Analysis of the Glove Sector.
https://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdDM1ZFNXQ2ZPRHBYcFJjd1lDNFVYdFE&hl=en&output=html
The top 6 glove companies are priced at RM 8.7 billion in market capitalization. They generated a total of about RM 766 million in earnings the last 12 months.
Tuesday, 5 October 2010
'We are going to have higher prices for commodities'
'We are going to have higher prices for commodities'
Wheat, sugar, cotton and gold are arousing interest from investors across the globe.
By Paul Farrow, Personal Finance Editor
Published: 7:00AM BST 02 Oct 2010
Sugar prices are at a seven-month high
It wasn't so long ago that investors were extolling the virtues of hedge funds, private equity, currency swaps and infrastructure. But these newfangled alternatives have been knocked off their perch by investments that were being traded by City gents wearing tails and top hats more than a century ago.
Wheat, sugar, cotton and perhaps the oldest of all investments, gold, are grabbing the headlines and generating interest from sophisticated investors across the globe. The reason is rising prices. This week, sugar climbed to a seven-month high on concern that adverse weather will curb output in Brazil, the world's biggest exporter, and Australia, the third-largest.
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Should investors join the party in Brazil?
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Gold hits another record high of $1,308
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Paragon raises £200m for buy-to-let lending
Cotton extended its rally to its highest price in more than 15 years, wheat prices have risen by 60pc over the past 12 months, while gold continues to attract investors worried about a global double-dip recession and its price hovers around a record high of $1,300 an ounce.
For many private investors investing in commodities is a novelty. Yet research published this week by JP Morgan suggests that people who do not have any exposure to commodities within their investment portfolios could be missing a trick or two.
"Commodities are the oldest asset class known to man, but perhaps one of the least understood today," said Rumi Masih, the global head of the strategic investment advisory group at JPM. "You can go back even further – one of the first investors known to profit from a commodity trade was the pre-Socratic Greek philosopher Thales (pictured), who, as Aristotle recalls, invested in oil presses near the ancient Ionian cities of Chios and Miletus early in the growing season one year and thus reaped the benefits of a bumper crop of olives."
Mr Masih's research found that commodities were a hedge against rising inflation and improved returns while reducing volatility. Commodities outperformed equities and bonds when economies were in a late expansion phase by 10pc and marginally outperformed when economies were in the early expansion phase just after a recession. The only time they lagged other assets was towards the end of a recession.
Even though the demand for metals has been rising, supply is tight – no new mine shafts have been opened in 20 years worldwide, according to JPM. The last iron ore smelter to be built in the United States dates back to 1969.
"The case for including commodities as one component of a diversified portfolio has become stronger in the wake of the 2008 financial crisis and amid the economic ascendancy of China," Mr Masih said. "There are significant supply constraints on commodities amid burgeoning demand for them, not only among developed nations and China but also from a broader swath of the developing world. This includes emerging economies in places as far afield as Africa, Asia and South America."
JP Morgan is not the only commodity bull. Commodity analysts at Standard Chartered estimate that nearly $200bn (£130bn) worth of investment projects were suspended as a result of the financial crisis in iron ore, copper, and coal alone.
Among soft commodities, particularly grains, disruptions to climatic patterns have again tightened supply. "This combination of medium-term demand-side pressure against the background of a limited short-term supply response in many commodities looks set to keep commodity prices supported," said Philip Poole, the global head of macro and investment strategy at HSBC Global Asset Management.
The question for investors is which commodities to buy and whether they are arriving too late to the party – as the graphs show that commodities have recovered from their 2008 falls. Commodities are volatile beasts – just ask investors who piled into oil stocks as crude marched towards $147 a barrel in 2008, only to come down with a jolt as the price plummeted to $60. Investors who bought exchange-traded funds following sugar, natural gas, zinc, cocoa and lead prices have seen the value of their investments fall by 10pc or more.
Gold continues to win favour and, with the economic uncertainty set to linger, demand will be strong. The question is whether the price can go much higher. There are concerns that cotton may not be rich pickings. Connor Noonan, a commodities analyst at asset management house Castlestone, is bullish on the prospects for cotton over the medium term, but he expects a lot of volatility, "with prices easing over the next month".
Evercore Pan Asset invests in commodity ETFs, but at present owns only two – ETF Securities Agriculture and iShares Timber. And it avoids gold. "We sold out of a general, 'hard' commodity ETF, which was a play on oil earlier in the year," said Christopher Aldous, the chief executive. "We have no way of understanding its movement. Its prices seem to be driven by speculators and we have missed out on the price rises – and we are not going to start chasing it now."
Legendary investor Jim Rogers, who set up one of the world's first hedge funds with George Soros in the Seventies, is also an advocate of commodities over the long term – although he warns investors not to simply buy those that have shot up in price in recent months. He recommends commodities that have not moved up that much. "Buy silver rather than gold, for instance, if you want to buy precious metal," he said. "I would like to buy coffee too. But there is still a huge potential [in general]. If governments are going to continue to print money, we are going to have higher prices for commodities."
http://www.telegraph.co.uk/finance/personalfinance/8036344/We-are-going-to-have-higher-prices-for-commodities.html
Wheat, sugar, cotton and gold are arousing interest from investors across the globe.
By Paul Farrow, Personal Finance Editor
Published: 7:00AM BST 02 Oct 2010
Sugar prices are at a seven-month high
It wasn't so long ago that investors were extolling the virtues of hedge funds, private equity, currency swaps and infrastructure. But these newfangled alternatives have been knocked off their perch by investments that were being traded by City gents wearing tails and top hats more than a century ago.
Wheat, sugar, cotton and perhaps the oldest of all investments, gold, are grabbing the headlines and generating interest from sophisticated investors across the globe. The reason is rising prices. This week, sugar climbed to a seven-month high on concern that adverse weather will curb output in Brazil, the world's biggest exporter, and Australia, the third-largest.
Related Articles
*
"Monday was a punch in the gut"
*
Funds that turn on the income tap
*
Should investors join the party in Brazil?
*
BP to restart dividend 'within months'
*
Gold hits another record high of $1,308
*
Paragon raises £200m for buy-to-let lending
Cotton extended its rally to its highest price in more than 15 years, wheat prices have risen by 60pc over the past 12 months, while gold continues to attract investors worried about a global double-dip recession and its price hovers around a record high of $1,300 an ounce.
For many private investors investing in commodities is a novelty. Yet research published this week by JP Morgan suggests that people who do not have any exposure to commodities within their investment portfolios could be missing a trick or two.
"Commodities are the oldest asset class known to man, but perhaps one of the least understood today," said Rumi Masih, the global head of the strategic investment advisory group at JPM. "You can go back even further – one of the first investors known to profit from a commodity trade was the pre-Socratic Greek philosopher Thales (pictured), who, as Aristotle recalls, invested in oil presses near the ancient Ionian cities of Chios and Miletus early in the growing season one year and thus reaped the benefits of a bumper crop of olives."
Mr Masih's research found that commodities were a hedge against rising inflation and improved returns while reducing volatility. Commodities outperformed equities and bonds when economies were in a late expansion phase by 10pc and marginally outperformed when economies were in the early expansion phase just after a recession. The only time they lagged other assets was towards the end of a recession.
The commodity recovery story has been triggered by the supply and demand effect – quite simply, demand for many commodities outstrips supply as giant economies such as India and China march forward.
Even though the demand for metals has been rising, supply is tight – no new mine shafts have been opened in 20 years worldwide, according to JPM. The last iron ore smelter to be built in the United States dates back to 1969.
"The case for including commodities as one component of a diversified portfolio has become stronger in the wake of the 2008 financial crisis and amid the economic ascendancy of China," Mr Masih said. "There are significant supply constraints on commodities amid burgeoning demand for them, not only among developed nations and China but also from a broader swath of the developing world. This includes emerging economies in places as far afield as Africa, Asia and South America."
JP Morgan is not the only commodity bull. Commodity analysts at Standard Chartered estimate that nearly $200bn (£130bn) worth of investment projects were suspended as a result of the financial crisis in iron ore, copper, and coal alone.
Among soft commodities, particularly grains, disruptions to climatic patterns have again tightened supply. "This combination of medium-term demand-side pressure against the background of a limited short-term supply response in many commodities looks set to keep commodity prices supported," said Philip Poole, the global head of macro and investment strategy at HSBC Global Asset Management.
The question for investors is which commodities to buy and whether they are arriving too late to the party – as the graphs show that commodities have recovered from their 2008 falls. Commodities are volatile beasts – just ask investors who piled into oil stocks as crude marched towards $147 a barrel in 2008, only to come down with a jolt as the price plummeted to $60. Investors who bought exchange-traded funds following sugar, natural gas, zinc, cocoa and lead prices have seen the value of their investments fall by 10pc or more.
Evercore Pan Asset invests in commodity ETFs, but at present owns only two – ETF Securities Agriculture and iShares Timber. And it avoids gold. "We sold out of a general, 'hard' commodity ETF, which was a play on oil earlier in the year," said Christopher Aldous, the chief executive. "We have no way of understanding its movement. Its prices seem to be driven by speculators and we have missed out on the price rises – and we are not going to start chasing it now."
Legendary investor Jim Rogers, who set up one of the world's first hedge funds with George Soros in the Seventies, is also an advocate of commodities over the long term – although he warns investors not to simply buy those that have shot up in price in recent months. He recommends commodities that have not moved up that much. "Buy silver rather than gold, for instance, if you want to buy precious metal," he said. "I would like to buy coffee too. But there is still a huge potential [in general]. If governments are going to continue to print money, we are going to have higher prices for commodities."
http://www.telegraph.co.uk/finance/personalfinance/8036344/We-are-going-to-have-higher-prices-for-commodities.html
IMF admits that the West is stuck in near depression
If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.
By Ambrose Evans-Pritchard
Published: 8:00PM BST 03 Oct 2010
Spain, trapped in EMU at overvalued exchange rates, had a general strike last week
The IMF report – "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation" – implicitly argues that austerity will do more damage than so far admitted.
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IMF warns pound could be at risk from uncertainty
"Not all countries can reduce the value of their currency and increase net exports at the same time," it said. Nobel economist Joe Stiglitz goes further, warning that damn may break altogether in parts of Europe, setting off a "death spiral".
The Fund said damage also doubles for states that cannot cut rates or devalue – think Spain, Portugal, Ireland, Greece, and Italy, all trapped in EMU at overvalued exchange rates.
"A fall in the value of the currency plays a key role in softening the impact. The result is consistent with standard Mundell-Fleming theory that fiscal multipliers are larger in economies with fixed exchange rate regimes." Exactly.
Let us avoid the crude claim that spending cuts in a slump are wicked or self-defeating. Britain did exactly that after leaving the Gold Standard in 1931, and the ERM in 1992, both times with success. A liberated Bank of England was able to cut interest rates. Sterling fell. The key point is whether you can offset the budget cuts.
But by the same token, it is fallacious to cite the austerity cures of Canada, and Scandinavia in the 1990s – as the European Central Bank does – as evidence that budget cuts pave the way for recovery. These countries were able export to a booming world. They could lower interest rates, and were small enough to carry out `beggar-thy-neighbour' devaluations without attracting much notice. We were not then in our New World Order of "currency wars".
Be that as it may, it is clear that Southern Europe will not recover for a long time. Portuguese premier Jose Socrates has just unveiled his latest austerity package. He has capitulated on wage cuts. There will be a rise in VAT from 21pc to 23pc, and a freeze in pensions and projects. The trade unions have called a general strike for next month.
Mr Socrates has already lost his socialist majority, leaking part of his base to the hard-Left Bloco. He must rely on conservative acquiescence – not yet forthcoming. Citigroup said the fiscal squeeze will be 3pc of GDP next year. So under the IMF's schema, this implies a 3pc loss in growth. Since there wasn't any growth to speak off, this means contraction.
Spain had a general strike last week. Elena Salgado, the defiant finance minister, refused to blink. "Economic policy will be maintained," she said. There will be another bitter budget in 2011, cutting ministry spending by 16pc.
Mrs Salgado has ruled out any risk of a double-dip. But the Bank of Spain fears the economy may contract in the third quarter.
The rest of EMU is not going to help. France and Italy are cutting 1.6pc GDP next year. The German squeeze starts in earnest in 2011.
Given the risks, you would expect the ECB to stand by with monetary stimulus. But no, while the central banks of the US, the UK, and Japan are worried enough to mull a fresh blast of money, Frankfurt is talking up its exit strategy. It risks repeating the error of July 2008 when it raised rates in the teeth of the crisis.
The ECB is winding down its lending facilities for eurozone banks, regardless of the danger for Spanish, Portuguese, Irish, and Greek banks that have borrowed €362bn, or the danger for their governments. These banks have used the money to buy state bonds, playing the internal "carry trade" for extra yield. In other words, the ECB is chipping at the prop that holds up Southern Europe.
One has to conclude that the ECB is washing its hands of the PIGS, dumping the problem onto the fiscal authorities through the EU's €440bn rescue fund. That is courting fate.
Who believes that the EMU Alpinistas roped together on the North Face of the Eiger are strong enough to hold the rope if one after another loses its freezing grip on the ice?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8039789/IMF-admits-that-the-West-is-stuck-in-near-depression.html
By Ambrose Evans-Pritchard
Published: 8:00PM BST 03 Oct 2010
Spain, trapped in EMU at overvalued exchange rates, had a general strike last week
The IMF report – "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation" – implicitly argues that austerity will do more damage than so far admitted.
Normally, tightening of 1pc of GDP in one country leads to a 0.5pc loss of growth after two years. It is another story when half the globe is in trouble and tightening in lockstep. Lost growth would be double if interest rates are already zero, and if everybody cuts spending at once.
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FTSE 100 falls 2.7pc after S&P warns on UK debt
*
IMF warns over parallels to Great Depression
*
Hungary's IMF revolt augurs ill for Greece
*
Stress-testing Europe's banks won't stave off a deflationary vortex
*
Fiscal ruin of the Western world beckons
*
IMF warns pound could be at risk from uncertainty
The Fund said damage also doubles for states that cannot cut rates or devalue – think Spain, Portugal, Ireland, Greece, and Italy, all trapped in EMU at overvalued exchange rates.
"A fall in the value of the currency plays a key role in softening the impact. The result is consistent with standard Mundell-Fleming theory that fiscal multipliers are larger in economies with fixed exchange rate regimes." Exactly.
But by the same token, it is fallacious to cite the austerity cures of Canada, and Scandinavia in the 1990s – as the European Central Bank does – as evidence that budget cuts pave the way for recovery. These countries were able export to a booming world. They could lower interest rates, and were small enough to carry out `beggar-thy-neighbour' devaluations without attracting much notice. We were not then in our New World Order of "currency wars".
Be that as it may, it is clear that Southern Europe will not recover for a long time. Portuguese premier Jose Socrates has just unveiled his latest austerity package. He has capitulated on wage cuts. There will be a rise in VAT from 21pc to 23pc, and a freeze in pensions and projects. The trade unions have called a general strike for next month.
Mr Socrates has already lost his socialist majority, leaking part of his base to the hard-Left Bloco. He must rely on conservative acquiescence – not yet forthcoming. Citigroup said the fiscal squeeze will be 3pc of GDP next year. So under the IMF's schema, this implies a 3pc loss in growth. Since there wasn't any growth to speak off, this means contraction.
Spain had a general strike last week. Elena Salgado, the defiant finance minister, refused to blink. "Economic policy will be maintained," she said. There will be another bitter budget in 2011, cutting ministry spending by 16pc.
Mrs Salgado has ruled out any risk of a double-dip. But the Bank of Spain fears the economy may contract in the third quarter.
The lesson of the 1930s is that politics can turn ugly as slumps drag into a third year, and voters lose faith in the promised recovery. Unemployment is already 20pc in Spain. If Mrs Salgado is wrong, Spanish society will face a stress test.
We are seeing a pattern – first in Ireland, now in Greece and Portugal – where cuts are failing to close the deficit as fast as hoped. Austerity itself is eroding tax revenues. Countries are chasing their own tail.
The rest of EMU is not going to help. France and Italy are cutting 1.6pc GDP next year. The German squeeze starts in earnest in 2011.
Given the risks, you would expect the ECB to stand by with monetary stimulus. But no, while the central banks of the US, the UK, and Japan are worried enough to mull a fresh blast of money, Frankfurt is talking up its exit strategy. It risks repeating the error of July 2008 when it raised rates in the teeth of the crisis.
The ECB is winding down its lending facilities for eurozone banks, regardless of the danger for Spanish, Portuguese, Irish, and Greek banks that have borrowed €362bn, or the danger for their governments. These banks have used the money to buy state bonds, playing the internal "carry trade" for extra yield. In other words, the ECB is chipping at the prop that holds up Southern Europe.
One has to conclude that the ECB is washing its hands of the PIGS, dumping the problem onto the fiscal authorities through the EU's €440bn rescue fund. That is courting fate.
Who believes that the EMU Alpinistas roped together on the North Face of the Eiger are strong enough to hold the rope if one after another loses its freezing grip on the ice?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8039789/IMF-admits-that-the-West-is-stuck-in-near-depression.html
Investors see silver lining in economic gloom
Investors see silver lining in economic gloom
Forget gold. Silver, the yellow metal's poor cousin, has been the investment of the year.
By Garry White
Published: 7:00PM BST 03 Oct 2010
The price of silver is at a 30-year high
Silver prices have risen 31pc in 2010 to a 30-year high, outperforming gold, equities and most base metals. On Tuesday, the gold-silver ratio dropped below 60 for the first time in 11 months.
The gold-silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. The silver price is currently $22.11 and the gold price is $1,317, so the silver ratio now stands at 59.6.
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The ratio varies wildly. In 1970, it was about 20 and it peaked at just under 100 in 1991. The average is around about 40 – and that is the key to any silver bull's argument. Historically, it appears that silver is undervalued in relation to gold, they argue.
In 2010, the ratio has been as high as 72, recorded in February, and is now just below 60. Many believe it could have further to fall.
Most analysts are not that bullish – with a price of about $24 targeted for next year. There are some, however, that believe the silver price will become much more lustrous over the coming years.
James Turk, who founded bullion dealer GoldMoney in 2001 and manages $1.2bn (£758m) of assets, thinks prices could hit $50 by the end of next year, but accepts that there will be volatility along the way.
Mr Turk believes quantitative easing will devalue currencies and send precious metals much higher.
"Just pick up your newspaper to see what central banks are doing to destroy currencies," Mr Turk says. "Unlike the 1970s, there are no safe havens from currency debasement – such as the deutschemark."
Mr Turk is more bullish on silver than gold. "The problem is the volatility," Mr Turk says. "Essentially it is a cheap form of gold, but it is not for everyone because of the volatility."
Suki Cooper, a precious metals analyst at Barclays Capital is not so bullish. She has an average target for silver next year of $22.2, expecting the metal to peak in the second quarter at an average price of $23.7.
"Silver mine supply is still growing and industrial demand – although improving – remains relatively weak. Silver is still in surplus, but it has benefited form safe-haven buying," Ms Cooper says. "The price could fall sharply if investor interest wanes."
Already investor interest this year is much lower than last year, which is surprising given the recent bull run.
In the current year to date investment inflows into silver have amounted to 1,377 tonnes. In the nine-months to September 2009 it was 2,942 tonnes – with full year 2009 inflows at 4,112 tonnes, Ms Cooper notes.
However, Mr Turk remains unbowed. "I expect the gold-silver ratio to fall back below 23 over the next three-to-five years," he says, despite most analysts thinking this is unlikely.
Precious metals consultancy GFMS also believes that there is a risk of a sharp fall in the silver price.
Silver has risen on gold's coat-tails, but it is also used in industrial processes so it has risen on hopes of a recovery in the global economy too.
Philip Klapwijk, GFMS's chairman, said last week that the absence of an improvement in the economy will be a negative for the silver price.
"If you think gold will continue to advance in the medium term, then why wouldn't silver necessarily follow suit? One reason could be that if economic prospects take a bath, that side of the argument for silver becomes a lot weaker," Mr Klapwijk said.
"In the current situation, silver is benefiting from both general optimism on industrial production in emerging markets, and the investor interest in safe-haven assets like gold," he added.
All of this implies that, on a fundamental basis, silver is looking more toppy than gold at the moment after its recent outpeformance.
Instead of chasing the price of the physical metal, investors may want to invest in silver mining companies that are expanding production, such as the FTSE 100 group Fresnillo.
In the first half of this year, the group's cash cost of production was just $3.58 an ounce – one of the lowest in the industry. It aims to bring on line one new mine or expansion per year until 2014.
Of course the share price will be hit if the silver price falls, but the company will remain highly profitable. But cautious investors may want to wait for a dip before they pile in.
Quantitative easing could boost oil prices
Oil prices could rise by more than a quarter if there is more QE – even if demand stays weak, according to new analysis from Bank of America Merrill Lynch.
The broker's economists expect the Federal Reserve to expand its easing programme by $500bn (£317bn) to $750bn as early as the first quarter of 2011.
If the global money supply expanded at the same pace as this, gold would move 15pc higher and oil prices by 26pc, the broker argues.
This could bring Brent crude oil prices up from an average of $78 a barrel this year to an average of $83 a barrel next year irrespective of demand, Merrill said.
COPPER for delivery in three months hit a two year high on the London Metals Exchange on Friday, following upbeat manufacturing data from China.
The price rose to $8,078 (£5,101) a tonne, the highest level since August 1 2008, but prices eased in the afternoon.
The purchasing managers index rose to 53.8 in September from 51.7 in August, the China Federation of Logistics and Purchasing said. A figure above 50 indicates expansion.
http://www.telegraph.co.uk/finance/markets/8039595/Investors-see-silver-lining-in-economic-gloom.html
Forget gold. Silver, the yellow metal's poor cousin, has been the investment of the year.
By Garry White
Published: 7:00PM BST 03 Oct 2010
The price of silver is at a 30-year high
Silver prices have risen 31pc in 2010 to a 30-year high, outperforming gold, equities and most base metals. On Tuesday, the gold-silver ratio dropped below 60 for the first time in 11 months.
The gold-silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. The silver price is currently $22.11 and the gold price is $1,317, so the silver ratio now stands at 59.6.
Related Articles
*
FTSE marks time as Asian shares hit two-year highs
*
Will copper outshine gold and silver?
*
In the pursuit of easy money
*
Gold: 'It's a bargain at $930 an ounce'
*
Is silver the new gold?
*
Gold recovers as shares lose ground
The ratio varies wildly. In 1970, it was about 20 and it peaked at just under 100 in 1991. The average is around about 40 – and that is the key to any silver bull's argument. Historically, it appears that silver is undervalued in relation to gold, they argue.
In 2010, the ratio has been as high as 72, recorded in February, and is now just below 60. Many believe it could have further to fall.
The reasons for gold's outperformance are well documented – inflationary fears, currency woes and safe-haven demand – but does the declining ratio towards its average mean that silver is going to continue with its charge forward?
Most analysts are not that bullish – with a price of about $24 targeted for next year. There are some, however, that believe the silver price will become much more lustrous over the coming years.
James Turk, who founded bullion dealer GoldMoney in 2001 and manages $1.2bn (£758m) of assets, thinks prices could hit $50 by the end of next year, but accepts that there will be volatility along the way.
Mr Turk believes quantitative easing will devalue currencies and send precious metals much higher.
"Just pick up your newspaper to see what central banks are doing to destroy currencies," Mr Turk says. "Unlike the 1970s, there are no safe havens from currency debasement – such as the deutschemark."
Mr Turk is more bullish on silver than gold. "The problem is the volatility," Mr Turk says. "Essentially it is a cheap form of gold, but it is not for everyone because of the volatility."
He says investors should always buy the physical metal and not paper and advises a portfolio of one-third silver to one-third gold.
Suki Cooper, a precious metals analyst at Barclays Capital is not so bullish. She has an average target for silver next year of $22.2, expecting the metal to peak in the second quarter at an average price of $23.7.
"Silver mine supply is still growing and industrial demand – although improving – remains relatively weak. Silver is still in surplus, but it has benefited form safe-haven buying," Ms Cooper says. "The price could fall sharply if investor interest wanes."
Already investor interest this year is much lower than last year, which is surprising given the recent bull run.
In the current year to date investment inflows into silver have amounted to 1,377 tonnes. In the nine-months to September 2009 it was 2,942 tonnes – with full year 2009 inflows at 4,112 tonnes, Ms Cooper notes.
However, Mr Turk remains unbowed. "I expect the gold-silver ratio to fall back below 23 over the next three-to-five years," he says, despite most analysts thinking this is unlikely.
Precious metals consultancy GFMS also believes that there is a risk of a sharp fall in the silver price.
Silver has risen on gold's coat-tails, but it is also used in industrial processes so it has risen on hopes of a recovery in the global economy too.
Philip Klapwijk, GFMS's chairman, said last week that the absence of an improvement in the economy will be a negative for the silver price.
"If you think gold will continue to advance in the medium term, then why wouldn't silver necessarily follow suit? One reason could be that if economic prospects take a bath, that side of the argument for silver becomes a lot weaker," Mr Klapwijk said.
"In the current situation, silver is benefiting from both general optimism on industrial production in emerging markets, and the investor interest in safe-haven assets like gold," he added.
All of this implies that, on a fundamental basis, silver is looking more toppy than gold at the moment after its recent outpeformance.
Instead of chasing the price of the physical metal, investors may want to invest in silver mining companies that are expanding production, such as the FTSE 100 group Fresnillo.
In the first half of this year, the group's cash cost of production was just $3.58 an ounce – one of the lowest in the industry. It aims to bring on line one new mine or expansion per year until 2014.
Of course the share price will be hit if the silver price falls, but the company will remain highly profitable. But cautious investors may want to wait for a dip before they pile in.
Quantitative easing could boost oil prices
Oil prices could rise by more than a quarter if there is more QE – even if demand stays weak, according to new analysis from Bank of America Merrill Lynch.
The broker's economists expect the Federal Reserve to expand its easing programme by $500bn (£317bn) to $750bn as early as the first quarter of 2011.
If the global money supply expanded at the same pace as this, gold would move 15pc higher and oil prices by 26pc, the broker argues.
This could bring Brent crude oil prices up from an average of $78 a barrel this year to an average of $83 a barrel next year irrespective of demand, Merrill said.
COPPER for delivery in three months hit a two year high on the London Metals Exchange on Friday, following upbeat manufacturing data from China.
The price rose to $8,078 (£5,101) a tonne, the highest level since August 1 2008, but prices eased in the afternoon.
The purchasing managers index rose to 53.8 in September from 51.7 in August, the China Federation of Logistics and Purchasing said. A figure above 50 indicates expansion.
http://www.telegraph.co.uk/finance/markets/8039595/Investors-see-silver-lining-in-economic-gloom.html
Now, super rich look at alternative asset classes
CHENNAI: Equities, mutual funds and FDs can longer satiate the super rich. Instead, they are channelling their wealth into start-ups, unlisted companies, realty-focused private equity funds, gold ETFs and art. The burgeoning breed of HNIS, or wealthy people, are exploring and investing in a whole new range of asset classes.
According to a recent report by Karvy Private Wealth, the wealth management arm of the Karvy Group, individual wealth in India stands at Rs 73 lakh crore and this is expected to double to Rs 144 lakh crore within the next three years. While the bulk of investment is still in direct equity (31.1%) and fixed deposits and bonds (30.3%), private bankers said there is a growing preference for alternative investments. Most HNIs have ridden on the mutual fund and equity wave as they went into the market early. They are now looking at different asset avenues, said Nitin Rao, executive vice-president (private banking group and third party products), HDFC Bank.
HNIs are classified as people with an investible surplus of at least $1 million . Over the years, the profile of HNIs has also rapidly undergone a change.
"We believe that individuals in India are under-invested in alternative assets. We believe this will be a huge area of investments in the next decade. PE, real estate funds, realty investment trusts and global investments are expected to be popular among HNIs," said the Karvy report.
Even with debt and equity, HNIs are exploring options that are offshoots in such classes. "They are looking at investing in unlisted equities, PE funds and in debt," said Rajmohan Krishnan, senior V-P, Kotak Wealth Management.
Read more: Now, super rich look at alternative asset classes - The Times of India http://timesofindia.indiatimes.com/business/india-business/Now-super-rich-look-at-alternative-asset-classes/articleshow/6680959.cms#ixzz11R1yExbE
According to a recent report by Karvy Private Wealth, the wealth management arm of the Karvy Group, individual wealth in India stands at Rs 73 lakh crore and this is expected to double to Rs 144 lakh crore within the next three years. While the bulk of investment is still in direct equity (31.1%) and fixed deposits and bonds (30.3%), private bankers said there is a growing preference for alternative investments. Most HNIs have ridden on the mutual fund and equity wave as they went into the market early. They are now looking at different asset avenues, said Nitin Rao, executive vice-president (private banking group and third party products), HDFC Bank.
HNIs are classified as people with an investible surplus of at least $1 million . Over the years, the profile of HNIs has also rapidly undergone a change.
- Older HNIs largely comprised members drawn from business families.
- Today, nearly 45% of private clients are first-generation entrepreneurs or self-employed, 15% comprise professionals, 20% are senior salaried executives, 5% are young celebrities, with property inheritors accounting for remainder.
"We believe that individuals in India are under-invested in alternative assets. We believe this will be a huge area of investments in the next decade. PE, real estate funds, realty investment trusts and global investments are expected to be popular among HNIs," said the Karvy report.
Even with debt and equity, HNIs are exploring options that are offshoots in such classes. "They are looking at investing in unlisted equities, PE funds and in debt," said Rajmohan Krishnan, senior V-P, Kotak Wealth Management.
Read more: Now, super rich look at alternative asset classes - The Times of India http://timesofindia.indiatimes.com/business/india-business/Now-super-rich-look-at-alternative-asset-classes/articleshow/6680959.cms#ixzz11R1yExbE
Trigger happy: Time your exit right
The Times of India
With the markets rising at a fast clip, investors are wondering which is the right time to exit. The BSE sensex has swung both ways in the past 33 months — soaring past 21,000 points in January 2008 before falling to 8,160 points in March 2009, only to rebound to 20,000 now. Taking these wild swings into account, it's only natural to look for good exit strategies.
Unless the investor books profits at appropriate intervals, there is a real risk of missing the gains from market upswings. Many retail investors do not book their profits on time, especially when the markets are on a roll. The trigger option offered by several fund houses is an effective tool for such investors as it allows them to set targets for redemptions when the value is above the pre-determined levels.
"Many investors would have set targets either by way of market (levels) or investment objectives. Triggers act as a proxy for people to take action," says Kenneth Serrao, head (marketing and products), Edelweiss Mutual Fund. "They (triggers) allow you to take advantage of something when you are not prepared for it."
"Triggers work well in both range-bound and volatile markets. Passive investors often don't make much money in range-bound markets," says Bhupinder Sethi, head (equities, offshore funds and advisory), Tata MF. With triggers, one can keep pocketing the gains regularly, say experts.
"If you regularly book profits, you would be able to invest even in a downturn," says Sethi. Investors, who continue to sit on profits, would not have enough incremental money to put in during deep corrections, he says.
One can choose from a whole range of triggers— both standard and customised, — with some fund houses offering up to 15 trigger options. Triggers based on market value, net asset value, index and date, stop-loss and capital gains and those that allow a certain amount to be transferred to debt funds are the most widely used triggers. Under the mandatory trigger option offered by fund houses, investments are shifted from equity to debt schemes once the fund achieves the pre-determined capital appreciation. However, if you exercise the trigger option for an equity MF investment that is less than a year old, it would attract a 15% capital gains tax. To overcome this problem the investor can choose the dividend trigger option where the gains are tax-free.
But the gains can be taken out only once in a quarter. But in a secular bull market, a buy and hold strategy would work better than using triggers for short-term gains.
Read more: Trigger happy: Time your exit right - The Times of India http://timesofindia.indiatimes.com/business/india-business/Trigger-happy-Time-your-exit-right/articleshow/6680971.cms#ixzz11R0OZVXK
With the markets rising at a fast clip, investors are wondering which is the right time to exit. The BSE sensex has swung both ways in the past 33 months — soaring past 21,000 points in January 2008 before falling to 8,160 points in March 2009, only to rebound to 20,000 now. Taking these wild swings into account, it's only natural to look for good exit strategies.
Unless the investor books profits at appropriate intervals, there is a real risk of missing the gains from market upswings. Many retail investors do not book their profits on time, especially when the markets are on a roll. The trigger option offered by several fund houses is an effective tool for such investors as it allows them to set targets for redemptions when the value is above the pre-determined levels.
"Many investors would have set targets either by way of market (levels) or investment objectives. Triggers act as a proxy for people to take action," says Kenneth Serrao, head (marketing and products), Edelweiss Mutual Fund. "They (triggers) allow you to take advantage of something when you are not prepared for it."
"Triggers work well in both range-bound and volatile markets. Passive investors often don't make much money in range-bound markets," says Bhupinder Sethi, head (equities, offshore funds and advisory), Tata MF. With triggers, one can keep pocketing the gains regularly, say experts.
"If you regularly book profits, you would be able to invest even in a downturn," says Sethi. Investors, who continue to sit on profits, would not have enough incremental money to put in during deep corrections, he says.
One can choose from a whole range of triggers— both standard and customised, — with some fund houses offering up to 15 trigger options. Triggers based on market value, net asset value, index and date, stop-loss and capital gains and those that allow a certain amount to be transferred to debt funds are the most widely used triggers. Under the mandatory trigger option offered by fund houses, investments are shifted from equity to debt schemes once the fund achieves the pre-determined capital appreciation. However, if you exercise the trigger option for an equity MF investment that is less than a year old, it would attract a 15% capital gains tax. To overcome this problem the investor can choose the dividend trigger option where the gains are tax-free.
But the gains can be taken out only once in a quarter. But in a secular bull market, a buy and hold strategy would work better than using triggers for short-term gains.
Read more: Trigger happy: Time your exit right - The Times of India http://timesofindia.indiatimes.com/business/india-business/Trigger-happy-Time-your-exit-right/articleshow/6680971.cms#ixzz11R0OZVXK
China calls for more Asian clout in global economy
October 5, 2010 - 7:03AM
The surging economies of Asia should be granted more power in the traditionally Western-dominated global financial institutions, Chinese Premier Wen Jiabao said on Monday at the opening of the Euro-Asian summit.
The start of the two-day 48-nation meeting, set amid the high security and gilded opulence at the Belgian royal palace, underscored the Asian nations’ demands for a rebalancing of international financial structures as they lead the world out of recession.
Premier Wen stressed that Asian leaders expect Europe to relinquish some seats at the International Monetary Fund (IMF), the international lender charged with helping nations that get into currency and financial crises.
‘‘We need to improve the decision-making process and mechanisms of the international financial institutions, increase the representation and voice of developing countries, encourage wider participation,’’ Wen told the other leaders.
The Chinese premier and some other Asian leaders made it clear that Asia would start making its robust economic growth count on the global stage.
Cambodian President Hun Sen stressed the Asian economies should be recognised for leading the global economic recovery.
While demand in the EU (European Union) and US economies was once the driver of growth, it is in decline compared to demand growth in Asia.Even Germany, the economic giant of the European Union, paid tribute.
‘‘We have to thank the Asian upswing for the positive economic development,’’ German Chancellor Angela Merkel said.
Last week, the 27-nation EU said it could give up some of its power base at the IMF to emerging countries, a concession that could cost it two seats on the governing board and the right to have a European heading the Washington DC organisation, which hands out billions of US dollars around the world.
At the moment, EU countries occupy nine of the 24 seats.
‘‘The fact that Europeans show us the flexibility and willingness to negotiate is important,’’ said Rhee Chang-yong, a South Korean delegate.
‘‘For us, the IMF quota reform is very symbolic and very important,’’ he said.
South Korea will organise the Group of 20 (G20) meeting of the world’s major economies next month and expects to have an agreement then.
On Wednesday, there will also be bilateral EU summits with China and South Korea.
Overall, the nations from the two continents represent about half the world’s economic output and 60 per cent of global trade.
But, instead of Europe driving the summits, the emergence of China as a new trading juggernaut has somewhat turned the tables at the biennial meetings.
Last week, the IMF said that Asian and Latin American economies were doing well but prospects for some European countries, including Greece, remain uncertain.
On Wednesday, the EU leaders and South Korean President Lee Myung-bak will sign a free trade pact that will slash billions of dollars in industrial and agricultural duties, despite some nations’ worries that Europe’s auto industry could be hurt by a flood of cheaper cars.
The deal - the first such pact between the EU and an Asian trading partner - will begin on July 1, 2011.
Japan’s Prime Minister Naoto Kan will pursue a free trade agreement in his bilateral meetings with European leaders, said Foreign Ministry spokesman Satoru Satoh.He said Japanese business was ‘‘alarmed’’ by the EU’s deal with Seoul.
Japan feels it will be at a competitive disadvantage with South Korea, which has an agreement with the EU that threatens to take a bite out of Japanese exports, particularly of cars and televisions, he said.
While Japan is anxious for an agreement as soon as possible, he said the Europeans still lack consensus among its 27 members.
Besides the economy, Japan also has an issue with China, as both continue a diplomatic row following the arrest of a Chinese fishing boat captain whose trawler collided with Japanese patrol vessels near disputed islands.
Despite the formal opening, economic discord might also surface at the summit.
AP
http://www.smh.com.au/business/world-business/china-calls-for-more-asian-clout-in-global-economy-20101005-164p5.html
The surging economies of Asia should be granted more power in the traditionally Western-dominated global financial institutions, Chinese Premier Wen Jiabao said on Monday at the opening of the Euro-Asian summit.
The start of the two-day 48-nation meeting, set amid the high security and gilded opulence at the Belgian royal palace, underscored the Asian nations’ demands for a rebalancing of international financial structures as they lead the world out of recession.
Premier Wen stressed that Asian leaders expect Europe to relinquish some seats at the International Monetary Fund (IMF), the international lender charged with helping nations that get into currency and financial crises.
‘‘We need to improve the decision-making process and mechanisms of the international financial institutions, increase the representation and voice of developing countries, encourage wider participation,’’ Wen told the other leaders.
‘‘We must explore ways to establish a more effective global economic governance system.’’
The Chinese premier and some other Asian leaders made it clear that Asia would start making its robust economic growth count on the global stage.
Cambodian President Hun Sen stressed the Asian economies should be recognised for leading the global economic recovery.
While demand in the EU (European Union) and US economies was once the driver of growth, it is in decline compared to demand growth in Asia.Even Germany, the economic giant of the European Union, paid tribute.
‘‘We have to thank the Asian upswing for the positive economic development,’’ German Chancellor Angela Merkel said.
Because of the swing in economic momentum, the battle for seats at the IMF has become a symbolic battle ground.
Last week, the 27-nation EU said it could give up some of its power base at the IMF to emerging countries, a concession that could cost it two seats on the governing board and the right to have a European heading the Washington DC organisation, which hands out billions of US dollars around the world.
At the moment, EU countries occupy nine of the 24 seats.
‘‘The fact that Europeans show us the flexibility and willingness to negotiate is important,’’ said Rhee Chang-yong, a South Korean delegate.
‘‘For us, the IMF quota reform is very symbolic and very important,’’ he said.
South Korea will organise the Group of 20 (G20) meeting of the world’s major economies next month and expects to have an agreement then.
The leaders of 48 nations face potential clashes on market restrictions and trade surpluses.
On Wednesday, there will also be bilateral EU summits with China and South Korea.
Overall, the nations from the two continents represent about half the world’s economic output and 60 per cent of global trade.
But, instead of Europe driving the summits, the emergence of China as a new trading juggernaut has somewhat turned the tables at the biennial meetings.
Last week, the IMF said that Asian and Latin American economies were doing well but prospects for some European countries, including Greece, remain uncertain.
On Wednesday, the EU leaders and South Korean President Lee Myung-bak will sign a free trade pact that will slash billions of dollars in industrial and agricultural duties, despite some nations’ worries that Europe’s auto industry could be hurt by a flood of cheaper cars.
The deal - the first such pact between the EU and an Asian trading partner - will begin on July 1, 2011.
Japan’s Prime Minister Naoto Kan will pursue a free trade agreement in his bilateral meetings with European leaders, said Foreign Ministry spokesman Satoru Satoh.He said Japanese business was ‘‘alarmed’’ by the EU’s deal with Seoul.
Japan feels it will be at a competitive disadvantage with South Korea, which has an agreement with the EU that threatens to take a bite out of Japanese exports, particularly of cars and televisions, he said.
While Japan is anxious for an agreement as soon as possible, he said the Europeans still lack consensus among its 27 members.
Besides the economy, Japan also has an issue with China, as both continue a diplomatic row following the arrest of a Chinese fishing boat captain whose trawler collided with Japanese patrol vessels near disputed islands.
Despite the formal opening, economic discord might also surface at the summit.
Many Western nations have complained that China keeps its currency undervalued to give its exporters an unfair price advantage on international markets while at the same time China closes off its markets, keeping European businesses out.
AP
http://www.smh.com.au/business/world-business/china-calls-for-more-asian-clout-in-global-economy-20101005-164p5.html
Spectre of international trade war looms as recovery proves elusive
October 5, 2010
As world economies continue to falter, central banks are running out of options and the spectre of protectionism grows, writes Larry Elliott.
In all the comparisons between the Great Recession of the past three years and the Great Depression of the 1930s, one comforting thought for policymakers has been that there has been no return to tit-for-tat protectionism, which saw one country after another impose high tariffs to cut the dole queues.
Yet the commitment of governments this time round to keep markets open was based on the belief that recovery would be swift and sustained. If, as many now suspect, the global economy is stuck in a low-growth, high-unemployment rut, the pressures for protectionism will grow.
The former British chancellor Kenneth Clarke summed up the mood when he said in the Observer that it is hard to be ''sunnily optimistic'' about the West's economic prospects.
Despite a colossal stimulus, the recovery has been shortlived and, by historical standards, feeble. The traditional tools - cutting interest rates and spending more public money - were not enough, so have had to be supplemented by the creation of electronic money. In both the US and Britain, policymakers are canvassing the idea that more quantitative easing will be required, even though they well understand its limitations.
There is the sense of finance ministries and central banks running out of options. They cannot cut interest rates any further; there is strong resistance from both markets and voters to further fiscal stimulus, and so far quantitative easing has had a more discernible effect on asset prices than it has on the real economy.
So what is left? The answer is that countries can try to give themselves an edge by manipulating their currencies, or they can go the whole hog and put up trade barriers.
Brazil's Finance Minister, Guido Mantega, warned that an ''international currency war'' has broken out following the recent moves by Japan, South Korea and Taiwan to intervene directly in the foreign exchange markets. China has long been criticised by other nations, the US in particular, for building up massive trade surpluses by holding down the level of its currency, the renminbi.
The currencies under the most upward pressure are the yen and the euro. Why? Because the Chinese have all but pegged the renminbi to a US dollar that has been weakened by the prospect of more quantitative easing over the coming months.
But currency intervention is one thing, full-on protectionism another. The existence of the World Trade Organisation has made it more difficult to indiscriminately slap tariffs on imports. What's more, there is still a strong attachment to the concept of free trade.
The question now is whether the commitment to free trade is as deep as it seems. The round of trade liberalisation talks started in Doha almost nine years ago remain in deep freeze. Attempts to conclude the talks have run into the same problem: trade ministers talk like free traders but they act like mercantilists, seeking to extract the maximum amount of concessions for their exporters while giving away as little as possible in terms of access to their own domestic markets.
The approach taken by countries at the WTO talks also governs their thinking when it comes to steering their countries out of trouble. There are plenty of nations extolling the virtues of export-led growth, but very few keen on boosting their domestic demand so that those exports can find willing buyers.
The global imbalances between those countries running trade surpluses and those running trade deficits are almost as pronounced as they were before the crisis, and are getting wider. This is a recipe for tension, especially between Beijing and Washington.
This tension manifested itself last week when the House of Representatives passed a bill that would allow US companies to apply for duties to be put on imports from countries where the government actively weakened the currency - in other words, China.
The Senate will debate its version of the same bill after the mid-term elections next month, but it was interesting that the House bill was passed by a big majority and with considerable bipartisan support.
China responded swiftly and testily to the developments on Capitol Hill. It argued that the move would contravene WTO rules and quite deliberately tweaked its currency lower.
It is not hard to see why Beijing got the hump. It introduced the biggest fiscal stimulus (in relation to GDP) of any country and helped lift the global economy out of its trough. It can only fulfil its domestic policy goal of alleviating poverty if it can shift large numbers of people out of the fields and into the factories, and that requires a cheap currency. It has been financing the US twin deficits.
Unsurprisingly, then, its message to the Americans was clear: ''It is not smart to get on the wrong side of your bank manager, so do not mess with us.''
What happens next depends to a great extent on whether the global economy can make it through the current soft patch.
Guardian News & Media
http://www.smh.com.au/business/spectre-of-international-trade-war-looms-as-recovery-proves-elusive-20101004-164e1.html
As world economies continue to falter, central banks are running out of options and the spectre of protectionism grows, writes Larry Elliott.
In all the comparisons between the Great Recession of the past three years and the Great Depression of the 1930s, one comforting thought for policymakers has been that there has been no return to tit-for-tat protectionism, which saw one country after another impose high tariffs to cut the dole queues.
Yet the commitment of governments this time round to keep markets open was based on the belief that recovery would be swift and sustained. If, as many now suspect, the global economy is stuck in a low-growth, high-unemployment rut, the pressures for protectionism will grow.
The former British chancellor Kenneth Clarke summed up the mood when he said in the Observer that it is hard to be ''sunnily optimistic'' about the West's economic prospects.
Despite a colossal stimulus, the recovery has been shortlived and, by historical standards, feeble. The traditional tools - cutting interest rates and spending more public money - were not enough, so have had to be supplemented by the creation of electronic money. In both the US and Britain, policymakers are canvassing the idea that more quantitative easing will be required, even though they well understand its limitations.
There is the sense of finance ministries and central banks running out of options. They cannot cut interest rates any further; there is strong resistance from both markets and voters to further fiscal stimulus, and so far quantitative easing has had a more discernible effect on asset prices than it has on the real economy.
So what is left? The answer is that countries can try to give themselves an edge by manipulating their currencies, or they can go the whole hog and put up trade barriers.
Brazil's Finance Minister, Guido Mantega, warned that an ''international currency war'' has broken out following the recent moves by Japan, South Korea and Taiwan to intervene directly in the foreign exchange markets. China has long been criticised by other nations, the US in particular, for building up massive trade surpluses by holding down the level of its currency, the renminbi.
The currencies under the most upward pressure are the yen and the euro. Why? Because the Chinese have all but pegged the renminbi to a US dollar that has been weakened by the prospect of more quantitative easing over the coming months.
The question now is whether the commitment to free trade is as deep as it seems. The round of trade liberalisation talks started in Doha almost nine years ago remain in deep freeze. Attempts to conclude the talks have run into the same problem: trade ministers talk like free traders but they act like mercantilists, seeking to extract the maximum amount of concessions for their exporters while giving away as little as possible in terms of access to their own domestic markets.
The approach taken by countries at the WTO talks also governs their thinking when it comes to steering their countries out of trouble. There are plenty of nations extolling the virtues of export-led growth, but very few keen on boosting their domestic demand so that those exports can find willing buyers.
The global imbalances between those countries running trade surpluses and those running trade deficits are almost as pronounced as they were before the crisis, and are getting wider. This is a recipe for tension, especially between Beijing and Washington.
This tension manifested itself last week when the House of Representatives passed a bill that would allow US companies to apply for duties to be put on imports from countries where the government actively weakened the currency - in other words, China.
The Senate will debate its version of the same bill after the mid-term elections next month, but it was interesting that the House bill was passed by a big majority and with considerable bipartisan support.
China responded swiftly and testily to the developments on Capitol Hill. It argued that the move would contravene WTO rules and quite deliberately tweaked its currency lower.
It is not hard to see why Beijing got the hump. It introduced the biggest fiscal stimulus (in relation to GDP) of any country and helped lift the global economy out of its trough. It can only fulfil its domestic policy goal of alleviating poverty if it can shift large numbers of people out of the fields and into the factories, and that requires a cheap currency. It has been financing the US twin deficits.
Unsurprisingly, then, its message to the Americans was clear: ''It is not smart to get on the wrong side of your bank manager, so do not mess with us.''
What happens next depends to a great extent on whether the global economy can make it through the current soft patch.
But imagine that the next three months see the traditional policy tools becoming increasingly ineffective, that the slowdown intensifies and broadens, and that the Democrats get a pasting in the mid-term elections. In those circumstances, a trade war would be entirely feasible.
Guardian News & Media
http://www.smh.com.au/business/spectre-of-international-trade-war-looms-as-recovery-proves-elusive-20101004-164e1.html
Monday, 4 October 2010
Value in the context of Your Overall Portfolio
A stock's value is the sum of its future cash flows, each discounted to today's value at the base return you're aiming to make.
But that doesn't mean you'd rush straight out and buy stocks at that value - if you did, you'd only expect to make whatever return you'd factored in, and you wouldn't be leaving yourself any margin for error.
Margin of safety
To be interested in the investment, we'd have wanted to see a discount to that fair value, and it's very much a case of the more the merrier.
The larger the discount to your estimate of expected value,
- the greater the likely returns and
- the less chance you have of losing money.
So how might the margin of safety work with a stock?
Let's say your expectation is for ABC Company to pay dividends in the current year of $1.20, and that you expect this to increase forever by 6% a year.
- To get a targeted return of 10%, you'd therefore need to pay a price that provided a dividend yield of 4% (so that the yield of 4% plus its growth of 6% would equal your targeted return of 10%), which comes out at $30 ($1.20 divided by 4%, or 0.04.)
Calculations:
$1.20/4% = $30.
Next year, dividend = $1.20 x 1.06 = $1.272
Share price = $1.272/4% = $31.80
Total return = Capital gain + Dividend = ($31.80- $30) + $1.20 = $3
Total return = $3/$30 = 10%.
But that is just your estimate of a fair value for the stock. To get you interested in buying it, you'd need to see a discount to this - and the riskier the situation and the better the opportunities elsewhere, the more of a discount you'd need.
- Balancing it all up, you decide you only really find ABC Company compelling at $20.
- That would give you a 33% margin of safety, but it would also increase your dividend yield to 6% and your total expected return to 12% (the 6% yield plus the 6% growth).
The intrinsic value of $30 is also the level you might reasonably expect the stock price to return to (or 6% higher than that for each year into the future to allow for the growth) - so it also defines the capital gain you're secretly hoping to make if the price returns to the underlying value.
- The trouble is that you don't know when - or even if - the price will return to that underlying value.
- But the bigger the margin of safety and the more confident you are about it, the better your chances of capital appreciation.
- And if you're left holding the stock, a large margin of safety should at least make it a decent ride.
The price wobbles around, either side of the underlying value, and your aim is to buy when it's a good way below it.
- The further the price gets from the value, in either direction, the more likely a snap-back becomes.
- Riskier stocks are those that have a wide range of potential outcomes. They will probably bounce more wildly, making the prospects of a snap-back less reliable, and you'll want to buy at a wider discount to provide some comfort.
Diversification
Even with a fat margin of safety, you wouldn't put too much just in single stock because of a remote and variable chance of a complete wipe-out.
With stocks, diversification comes from spreading your portfolio over a range of different companies and sectors, and from the amount of time you are invested.
The more time you allow, the greater the chances of the value being reflected - which, of course, is why the sharemarket beats cash more consistently the longer you give it.
Interaction between diversification and margin of safety.
There's an interaction between diversification and margin of safety, because the more you've got of one, the less you might need of the other.
There is, however, a crucial difference:
- as you increase the number of stocks in your portfolio, your selections gradually get worse.
- An increased margin of safety, on the other hand, will mean better selections.
The flip side is that margin of safety relies on you making correct assessments of value, while diversification will tend to take you towards an average return, whether you're getting the value right or wrong.
- So if you're very confident in your ability to assess value, you might focus on finding stocks where you see a huge margin of safety and not worry so much if you end up holding only a few of them.
- But if you're less sure about assessing value correctly, you'll want to focus more on achieving a decent diversification, with the inevitable reduction in apparent margin of safety from your additional selections.
Related:
- Value Investing is about Buying Stocks for less than they're worth
- Simple ways to value stocks and shares
- Value in the context of Your Overall Portfolio
Simple ways to value stocks and shares
The fundamental basis of value
Stocks and shares confer the right to receive money in the future, and it's this ability to put money in your pocket that gives them their value. Specifically, the value of a stock is the value of each of those future bits of money all added together.
This is where things start to get a bit tricky, because the value of money you are going to receive in the future depends on three elements:
If the payments received are growing - at least if you assume they'll grow at the same rate each year: you just divided the first payment by the difference between the discount rate and the growth rate (the growth rate effectively offsets part of the discount rate).
The return you plan to make.
For money you plan to commit to the share market, we'd recommend using the long-term return from shares as your discount rate (your "opportunity cost of capital").
Don't confuse value and risk.
Conventional theory says you should finetune your discount rate for different shares, using a higher discount rate for riskier stocks and vice versa, but we think that just confuses the issue. If something is riskier than something else, it doesn't necessarily mean it has a lower value, it just means that the value is more variable.
How you deal with risk for any particular stock depends on your margin of safety, your diversification and how much risk you're prepared to take. To understand how these factors all stack up, though, you need to put all stocks on a level playing field in the first place by valuing them on the same basis - which means using the same discount rate.
Related:
Stocks and shares confer the right to receive money in the future, and it's this ability to put money in your pocket that gives them their value. Specifically, the value of a stock is the value of each of those future bits of money all added together.
This is where things start to get a bit tricky, because the value of money you are going to receive in the future depends on three elements:
- how much it is
- when you actually receive it (time value of money) and
- the return you plan to make in the meantime (internal rate of return or the discount rate).
- If you paid more than that then you'd make less than 10%;
- if you paid less, you'd make more than 10%; and
- if you paid a lot less, you'd make a lot more than 10%. That's value investing.
If the payments received are growing - at least if you assume they'll grow at the same rate each year: you just divided the first payment by the difference between the discount rate and the growth rate (the growth rate effectively offsets part of the discount rate).
The return you plan to make.
For money you plan to commit to the share market, we'd recommend using the long-term return from shares as your discount rate (your "opportunity cost of capital").
- We think 10% is a nice round number to aim for.
- As long as you choose something in the ballpark of 8 to 12%, though, most of any difference should get lost in the rounding.
Don't confuse value and risk.
Conventional theory says you should finetune your discount rate for different shares, using a higher discount rate for riskier stocks and vice versa, but we think that just confuses the issue. If something is riskier than something else, it doesn't necessarily mean it has a lower value, it just means that the value is more variable.
How you deal with risk for any particular stock depends on your margin of safety, your diversification and how much risk you're prepared to take. To understand how these factors all stack up, though, you need to put all stocks on a level playing field in the first place by valuing them on the same basis - which means using the same discount rate.
Related:
Value Investing is about Buying Stocks for less than they're worth
Value investing is about buying stocks for less than they're worth.
The approach works because human beings just aren't very good at it, but that is also what makes it hard.
To be successful, you need to do two things:
How to pick out a few undervalued stocks?
Related:
The approach works because human beings just aren't very good at it, but that is also what makes it hard.
To be successful, you need to do two things:
- first, you need to control your emotions so you can make objective decisions; and
- second, you need to be able to pick out a few undervalued stocks.
How to pick out a few undervalued stocks?
This is an inexact science at best of times, and utterly impossible at others.
There is no such thing as an exact valuation for a stock. Getting to grips with this inexactness is absolutely critical to investing success. Most importantly, it means that when you do invest in a stock, you'll want a large margin of safety so you can be wrong about a few things and unlucky about some others and still come out okay.
Large margins of safety are rare, so you need to be very fussy about your selections. You might find just one or two really good opportunities a year, but you.ll need to work hard to find even them, scanning the business pages, reading publications and doing your own research. When you find them, however, they should scream value to you almost any way you look at them.
So you need some quick and easy valuation tools by which to filter opportunities, to see if they're worthy of more research. By focusing on fewer really interesting opportunities, you'll spend more time thinking about their long-term business advantages and disadvantages, which are what will really make the difference to a stock's value.
First, we need to ask ourselves a more basic question: what exactly is value, anyway?
Related:
Recognise Your Emotions: Irrational Behaviour and Stock Market Investing
"You have great skill with your bow, but little control of your mind", said the master to his young archer.
This is also applicable in investing. You can know everything about valuing companies, but it'll come to nothing if you can't apply it rationally when the heat is on.
Human behaviour is directed by a combination of evolutionary hardwiring and development programming, and you can see both in everything we do.
The trouble is that in stock market investing, a very recent phenomenon in human evolution, we haven't developed behaviours appropriate to it.
The usual range of other behaviour responses that we picked up in our early life are often completely inappropriate.
Recognise your emotions
These problems are all tied up with human nature, so it is impossible to eradicate them. But that's the fundamental irony of investing: irrational human behaviour creates the opportunities, but to take advantage of them you have to be rational and inhuman!
Whenever you try to put a curb on a natural process, there's a danger you'll overshoot. If you worry too much about your crowd following tendencies, for example, you could end up going against the consensus opinion just for the sake of it - which might itself be a mistake.
Probably the best way to deal with your emotions is to learn to recognise them, so you get a feeling for when they might be getting the better of you. If you feel yourself getting a bit overexcited, then put it all to one side and go and do something else. In the stock market it's best to favour inaction over action.
Read: Rational Thinking about Irrational Pricing
This is also applicable in investing. You can know everything about valuing companies, but it'll come to nothing if you can't apply it rationally when the heat is on.
Human behaviour is directed by a combination of evolutionary hardwiring and development programming, and you can see both in everything we do.
The trouble is that in stock market investing, a very recent phenomenon in human evolution, we haven't developed behaviours appropriate to it.
The usual range of other behaviour responses that we picked up in our early life are often completely inappropriate.
Recognise your emotions
These problems are all tied up with human nature, so it is impossible to eradicate them. But that's the fundamental irony of investing: irrational human behaviour creates the opportunities, but to take advantage of them you have to be rational and inhuman!
Whenever you try to put a curb on a natural process, there's a danger you'll overshoot. If you worry too much about your crowd following tendencies, for example, you could end up going against the consensus opinion just for the sake of it - which might itself be a mistake.
Probably the best way to deal with your emotions is to learn to recognise them, so you get a feeling for when they might be getting the better of you. If you feel yourself getting a bit overexcited, then put it all to one side and go and do something else. In the stock market it's best to favour inaction over action.
Read: Rational Thinking about Irrational Pricing
http://myinvestingnotes.blogspot.com/2009/01/rational-thinking-about-irrational.html
Are you a risk-hungry investor?
Kavita Sriram, ET Bureau
Over the past few weeks, optimism has clouded the markets. The Sensex thrilled the investors as it zoomed past the 19,500 mark. It has even propelled the pessimists and risk-averse to have another look at their portfolio.
What are the options before an investor who is ready to take risks in these bull market conditions? There are numerous avenues for the aggressive investor to churn out profits. Investors wait in anticipation of the Sensex and Nifty to blaze past the 20,000 and 6,000 levels respectively. Based on the risk and reward ratio, that is, the ratio of expected returns from an investment to the amount of risk taken to get these returns, an investor can ponder over some alternatives.
Sectors & investment risks
Sector funds, sometimes referred to as thematic funds, sector funds are mutual funds that have restricted focus on a particular industry or sector in the economy. Well-researched and chosen sectors, with a strong growth potential, yield substantial returns. However, in case these sectors go out of favour the loss incurred could be tremendous.
Risk-averse investors must keep away from these volatile funds and look at diversified or balanced funds instead. The banking sector has not disappointed the investor over the past two years. So also the automobile sector that has gained steam since the domestic economy recovered. The agriculture and associated industries are languishing.
Contrarian investing
Investors in heathcare, FMCG and construction too have little to cheer about. Investors can either put their money in sector funds or invest directly in the equity markets in the sectors that they consider are faring well in the current bull run.
A contrarian investor looks critically at the crowd behavior that he perceives are wrong investment choices. Contrarian investing is explored when the entire market is on an upswing or is falling down. A contrarian buys or sells stocks when most investors appear to be doing the opposite. There is tremendous risk involved in researching and picking up battered stocks that have high intrinsic value.
A contrarian investor scouts for under-valued stocks that are over-looked by the crowd. Since he keeps away from over-heated or hyped markets chased by the crowd, he is safe from the detrimental scenario of markets faring against expectations. This strategy demands extensive fundamental study and stock research as the investor is not working in tandem with other investors.
Building an aggressive portfolio
The investor adopts a portfolio management and asset allocation strategy that tries to maximise returns. Such an aggressive investment strategy attempts to beat the overall market performance at an additional risk.The portfolio of a risk-taking investor has a substantial exposure to equity and very limited investments in safer debt instruments. Aggressive growth funds aim for high capital gains from its selection of investments in companies that exhibit high growth potential. These funds are volatile and are for investors who seek high risk-returns. They have proven to fare well during economic upswings and growth periods.
http://economictimes.indiatimes.com/quickiearticleshow/6673850.cms
Investing for long term is a better strategy
3 Oct, 2010, 05.56AM IST,
Ashish Gupta,ET Bureau
Investing for long term is a better strategy
With the breaching the 20,000 mark and looking good for 21,000, what should be the strategy of individual investors? Should they take the plunge? Normally, during times like these, everything sells. Look at the number of IPOs hitting the market in such a short span of time and demanding huge premiums. And most were a running success.
The fast-growing economy has pushed the growth process. The most important factor has been the sustained foreign institutional investor (FII) interest in the markets that gave the Sensex its big thrust. Inflow of foreign capital and strong economic are behind the optimism in the markets.
FII factor
Although bull phases are good, need to be cautious. A bull run is good news for investors. However, some analysts expect a correction. A deep correction could create panic among investors who may resort to booking profits. Such a situation is more likely as the index rise has been rapid and unexpected. Moreover, as the bull run is largely due to foreign capital flows, the market direction is highly unpredictable.
This is because FII sentiment is impacted by global developments and trends. Many factors may trigger a fall. A slowdown in growth, political developments, employment data, inflation -anywhere in the world -could have an impact. In case the start pulling out, it may lead to a financial concern. It is better for small investors to be cautious lest there is a deep correction.
Go by fundamentals
Further, investors should invest in and stick to fundamentally-strong companies. The stocks of these companies are normally stable and grow at a steady pace. They are neither affected by booms nor by falls. They tend to weather volatile times well. Investors should ideally invest in large-cap stocks. These are less risky than small-cap stocks. Although small-cap stocks have tremendous growth potential, they carry a higher potential of downsides.
Diversify portfolio
You should also diversify your portfolio. There should be a mix of debt and equity. A reasonable portion should be invested in debt, offering secured returns. The entire funds should not be parked in equity. Although it has the potential to provide higher returns, the equity route also carries with it the inherent risks of a downside as well. Also, borrowed funds should not be used to invest in the markets. One should look at strong, growing sectors that hold potential for growth. Even in these growing sectors, you should choose the fundamentally-strong companies.
http://economictimes.indiatimes.com/features/financial-times/Investing-for-long-term-is-a-better-strategy/articleshow/6672767.cms
Ashish Gupta,ET Bureau
Investing for long term is a better strategy
With the breaching the 20,000 mark and looking good for 21,000, what should be the strategy of individual investors? Should they take the plunge? Normally, during times like these, everything sells. Look at the number of IPOs hitting the market in such a short span of time and demanding huge premiums. And most were a running success.
The fast-growing economy has pushed the growth process. The most important factor has been the sustained foreign institutional investor (FII) interest in the markets that gave the Sensex its big thrust. Inflow of foreign capital and strong economic are behind the optimism in the markets.
FII factor
Although bull phases are good, need to be cautious. A bull run is good news for investors. However, some analysts expect a correction. A deep correction could create panic among investors who may resort to booking profits. Such a situation is more likely as the index rise has been rapid and unexpected. Moreover, as the bull run is largely due to foreign capital flows, the market direction is highly unpredictable.
This is because FII sentiment is impacted by global developments and trends. Many factors may trigger a fall. A slowdown in growth, political developments, employment data, inflation -anywhere in the world -could have an impact. In case the start pulling out, it may lead to a financial concern. It is better for small investors to be cautious lest there is a deep correction.
Go by fundamentals
Further, investors should invest in and stick to fundamentally-strong companies. The stocks of these companies are normally stable and grow at a steady pace. They are neither affected by booms nor by falls. They tend to weather volatile times well. Investors should ideally invest in large-cap stocks. These are less risky than small-cap stocks. Although small-cap stocks have tremendous growth potential, they carry a higher potential of downsides.
Diversify portfolio
You should also diversify your portfolio. There should be a mix of debt and equity. A reasonable portion should be invested in debt, offering secured returns. The entire funds should not be parked in equity. Although it has the potential to provide higher returns, the equity route also carries with it the inherent risks of a downside as well. Also, borrowed funds should not be used to invest in the markets. One should look at strong, growing sectors that hold potential for growth. Even in these growing sectors, you should choose the fundamentally-strong companies.
http://economictimes.indiatimes.com/features/financial-times/Investing-for-long-term-is-a-better-strategy/articleshow/6672767.cms
Sunday, 3 October 2010
Tips for investors in current market conditions
27 Sep, 2010, 10.29AM IST,
Shubha Ganesh,ET Bureau
Tips for investors in current market conditions
http://economictimes.indiatimes.com/features/financial-times/Tips-for-investors-in-current-market-conditions/articleshow/6626083.cms
Shubha Ganesh,ET Bureau
Tips for investors in current market conditions
The stock touched the magical figures of 6,000 on the Nifty and 20,000 on the last week. The mood this time around was one of caution with individual busy reducing their stock portfolios. The euphoria was missing due to the fear that the markets will come crashing down again.
The last time they were at 20,000 - sometime in December 2007 - individual investors we desperate to get in. Mutual funds were drawing net positive inflows of around Rs 3,000-5,000 crores from individual investors. Today, at 20,000, there are net outflows everyday and the domestic financial institutions have net sell figures of Rs 3,000-5,000 crores on the negative side, indicating heavy withdrawals.
Upward trajectory to continue
However, such caution and skepticism are healthy signs in a bull market. The Sensex is valued at just 19 times the estimated earnings, compared with a high of about 24 times when the measure reached its record in January 2008. Even though the valuations are not cheap they are not too stretched either. This has led to a reduction in margin of safety while purchasing for investments.
In this bull run, sectors such as banking, FMCG and auto that have led this market to 20,000 are trading at all-time highs. These sectors form a very significant part of the index basket and as long as they continue to perform there is very little threat of a very sharp decline in the stock markets.
New normal
According to analysts, liquidity flows to India will continues as a part of 'new normal'. In the new normal, a sharply-polarised world with deflation or near deflation in the western world and a strong growth, albeit inflationary, in emerging markets exists, they say, where it becomes necessary to invest in the emerging markets to hedge against deflation.
This is also called deflation trade. There is some consensus among market participants that a fundamental rebalancing of the global economy is taking place from developed to emerging markets. With the US Fed acknowledging the slowing of growth in the US, deflation hedging could become more prevalent. The second round of quantitative easing could also increase the liquidity surge to India.
Fundamental analysis works
One important takeaway from this year's market is that it has rewarded handsomely all companies that have performed well and has duly punished those that have slacked in earnings growth and performance. The market has rewarded good performance, and more importantly, those who have respected their equity. Never have markets been so focused on performance metrics and paid such a good price for performance. It was a dream year for analysts and stock-pickers to demonstrate their alphagenerating capabilities.
Investment strategy
Investors of today have to handle their stock investments with two home truths. One that liquidity is here to stay. When liquidity becomes a factor in investment decisions it implies that high quality companies' stocks may not be available cheap anymore.
The last time they were at 20,000 - sometime in December 2007 - individual investors we desperate to get in. Mutual funds were drawing net positive inflows of around Rs 3,000-5,000 crores from individual investors. Today, at 20,000, there are net outflows everyday and the domestic financial institutions have net sell figures of Rs 3,000-5,000 crores on the negative side, indicating heavy withdrawals.
Upward trajectory to continue
However, such caution and skepticism are healthy signs in a bull market. The Sensex is valued at just 19 times the estimated earnings, compared with a high of about 24 times when the measure reached its record in January 2008. Even though the valuations are not cheap they are not too stretched either. This has led to a reduction in margin of safety while purchasing for investments.
In this bull run, sectors such as banking, FMCG and auto that have led this market to 20,000 are trading at all-time highs. These sectors form a very significant part of the index basket and as long as they continue to perform there is very little threat of a very sharp decline in the stock markets.
New normal
According to analysts, liquidity flows to India will continues as a part of 'new normal'. In the new normal, a sharply-polarised world with deflation or near deflation in the western world and a strong growth, albeit inflationary, in emerging markets exists, they say, where it becomes necessary to invest in the emerging markets to hedge against deflation.
This is also called deflation trade. There is some consensus among market participants that a fundamental rebalancing of the global economy is taking place from developed to emerging markets. With the US Fed acknowledging the slowing of growth in the US, deflation hedging could become more prevalent. The second round of quantitative easing could also increase the liquidity surge to India.
Fundamental analysis works
Investment strategy
Investors of today have to handle their stock investments with two home truths. One that liquidity is here to stay. When liquidity becomes a factor in investment decisions it implies that high quality companies' stocks may not be available cheap anymore.
http://economictimes.indiatimes.com/features/financial-times/Tips-for-investors-in-current-market-conditions/articleshow/6626083.cms
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