sales and 10% of profits), Europe (11% of sales and 27% of profits), Latin America (11% of sales and 28% of profits), North America (43% of sales and 18% of profits), Pacific (11% of sales and 17% of profits) and Bottling Investments (18% of sales and 0% of profits). In fiscal 2010, roughly 70% of sales came from abroad. Due to the acquisition of the North American bottling company, Coca-Cola generates more revenues in USD.





Valuation of the Company: 

Dividend Yield: 2.76% / 2.75% expected

Payout Ratio: 34.78%

5-Year Dividend Growth: 9.26%

Market Capitalization: 156.08 Billion

Cash and Short Term Investments: 12.27 Billion

Long-Term Debt: 12.68 Billion

Cash flow from Operations: 9.5 Billion

CAPEX: 2.2 Billion



All pricing measures decreased over the past ten years. Price to earnings fell by 55%, price to book ratio slipped in total 53%, price to sales ratio decreased 28% and price to cash flow ratio is finally 36% lower than 10 years before.

Long-Term Fundamentals and Dividends:



The company had a strong track record. Sales of Coca-Cola rose 100% over the past decade. Earnings before taxes and interest (EBIT) increased by 151% and net income finally grew in total 196%. Due to share buybacks, earnings per share rose 216%.



Coca-Cola paid dividends since 1893. The company raised dividends for 48 consecutive years. The next Ex-Div. Date is June 13, 2011. Payments will be received on July 01, 2011. The next dividend is the second quarter dividend at the same rate ($0.47).





Competitors:

The Coca-Cola Company has with PepsiCo (PEP) a big rival in North America and abroad. Additional national competitors are Hansen Natural (HANS) and Dr. Pepper Snapple Group (DPS).

Consensus Developments:

According to Reuters, 18 analysts covered Coca-Cola and submitted an outperform rating with a mean target price of $75.43 as of May 13, 2011. This value represents an upside of 10.6% compared to the close end price of May 13, 2011. The mean target price estimate increased over the past 18 months by 23.8%.

Related Stock Ticker Symbols:KO, PEP, HANS, DPS

Full Disclosure: Long Coca-Cola, not intended to buy any stocks or obligations of the company within the next 72 hours. I don’t receive any compensation by the company.

Related Articles:

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• 8 High-Yield Stocks From Consumer Products Sector

• 20 Consumer Goods Stocks With Highest Dividend Yield

• 14 High Yielding Processed Packaged Goods Stocks

• 4 Major Diversified Food Companies For Your Portfolio

Disclaimer:

The presented data and material is for informational purposes only. Despite careful research, we cannot guarantee the truth of the figures. The past operational performance as well as the stock performance and dividend developments does not guarantee a positive future performance. Please, before you buy or sell any stocks, you should do your own research and reach your own conclusion.

About the author:
I am a private full time investor searching for investments and investment ideas.

http://www.gurufocus.com/news/133348/longterm-financial-analysis-of-cocacola

Why I lost money in some stocks in the stock market?

Why I lost money in some stocks in the stock market?

Buy low, sell high = GAIN
Buy high, sell low = LOSS

Factors to consider:
Price
Company

Price
If you can have the intellect and the emotional control to buy low, you have already WON most of the time, with a high probability. (I often quote, "many a sin is forgiven when you manage to buy at a low price.)

To be able to buy a share at a low price, means you have the ability to value this share. Valuation maybe based on assets, cash flow or multiples of earnings, book etc. Do not over-project growth in your valuation. You can only be approximately right in your valuation. This is alright, as long as you are not absolutely wrong in your valuation. There are also many qualitative factors that cannot be quantified in the valuation.

At a certain price, the stock is undervalued, at another it is fairly priced or overvalued. The ability to value a stock is the most important knowledge of a value investor.


Company
Choosing the right company to invest into is very important for someone who has the buy and hold for the long term philosophy. Choose the company in a business with durable competitive advantage. Its business moat is so huge and deep, that competitors find hard to erode their growth and profits over the long haul. Therefore, looking at the quality of the company's business and the management (integrity, intelligence and hard working) are important here.

Even the best company can fail. Look at the Dow Jones Index of 30 companies over the century. The index is made up of the best companies of each period. Many have faded or disappeared into oblivion. Of the 30 original companies at the start of the last century, only 1 or 2 of these are still in the Dow Jones index.

So, you may lose money when your high quality company with good management that you bought at undervalued price deteriorated in its business fundamentals permanently. In this situation, you will need to sell urgently to minimise your loss.


Conclusion
If you have done the hard work in selecting good quality company and valuing this company, the chances of losing money are few. From the above discussion, essentially, these are: (1) buying a poor quality company with no durable competitive advantage, and (2) paying a high price for your purchase.

This approach essentially means focusing on valuation and the company, and is not influenced by the market or herd mentality. The market is there to be taken advantage of, when the prices are right to buy or to sell, and otherwise for most of the time, can be ignored.