From The Sunday Times October 18, 2009
Take a little more risk to boost your returns
Fund managers are targeting those who live off the income from savings and investments with a raft of fund launches, some of which offer yields of up to 7%. However, advisers urged anyone moving from the safety of a deposit account to remember that their capital could be at risk — as a general rule, the higher the income, the greater the risk of losses.
http://www.timesonline.co.uk/tol/money/investment/article6878902.ece
Sunday 18 October 2009
Investors left behind in rally
From The Sunday Times
October 18, 2009
Investors left behind in rally
The market’s stellar rise has eclipsed UK equity funds with fewer than a quarter beating the market since its low in March
Jennifer Hill
The FTSE All-Share has surged 51% from its trough on March 3 while the FTSE 100 is up 48%, after gaining 28 points last week to close at 5,190. But just 101 out of 405 funds (24.9%) have managed to equal or better that, said Morningstar, the data firm.
The average UK equity fund is up 45%, with the worst performer, Manek Growth, managing a mere 15% return.
Some of the biggest names have also lagged the market. Invesco Perpetual High Income, run by Neil Woodford with £8.6 billion invested, has gained 19% since March; the £2.7 billion Newton Income fund managed by Christopher Metcalfe has risen 18%; and Anthony Nutt’s £9 billion Jupiter Income fund is up 35%.
Fund managers have been caught out because they backed the wrong sectors going into the rally. Most had big holdings in “defensive” stocks, such as pharmaceutical firms and utilities, but financials and miners have led the charge, pushing America's Dow Jones through 10,000 on Wednesday.
Michael Hartnett at Merrill Lynch Global Research, said: “Equities remain in a sweet spot. Fears of a double-dip recession have receded, while worries about inflation and rising interest rates are not imminent enough to have prevented an October surge in risk appetite.”
However, advisers say some of the stellar performers, such as commodity stocks, could be in line for a setback. Conversely, the equity income sector — which tends to invest in defensive stocks because they traditionally pay higher than average dividends — could come back into fashion.
Danny Cox at Hargreaves Lansdown, the adviser, said investors should keep faith with popular income funds. He said: “Woodford believes the UK economy is in for a difficult period, so is very focused on defensives. Despite his recent underperformance, if he is right his fund will come good again.” We look at the experts’ tips for the bull market’s next stage:
Take some profits
Most commentators recommend banking some profits from the stocks and sectors that have led the recent rally, ahead of any setback later in the year.
Dirk Wiedmann at Rothschild Private Banking and Trust said: “After an exceptionally strong run, there is a growing danger that risky assets will suffer a setback.”
Kazakhmys, the London-listed metals company, is the market’s top performer since March, soaring 450%, followed by Vedanta, another miner, up 376%. Nick Raynor at The Share Centre said: “The FTSE 350 Mining index plunged 74% from May to December — and the same thing could happen again.” He also recommends selling out of retailers Marks & Spencer and Next, which could struggle amid rising unemployment and a 2.5% increase in Vat to 17.5% on January 1.
Rebalance your portfolio
The rally in miners and financials means many investors will now be taking on more risk than they want to, and they are being urged to review their portfolios.
Say you built a portfolio of 60% equities, 30% bonds and 10% cash. If left for 20 years, that could turn into one with, say, 84% stocks, 13% bonds and 3% cash. If your goals haven’t changed, you need to rebalance it. Doing so every year boosts returns by 16% over a 10-year period, according to Skandia, the investment firm.
As a rule, advisers recommend rebalancing when assets drift 5% or more away from your initial allocation.
Darius McDermott at Chelsea Financial Services, the broker, suggests investors reduce their holdings in some financial stocks — Barclays is the third top-performing share this year, with a 364% surge — and emerging markets, which have powered ahead. The MSCI Emerging Markets index has soared 80% since March 3.
Go for laggards
Defence firm BAE Systems, publisher Reed Elsevier and a string of utilities have grossly underperformed the market since March. Raynor tips National Grid, up only 5.8%, and Scottish & Southern Energy, which has gained only 8.3%.
Diversify overseas
British shares tends to lag other markets in periods of strong growth. Cox likes the Aberdeen Emerging Markets and First State Global Emerging Market Leaders funds, which have big holdings in Brazil, India, Hong Kong and China.
http://www.timesonline.co.uk/tol/money/investment/article6878766.ece
October 18, 2009
Investors left behind in rally
The market’s stellar rise has eclipsed UK equity funds with fewer than a quarter beating the market since its low in March
Jennifer Hill
The FTSE All-Share has surged 51% from its trough on March 3 while the FTSE 100 is up 48%, after gaining 28 points last week to close at 5,190. But just 101 out of 405 funds (24.9%) have managed to equal or better that, said Morningstar, the data firm.
The average UK equity fund is up 45%, with the worst performer, Manek Growth, managing a mere 15% return.
Some of the biggest names have also lagged the market. Invesco Perpetual High Income, run by Neil Woodford with £8.6 billion invested, has gained 19% since March; the £2.7 billion Newton Income fund managed by Christopher Metcalfe has risen 18%; and Anthony Nutt’s £9 billion Jupiter Income fund is up 35%.
Fund managers have been caught out because they backed the wrong sectors going into the rally. Most had big holdings in “defensive” stocks, such as pharmaceutical firms and utilities, but financials and miners have led the charge, pushing America's Dow Jones through 10,000 on Wednesday.
Michael Hartnett at Merrill Lynch Global Research, said: “Equities remain in a sweet spot. Fears of a double-dip recession have receded, while worries about inflation and rising interest rates are not imminent enough to have prevented an October surge in risk appetite.”
However, advisers say some of the stellar performers, such as commodity stocks, could be in line for a setback. Conversely, the equity income sector — which tends to invest in defensive stocks because they traditionally pay higher than average dividends — could come back into fashion.
Danny Cox at Hargreaves Lansdown, the adviser, said investors should keep faith with popular income funds. He said: “Woodford believes the UK economy is in for a difficult period, so is very focused on defensives. Despite his recent underperformance, if he is right his fund will come good again.” We look at the experts’ tips for the bull market’s next stage:
Take some profits
Most commentators recommend banking some profits from the stocks and sectors that have led the recent rally, ahead of any setback later in the year.
Dirk Wiedmann at Rothschild Private Banking and Trust said: “After an exceptionally strong run, there is a growing danger that risky assets will suffer a setback.”
Kazakhmys, the London-listed metals company, is the market’s top performer since March, soaring 450%, followed by Vedanta, another miner, up 376%. Nick Raynor at The Share Centre said: “The FTSE 350 Mining index plunged 74% from May to December — and the same thing could happen again.” He also recommends selling out of retailers Marks & Spencer and Next, which could struggle amid rising unemployment and a 2.5% increase in Vat to 17.5% on January 1.
Rebalance your portfolio
The rally in miners and financials means many investors will now be taking on more risk than they want to, and they are being urged to review their portfolios.
Say you built a portfolio of 60% equities, 30% bonds and 10% cash. If left for 20 years, that could turn into one with, say, 84% stocks, 13% bonds and 3% cash. If your goals haven’t changed, you need to rebalance it. Doing so every year boosts returns by 16% over a 10-year period, according to Skandia, the investment firm.
As a rule, advisers recommend rebalancing when assets drift 5% or more away from your initial allocation.
Darius McDermott at Chelsea Financial Services, the broker, suggests investors reduce their holdings in some financial stocks — Barclays is the third top-performing share this year, with a 364% surge — and emerging markets, which have powered ahead. The MSCI Emerging Markets index has soared 80% since March 3.
Go for laggards
Defence firm BAE Systems, publisher Reed Elsevier and a string of utilities have grossly underperformed the market since March. Raynor tips National Grid, up only 5.8%, and Scottish & Southern Energy, which has gained only 8.3%.
Diversify overseas
British shares tends to lag other markets in periods of strong growth. Cox likes the Aberdeen Emerging Markets and First State Global Emerging Market Leaders funds, which have big holdings in Brazil, India, Hong Kong and China.
http://www.timesonline.co.uk/tol/money/investment/article6878766.ece
Too Perfect Timing
From The Times October 16, 2009
Dentist Neel Uberoi ‘made £150,000 through insider trading with intern son’Michael Herman
A dentist made a “fabulous” profit on shares after his son, who was on a work experience attachment, tipped him off about imminent takeover deals, a court heard yesterday.
Neel Uberoi, 62, bought tens of thousands of shares in three companies based on “precise information” from his son Matthew, 24, who was on a work placement at Hoare Govett, one of the oldest banks in the City, it was alleged.
Leaking information about an upcoming takeover and buying shares based on that information are criminal offences.
Known as insider dealing, and punishable by a maximum of seven years in prison, the offences are possible because a company’s share price usually increases with the news that another business wants to buy it, allowing an insider to buy shares ahead of the crucial announcement.
Mr Uberoi and his son are each accused of 17 counts of insider dealing by the Financial Services Authority (FSA), the City watchdog that is responsible for policing and prosecuting illegal share deals. The pair deny all charges.
John Kelsey-Fry, QC, for the prosecution, told the jury that Mr Uberoi, from Kenley, in Surrey, was able to time his share purchases “exceptionally well” because his son, who lives in Fulham, West London, was part of the team advising on the transactions at Hoare Govett, which is now part of the Royal Bank of Scotland.
Mr Kelsey-Fry told Southwark Crown Court that Mr Uberoi’s most profitable trading was in the shares of NeuTec Pharma, a British pharmaceuticals company taken over by its Swiss rival Novartis in May 2006.
Mr Uberoi, who had never owned NeuTec shares before, began buying them on a Tuesday morning after a Bank Holiday weekend, Mr Kelsey-Fry said. Over the next eight days he spent about £126,000 buying further NeuTec shares at an average price of £5 each.
The previous Friday a crucial meeting had taken place between senior members of Matthew Uberoi’s team at Hoare Govett and their opposite numbers at Lehman Brothers, the bank advising Novartis on the takeover.
Two hours after Mr Uberoi’s final purchase of NeuTec shares the company announced that it was in takeover discussions with Novartis. The share price immediately doubled to more than £10, allowing Mr Uberoi to sell his shares for a £140,411 profit.
Mr Kelsey-Fry told the jury that this pattern was repeated with the shares of two other companies: Transense Technologies, taken over by Balfour Beatty, and Gulf Keystone Petroleum, which announced a significant collaboration with British Gas. The court heard that Mr Uberoi spent more modest amounts on these two companies but that he was “equally fortunate in his timing”.
“On each of these occasions his son was working on the very Hoare Govett team advising on the transactions about to be announced,” Mr Kelsey-Fry said.
The case continues.
http://www.timesonline.co.uk/tol/news/uk/crime/article6876971.ece
Dentist Neel Uberoi ‘made £150,000 through insider trading with intern son’Michael Herman
A dentist made a “fabulous” profit on shares after his son, who was on a work experience attachment, tipped him off about imminent takeover deals, a court heard yesterday.
Neel Uberoi, 62, bought tens of thousands of shares in three companies based on “precise information” from his son Matthew, 24, who was on a work placement at Hoare Govett, one of the oldest banks in the City, it was alleged.
Leaking information about an upcoming takeover and buying shares based on that information are criminal offences.
Known as insider dealing, and punishable by a maximum of seven years in prison, the offences are possible because a company’s share price usually increases with the news that another business wants to buy it, allowing an insider to buy shares ahead of the crucial announcement.
Mr Uberoi and his son are each accused of 17 counts of insider dealing by the Financial Services Authority (FSA), the City watchdog that is responsible for policing and prosecuting illegal share deals. The pair deny all charges.
John Kelsey-Fry, QC, for the prosecution, told the jury that Mr Uberoi, from Kenley, in Surrey, was able to time his share purchases “exceptionally well” because his son, who lives in Fulham, West London, was part of the team advising on the transactions at Hoare Govett, which is now part of the Royal Bank of Scotland.
Mr Kelsey-Fry told Southwark Crown Court that Mr Uberoi’s most profitable trading was in the shares of NeuTec Pharma, a British pharmaceuticals company taken over by its Swiss rival Novartis in May 2006.
Mr Uberoi, who had never owned NeuTec shares before, began buying them on a Tuesday morning after a Bank Holiday weekend, Mr Kelsey-Fry said. Over the next eight days he spent about £126,000 buying further NeuTec shares at an average price of £5 each.
The previous Friday a crucial meeting had taken place between senior members of Matthew Uberoi’s team at Hoare Govett and their opposite numbers at Lehman Brothers, the bank advising Novartis on the takeover.
Two hours after Mr Uberoi’s final purchase of NeuTec shares the company announced that it was in takeover discussions with Novartis. The share price immediately doubled to more than £10, allowing Mr Uberoi to sell his shares for a £140,411 profit.
Mr Kelsey-Fry told the jury that this pattern was repeated with the shares of two other companies: Transense Technologies, taken over by Balfour Beatty, and Gulf Keystone Petroleum, which announced a significant collaboration with British Gas. The court heard that Mr Uberoi spent more modest amounts on these two companies but that he was “equally fortunate in his timing”.
“On each of these occasions his son was working on the very Hoare Govett team advising on the transactions about to be announced,” Mr Kelsey-Fry said.
The case continues.
http://www.timesonline.co.uk/tol/news/uk/crime/article6876971.ece
Is it time to get out … or invest?
FTSE 100: Is it time to get out … or invest?
With the FTSE 100 at its highest for more than a year, is it safe to invest in the stockmarket, or is it just another false dawn? Money writers weigh up the risks
Rupert Jones and Harvey Jones
The Guardian,
Saturday 17 October 2009
The world's stockmarkets have endured a rollercoaster ride over the past two years.
Rupert Jones is cashing in his tracker
Is it time to cash in my chips and walk away from the table, or should I be brave and keep riding the stockmarket rollercoaster in the hope of even greater rewards?
That's the metaphor-mixing question many small investors will be asking themselves after the FTSE 100 index this week surged to its highest level for more than a year.
It's been a white-knuckle ride. In March the Footsie plunged to 3512; this week it sailed back above the 5250 level. That's a 49.5% increase in only seven months.
Perhaps there's more life in this rally, or maybe it's downhill from here ... who knows? I've decided I'm not sticking around to find out. After years of poor performance, my little nest-egg is looking a bit perkier, so I'm cashing it in. The fact that it means I'll no longer have to write humiliating articles about my "hopeless" investment is a bonus.
There are probably lots of people who haven't looked lately to see how their investments are performing. Perhaps this week's little milestone is a good opportunity to review your portfolio and think about any action you should be taking, such as topping up, selling or switching funds.
Some Guardian Money readers will recall I have written a couple of times about the less-than-impressive performance of my £50-a-month stockmarket Isa with Legal & General – and of my dad's Pep.
Our money is in a supposedly relatively low-risk UK index tracker fund: L&G's UK Index Trust, approaching £4bn in size, which tracks the FTSE All Share index and invests our cash in hundreds of different firms, including many household names. Back in July 2007, my Isa was worth £6,605. By July 2008, its value had fallen to £5,814 (even though it had swallowed up another 12 lots of £50 a month).
In March this year, I was in the slough of despond, bitterly wondering whether the stockmarket was all a big swizz. I'd recently received my statement telling me the fund's value was £4,862 at 22 January, which was less than the total I'd paid into it.
"If I bail out, that will be the cue for shares to motor upwards," I wrote at the time. I didn't bail out – I think I rather buried my head in the sand – but shares certainly did motor upwards. On Tuesday this week, I phoned up L&G to get an up-to-date figure for what my Isa was worth, and was told its value had jumped to £6,895, based on Monday's prices.
That compares with the £5,700 I've paid into it since April 2000, and the £6,145 I'd have if I'd put my £50 a month into an average savings account, according to Moneyfacts.
Perhaps I should take back what I said about "the great stockmarket swindle", but it's not exactly a shoot-the-lights-out performance.
I told my wife that our Isa was now looking a lot healthier. She said she thought we should cash it in, and use the money to pay a chunk off the mortgage. That sounded sensible, but I thought I'd speak to someone who knows a lot about these things. Matt Pitcher, senior wealth adviser at IFA firm Towry Law, says he would probably go along with my wife on this one.
"We would always counsel people to get rid of their debt as quickly as they can before they invest. The sole exception to that is that we wouldn't say get rid of your debts before you start a pension," he adds.
This is largely because you will always be paying interest on any debt, and therefore your investment will always need to give you a minimum return straightaway to make it worthwhile investing rather than paying off what you owe.
I'm fortunate enough to be on a tracker mortgage with a low-ish rate, but interest rates will, of course, eventually start climbing.
I've been "drip-feeding" money into my Isa, as is recommended. However, Pitcher says that while a lot of advisers and fund managers bang on about the benefits of "pound-cost averaging" (basically, investing money in equal amounts at regular intervals), the longer you hold a regular savings investment like mine, and the more the current value grows, the more it turns into a riskier lump sum investment.
He adds that people often get greedy when sitting on gains. For someone in my general position, cashing in my investment and using it to reduce the mortgage "is probably quite a prudent thing to do", says Pitcher.
The advice will be different depending on people's circumstances.
Some people won't have a mortgage or other significant debts to worry about, while others will be investing for a specific purpose (my Isa cash was never earmarked for anything in particular). Someone in that position with a fund like mine may want to consider spreading their cash across several funds or sectors.
A UK index tracker may not sound all that risky, but it was only this week that I realised more than 40% of my and my dad's cash is invested in just 10 companies (including HSBC, BP and Vodafone).
Small investors are trading again, says Harvey Jones
This year's dramatic and unexpected stockmarket recovery has encouraged thousands of small investors to start trading again. A seven-month rally has seen the benchmark FTSE 100 soar by almost 50% to more than 5000, from a low of 3512 in early March.
Trading has now hit levels last seen during the dotcom boom, with 4m deals made through execution-only stockbroker sites between April and June, according to analysts Compeer.
With the economy still shaky, it isn't a one-way bet. But if you're tempted, setting up an account and placing your first trade is easier than you think.
Is it for me? Decades ago, buying shares was for the privileged few who could afford a personal stockbroker. The internet changed all that. Now anybody over 18 can go online for £10 or less.
Getting started is straightforward. With your bank details and a debit card, you can start trading in around 10 minutes with just a few hundred pounds. But you must be aware of the risks, says Ian Benning, product development manager at The Share Centre. "Stockmarkets can quickly fall back down again. Only invest money you don't expect to need for the next five to 10 years."
What are the benefits? The investment industry has always boasted that, in the long term, shares will outperform other assets such as cash and property. But this is far harder to sustain these days, with the FTSE 100 well below its 6930 closing high at the turn of the millennium.
But small investors are returning because the alternatives look much less attractive, says Jim Wood-Smith, head of research at stockbrokers Williams de Broë. "With many savings accounts paying 0% and the property market shaky, shares look much better value."
Plenty of blue-chip companies such as BP, Shell, Glaxo, Tesco and Vodafone pay attractive dividends of 4% or 5% a year, far more than most savings accounts. But equally, you might see the shares slide in value.
How do I find the right account? Choose from dozens of online stockbroking sites, including etrade, The Share Centre, Interactive Investor, Hargreaves Lansdown, Selftrade, TD Waterhouse and Motley Fool. Barclays, HSBC, Lloyds TSB, NatWest and Halifax also offer share dealing.
All charge different fees, so check their rates carefully. Note that one of the bigger players, NatWest, will, from November, double the charges for some telephone share dealing services. If you plan to trade larger sums, look for a website that charges a flat fee per trade. Interactive Investor (iii.co.uk) and Motley Fool (fool.co.uk) charge £10 for UK trades. Selftrade (selftrade.co.uk) and TD Waterhouse (tdwaterhouse.co.uk) charge £12.50. Beware sites that charge higher fees if you trade bigger sums. Hargreaves Lansdown's Vantage fee is £9.95 per online trade, but only up to £500. That jumps to £14.95 between £500 and £2,000, and £19.95 up to £4,000. Over £20,000, it is £29.95. There is also 0.5% stamp duty on all share purchases.
What if I only have a small sum? If you plan to invest just a few hundred pounds, you might do better with a site that charges a percentage commission. At The Share Centre, that is 1% on trades, with a minimum of just £7.50 for real-time trades.
Many sites also offer regular trading accounts, which slash your costs to just £1.50 per trade if you agree to invest a regular sum, typically between £20 and £200, on a set date each month. The Share Centre, Interactive Investor, Motley Fool, Halifax Share Dealing, Selftrade and others offer this option. Many sites offer a discount. Barclays Stockbrokers, for example, charges £12.95 per trade, but this falls to £9.95 if you trade between 15 and 24 times a month, and £6.95 for more than 25.
What to buy? Your choice of account will depend on what you want to trade, says Stephen Barber, head of research at Selftrade. "Most sites offer tax- efficient Isa accounts and sell unit trusts, investment trusts, exchange-traded funds (ETFs), corporate bonds, gilts, covered warrants and self-invested personal pension plans (Sipps)."
Online stockbrokers work on an execution-only basis, ie they don't advise which shares to buy or sell. The Share Centre is a rare exception – its brokers give basic advice. Killik & Co offers old-fashioned personal stockbroking, but with a minimum trading fee of £40.
There is also a rich seam of free information on the web. You can also sign up to share sites such as Advfn.com, Motley Fool (Fool.co.uk), Digitallook.com and Morningstar.co.uk.
Day trading There is no precise definition, says James Daly, investor centre representative for stockbrokers TD Waterhouse. "Some say it is an investor who closes all their positions at the end of each day, but I would say it is somebody who trades at least once a day."
Recent turbulent stockmarkets have been a day trader's dream, allowing them to make big money in rising and falling markets. "We have seen a big increase in the number of clients trading regularly to profit from these movements," he says.
But this is a high-risk form of gambling. "If you get it wrong, you can lose far more than your original stake," Daly warns.
Day trading is exciting but can easily become addictive — and costly.
http://www.guardian.co.uk/money/2009/oct/17/investments-ftse-100
With the FTSE 100 at its highest for more than a year, is it safe to invest in the stockmarket, or is it just another false dawn? Money writers weigh up the risks
Rupert Jones and Harvey Jones
The Guardian,
Saturday 17 October 2009
The world's stockmarkets have endured a rollercoaster ride over the past two years.
Rupert Jones is cashing in his tracker
Is it time to cash in my chips and walk away from the table, or should I be brave and keep riding the stockmarket rollercoaster in the hope of even greater rewards?
That's the metaphor-mixing question many small investors will be asking themselves after the FTSE 100 index this week surged to its highest level for more than a year.
It's been a white-knuckle ride. In March the Footsie plunged to 3512; this week it sailed back above the 5250 level. That's a 49.5% increase in only seven months.
Perhaps there's more life in this rally, or maybe it's downhill from here ... who knows? I've decided I'm not sticking around to find out. After years of poor performance, my little nest-egg is looking a bit perkier, so I'm cashing it in. The fact that it means I'll no longer have to write humiliating articles about my "hopeless" investment is a bonus.
There are probably lots of people who haven't looked lately to see how their investments are performing. Perhaps this week's little milestone is a good opportunity to review your portfolio and think about any action you should be taking, such as topping up, selling or switching funds.
Some Guardian Money readers will recall I have written a couple of times about the less-than-impressive performance of my £50-a-month stockmarket Isa with Legal & General – and of my dad's Pep.
Our money is in a supposedly relatively low-risk UK index tracker fund: L&G's UK Index Trust, approaching £4bn in size, which tracks the FTSE All Share index and invests our cash in hundreds of different firms, including many household names. Back in July 2007, my Isa was worth £6,605. By July 2008, its value had fallen to £5,814 (even though it had swallowed up another 12 lots of £50 a month).
In March this year, I was in the slough of despond, bitterly wondering whether the stockmarket was all a big swizz. I'd recently received my statement telling me the fund's value was £4,862 at 22 January, which was less than the total I'd paid into it.
"If I bail out, that will be the cue for shares to motor upwards," I wrote at the time. I didn't bail out – I think I rather buried my head in the sand – but shares certainly did motor upwards. On Tuesday this week, I phoned up L&G to get an up-to-date figure for what my Isa was worth, and was told its value had jumped to £6,895, based on Monday's prices.
That compares with the £5,700 I've paid into it since April 2000, and the £6,145 I'd have if I'd put my £50 a month into an average savings account, according to Moneyfacts.
Perhaps I should take back what I said about "the great stockmarket swindle", but it's not exactly a shoot-the-lights-out performance.
I told my wife that our Isa was now looking a lot healthier. She said she thought we should cash it in, and use the money to pay a chunk off the mortgage. That sounded sensible, but I thought I'd speak to someone who knows a lot about these things. Matt Pitcher, senior wealth adviser at IFA firm Towry Law, says he would probably go along with my wife on this one.
"We would always counsel people to get rid of their debt as quickly as they can before they invest. The sole exception to that is that we wouldn't say get rid of your debts before you start a pension," he adds.
This is largely because you will always be paying interest on any debt, and therefore your investment will always need to give you a minimum return straightaway to make it worthwhile investing rather than paying off what you owe.
I'm fortunate enough to be on a tracker mortgage with a low-ish rate, but interest rates will, of course, eventually start climbing.
I've been "drip-feeding" money into my Isa, as is recommended. However, Pitcher says that while a lot of advisers and fund managers bang on about the benefits of "pound-cost averaging" (basically, investing money in equal amounts at regular intervals), the longer you hold a regular savings investment like mine, and the more the current value grows, the more it turns into a riskier lump sum investment.
He adds that people often get greedy when sitting on gains. For someone in my general position, cashing in my investment and using it to reduce the mortgage "is probably quite a prudent thing to do", says Pitcher.
The advice will be different depending on people's circumstances.
Some people won't have a mortgage or other significant debts to worry about, while others will be investing for a specific purpose (my Isa cash was never earmarked for anything in particular). Someone in that position with a fund like mine may want to consider spreading their cash across several funds or sectors.
A UK index tracker may not sound all that risky, but it was only this week that I realised more than 40% of my and my dad's cash is invested in just 10 companies (including HSBC, BP and Vodafone).
Small investors are trading again, says Harvey Jones
This year's dramatic and unexpected stockmarket recovery has encouraged thousands of small investors to start trading again. A seven-month rally has seen the benchmark FTSE 100 soar by almost 50% to more than 5000, from a low of 3512 in early March.
Trading has now hit levels last seen during the dotcom boom, with 4m deals made through execution-only stockbroker sites between April and June, according to analysts Compeer.
With the economy still shaky, it isn't a one-way bet. But if you're tempted, setting up an account and placing your first trade is easier than you think.
Is it for me? Decades ago, buying shares was for the privileged few who could afford a personal stockbroker. The internet changed all that. Now anybody over 18 can go online for £10 or less.
Getting started is straightforward. With your bank details and a debit card, you can start trading in around 10 minutes with just a few hundred pounds. But you must be aware of the risks, says Ian Benning, product development manager at The Share Centre. "Stockmarkets can quickly fall back down again. Only invest money you don't expect to need for the next five to 10 years."
What are the benefits? The investment industry has always boasted that, in the long term, shares will outperform other assets such as cash and property. But this is far harder to sustain these days, with the FTSE 100 well below its 6930 closing high at the turn of the millennium.
But small investors are returning because the alternatives look much less attractive, says Jim Wood-Smith, head of research at stockbrokers Williams de Broë. "With many savings accounts paying 0% and the property market shaky, shares look much better value."
Plenty of blue-chip companies such as BP, Shell, Glaxo, Tesco and Vodafone pay attractive dividends of 4% or 5% a year, far more than most savings accounts. But equally, you might see the shares slide in value.
How do I find the right account? Choose from dozens of online stockbroking sites, including etrade, The Share Centre, Interactive Investor, Hargreaves Lansdown, Selftrade, TD Waterhouse and Motley Fool. Barclays, HSBC, Lloyds TSB, NatWest and Halifax also offer share dealing.
All charge different fees, so check their rates carefully. Note that one of the bigger players, NatWest, will, from November, double the charges for some telephone share dealing services. If you plan to trade larger sums, look for a website that charges a flat fee per trade. Interactive Investor (iii.co.uk) and Motley Fool (fool.co.uk) charge £10 for UK trades. Selftrade (selftrade.co.uk) and TD Waterhouse (tdwaterhouse.co.uk) charge £12.50. Beware sites that charge higher fees if you trade bigger sums. Hargreaves Lansdown's Vantage fee is £9.95 per online trade, but only up to £500. That jumps to £14.95 between £500 and £2,000, and £19.95 up to £4,000. Over £20,000, it is £29.95. There is also 0.5% stamp duty on all share purchases.
What if I only have a small sum? If you plan to invest just a few hundred pounds, you might do better with a site that charges a percentage commission. At The Share Centre, that is 1% on trades, with a minimum of just £7.50 for real-time trades.
Many sites also offer regular trading accounts, which slash your costs to just £1.50 per trade if you agree to invest a regular sum, typically between £20 and £200, on a set date each month. The Share Centre, Interactive Investor, Motley Fool, Halifax Share Dealing, Selftrade and others offer this option. Many sites offer a discount. Barclays Stockbrokers, for example, charges £12.95 per trade, but this falls to £9.95 if you trade between 15 and 24 times a month, and £6.95 for more than 25.
What to buy? Your choice of account will depend on what you want to trade, says Stephen Barber, head of research at Selftrade. "Most sites offer tax- efficient Isa accounts and sell unit trusts, investment trusts, exchange-traded funds (ETFs), corporate bonds, gilts, covered warrants and self-invested personal pension plans (Sipps)."
Online stockbrokers work on an execution-only basis, ie they don't advise which shares to buy or sell. The Share Centre is a rare exception – its brokers give basic advice. Killik & Co offers old-fashioned personal stockbroking, but with a minimum trading fee of £40.
There is also a rich seam of free information on the web. You can also sign up to share sites such as Advfn.com, Motley Fool (Fool.co.uk), Digitallook.com and Morningstar.co.uk.
Day trading There is no precise definition, says James Daly, investor centre representative for stockbrokers TD Waterhouse. "Some say it is an investor who closes all their positions at the end of each day, but I would say it is somebody who trades at least once a day."
Recent turbulent stockmarkets have been a day trader's dream, allowing them to make big money in rising and falling markets. "We have seen a big increase in the number of clients trading regularly to profit from these movements," he says.
But this is a high-risk form of gambling. "If you get it wrong, you can lose far more than your original stake," Daly warns.
Day trading is exciting but can easily become addictive — and costly.
http://www.guardian.co.uk/money/2009/oct/17/investments-ftse-100
Basic assumption is, over time the domestic and world economy will go up
For Financial Planners, a Year of Tough Questions comments
By RON LIEBER
Published: October 16, 2009
If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.
The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”
Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.
I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)
While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.
PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?
“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”
Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.
Still, Ms. Buie said that even had she known the extent of the stock market carnage, it still might not have helped her clients’ performance much. “We wouldn’t have known when the turnaround was coming, so we wouldn’t have known when to change people’s portfolios.”
DIVIDING THE MONEY One of the most frightening parts of the recent market decline was that there was nowhere to hide. If you divide your assets among stocks, bonds, real estate, commodities and other investments, they are not supposed to all fall in tandem. So is the idea of asset allocation dead?
Tim Kochis, chief executive of Aspiriant, with offices in Los Angeles and San Francisco, rejects the premise of the question. “Asset allocation is not designed to protect against market movements in very short-term time horizons,” he said. “It’s designed to provide optimal performance results over very long periods of time, and there’s nothing to suggest that that expectation will not be fulfilled.”
For clients, it’s easy to blanch at something like this. Must they really wait decades to see whether their financial planner was right? Then again, getting set for retirement and not outliving your money is generally the primary goal for clients who pay for financial advice.
Older investors still had to wonder early this year whether their portfolios would ever recover. The last six months have given them some comfort, though, assuming they remained in the stock market. Mr. Kochis notes that one of the primary tenets of asset allocation is rebalancing every so often. People who did that and picked up, say, cheap stocks in emerging markets earlier this year are probably glad they did.
ESTABLISHING CONTROL Still, given what we’ve learned about the unpredictability of the markets, is there anything related to money that is within one’s control?
This is a question that people ask almost out of desperation, while throwing up their hands in despair and disgust. But there are plenty of ways to answer it. Harold Evensky of Evensky & Katz in Coral Gables, Fla., noted that the expense of investing was controllable, and clients can also often control what they pay in taxes and when.
Michael A. Branham of Cornerstone Wealth Advisors in Edina, Minn., the youngest financial planner on the panel, added an important point for midcareer professionals who are still employed. “They could control their savings rate,” he said. “They could choose how much more they wanted to add, so when we came out of this, they were able to really be ahead of the game.”
Ms. Buie said that after meeting with many clients in the last year, she found that the ones who felt best were the ones who had chosen to rein in their spending the most. “They probably felt more empowered than anyone else because they were doing something to make progress,” she said.
SNIFFING OUT THIEVES The economy was bad enough, but individuals who paid for financial advice also found themselves worrying about whether their adviser was the next Bernard L. Madoff. So how can people know for sure that they are not dealing with crooks?
The short answer is they can’t, and Ms. Buie noted that planners who had appeared at past conferences had themselves stolen client money later on. Still, Mr. Evensky noted that it could help to work with a financial adviser who kept client money with a third party like Charles Schwab or Fidelity.
That won’t protect clients against, say, forged money transfer forms. Ms. Buie said she believed that the brokerage industry needed to do a better job of creating clearer monthly statements that alerted people when money moved out of their account.
“It should say, at the top, this is how much money left your account this month,” she said. That way, people who didn’t move any money out themselves could notice any transfers more easily. She added that people who were sick, old or otherwise distracted should have trusted friends or family members reading the statements each month on their behalf.
CHANGING FOREVER When things are at their worst, the natural response is to lower expectations. As a result, many financial planners have heard some version of this question over the last year: Do I have to change my lifestyle from this point forward, forever?
For clients living close to the edge financially, or those who were older, this analysis was fairly intense, according to Mr. Kochis. “But our conclusion was not to do anything that is irreversible,” he said. Take the decision to retire, for instance. “You can’t simply snap your fingers and get your job back.”
Ms. Buie suggested focusing on what individuals really meant by lifestyle. “Even if you have a little less money, do you really have a little less life?” she said. Her firm’s mailing to clients on meaningful activities that didn’t require a lot of money got far and away the most response of anything it had ever sent out, she said. She and her husband, for instance, have saved money on travel through home exchanges.
These dark moments have provided a good opportunity to remind everyone of the fundamental assumptions that inform financial planning, whether you are working with a professional or not. “We made it very clear to clients that we have a basic, underlying belief that over time, the domestic and world economy will go up,” Mr. Evensky said.
So to those who insisted that stocks would never again be appropriate and were grasping for guaranteed returns, he simply said this to the ones who did not yet have enough cash to live on comfortably forever: “You can be certain if you put your money in C.D.’s and money markets, but you can also certainly be sure that you’ll never be able to accomplish your goals and maintain your lifestyle. There is risk no matter what you’re doing, and our judgment is that the safe thing to do is to stay invested.”
http://www.nytimes.com/2009/10/17/your-money/financial-planners/17money.html?em
By RON LIEBER
Published: October 16, 2009
If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.
The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”
Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.
I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)
While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.
PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?
“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”
Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.
Still, Ms. Buie said that even had she known the extent of the stock market carnage, it still might not have helped her clients’ performance much. “We wouldn’t have known when the turnaround was coming, so we wouldn’t have known when to change people’s portfolios.”
DIVIDING THE MONEY One of the most frightening parts of the recent market decline was that there was nowhere to hide. If you divide your assets among stocks, bonds, real estate, commodities and other investments, they are not supposed to all fall in tandem. So is the idea of asset allocation dead?
Tim Kochis, chief executive of Aspiriant, with offices in Los Angeles and San Francisco, rejects the premise of the question. “Asset allocation is not designed to protect against market movements in very short-term time horizons,” he said. “It’s designed to provide optimal performance results over very long periods of time, and there’s nothing to suggest that that expectation will not be fulfilled.”
For clients, it’s easy to blanch at something like this. Must they really wait decades to see whether their financial planner was right? Then again, getting set for retirement and not outliving your money is generally the primary goal for clients who pay for financial advice.
Older investors still had to wonder early this year whether their portfolios would ever recover. The last six months have given them some comfort, though, assuming they remained in the stock market. Mr. Kochis notes that one of the primary tenets of asset allocation is rebalancing every so often. People who did that and picked up, say, cheap stocks in emerging markets earlier this year are probably glad they did.
ESTABLISHING CONTROL Still, given what we’ve learned about the unpredictability of the markets, is there anything related to money that is within one’s control?
This is a question that people ask almost out of desperation, while throwing up their hands in despair and disgust. But there are plenty of ways to answer it. Harold Evensky of Evensky & Katz in Coral Gables, Fla., noted that the expense of investing was controllable, and clients can also often control what they pay in taxes and when.
Michael A. Branham of Cornerstone Wealth Advisors in Edina, Minn., the youngest financial planner on the panel, added an important point for midcareer professionals who are still employed. “They could control their savings rate,” he said. “They could choose how much more they wanted to add, so when we came out of this, they were able to really be ahead of the game.”
Ms. Buie said that after meeting with many clients in the last year, she found that the ones who felt best were the ones who had chosen to rein in their spending the most. “They probably felt more empowered than anyone else because they were doing something to make progress,” she said.
SNIFFING OUT THIEVES The economy was bad enough, but individuals who paid for financial advice also found themselves worrying about whether their adviser was the next Bernard L. Madoff. So how can people know for sure that they are not dealing with crooks?
The short answer is they can’t, and Ms. Buie noted that planners who had appeared at past conferences had themselves stolen client money later on. Still, Mr. Evensky noted that it could help to work with a financial adviser who kept client money with a third party like Charles Schwab or Fidelity.
That won’t protect clients against, say, forged money transfer forms. Ms. Buie said she believed that the brokerage industry needed to do a better job of creating clearer monthly statements that alerted people when money moved out of their account.
“It should say, at the top, this is how much money left your account this month,” she said. That way, people who didn’t move any money out themselves could notice any transfers more easily. She added that people who were sick, old or otherwise distracted should have trusted friends or family members reading the statements each month on their behalf.
CHANGING FOREVER When things are at their worst, the natural response is to lower expectations. As a result, many financial planners have heard some version of this question over the last year: Do I have to change my lifestyle from this point forward, forever?
For clients living close to the edge financially, or those who were older, this analysis was fairly intense, according to Mr. Kochis. “But our conclusion was not to do anything that is irreversible,” he said. Take the decision to retire, for instance. “You can’t simply snap your fingers and get your job back.”
Ms. Buie suggested focusing on what individuals really meant by lifestyle. “Even if you have a little less money, do you really have a little less life?” she said. Her firm’s mailing to clients on meaningful activities that didn’t require a lot of money got far and away the most response of anything it had ever sent out, she said. She and her husband, for instance, have saved money on travel through home exchanges.
These dark moments have provided a good opportunity to remind everyone of the fundamental assumptions that inform financial planning, whether you are working with a professional or not. “We made it very clear to clients that we have a basic, underlying belief that over time, the domestic and world economy will go up,” Mr. Evensky said.
So to those who insisted that stocks would never again be appropriate and were grasping for guaranteed returns, he simply said this to the ones who did not yet have enough cash to live on comfortably forever: “You can be certain if you put your money in C.D.’s and money markets, but you can also certainly be sure that you’ll never be able to accomplish your goals and maintain your lifestyle. There is risk no matter what you’re doing, and our judgment is that the safe thing to do is to stay invested.”
http://www.nytimes.com/2009/10/17/your-money/financial-planners/17money.html?em
Greed isn't good– it's dangerous
Greed isn't good– it's dangerous
In today's extract from his new book, Roger Bootle looks at the future of capitalism
By Roger Bootle
Published: 3:45PM BST 15 Oct 2009
Comments 6 | Comment on this article
The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.
In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.
These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today's society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.
Certainly there were mistakes made over regulation, but the answer surely involves not lighter regulation but for it to be tougher and tighter (although not more extensive). Similarly, on monetary policy major mistakes were made, but that was because not enough allowance was given for the ability of the markets and private financial institutions to get things horrendously wrong. That redoubles, not reduces, the weakness of unfettered financial markets.
What is needed now is not a rejection of capitalism but rather a radical reform of some of its institutions and practices. In a way, this is nothing new. What we now think of as capitalism did not emerge fully formed in an act of creation, but rather evolved. So why should it have stopped its process of evolution now?
We have been trying to live comfortably in a completely new era with a system of controls fashioned for an age long past. This is not the end of capitalism but the beginning of a new phase of it, a phase in which it is not controlled or suppressed, but channelled and marshalled, rather like a great river whose course is managed.
Such a thought will offend those who tend the flame of the free market ideal. But an effective market system is like democracy: how it operates in practice can be very different from how it works in theory. Effective market systems and effective democracies are fuzzy. In both cases there is a theoretically pure version that appears to embody the essence of the thing, whereas in practice the presence of this thing alone often sees the essence escape.
The essence of democracy, you might think, is free elections. Yet it is comparatively easy to establish elections that are free in a system that is democratic in only the most tenuous sense. For markets, it is a similar story. Paradoxically, markets need the state to keep them on the straight and narrow. They even need the state to keep them competitive.
Capitalism always throws up problems and failings. This is neither surprising nor a fatal criticism. Society has to find a way of either living with them or correcting them. However, as capitalism evolves, so the nature of its failings and problems changes. So too must be the way in which society copes with them.
The Great Implosion has laid bare several different sorts of failing. First, it has revealed just how fragile the financial system is. Second, it has demonstrated the markets' excessive risk-taking. Third, it has shown how bloated the financial sector has become. Fourth, it has exhibited a failure of the market with regard to the setting of executive remuneration in general, and pay in the financial sector in particular. Fifth, it has uncovered a deep-seated failure of the corporate system, arising from the separation between owners and managers and the weakness of institutional shareholders in influencing corporate policy.
It is no wonder that these problems have emerged only recently, since it is only since the early 1970s that the financial markets have grown to such size and importance in the economy, that markets have been given free rein, and that large-scale institutional shareholders have become dominant. Moreover, the serious problems for society that would be unleashed by blatant self-interest only burst forth once the combination of deregulation and the doctrine of "greed is good" released them in the 1980s.
But now we know. Greed is dangerous, and the encouragement of it is stupid. In order for society to work efficiently, never mind fairly and cohesively, there has to be a balance between the competitive and co-operative parts of the system. This balance goes right to the heart of human nature.
In many areas, such as health care, education, pollution control and road usage, we need more of the market, not less. But in finance, although we need the market, it must be restricted.
Moreover, financial markets do not offer a blueprint for the whole of society. Society cannot live by greed alone. Even if it can cope perfectly well if some of its members are motivated in this way, it needs millions of people to be motivated by duty, responsibility, and a sense of public purpose. These are feelings that the triumph of unbridled greed in the financial markets threatens to overwhelm. The market was made for man, not man for the market.
Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. The Trouble with Markets (Nicholas Brealey £18) is available from Telegraph Books for £16 plus £1.25 p&p. Call 0844 871 1515 or go to books.telegraph.co.uk
http://www.telegraph.co.uk/finance/comment/rogerbootle/6336861/Greed-isnt-good--its-dangerous.html
In today's extract from his new book, Roger Bootle looks at the future of capitalism
By Roger Bootle
Published: 3:45PM BST 15 Oct 2009
Comments 6 | Comment on this article
The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.
In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.
These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today's society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.
Certainly there were mistakes made over regulation, but the answer surely involves not lighter regulation but for it to be tougher and tighter (although not more extensive). Similarly, on monetary policy major mistakes were made, but that was because not enough allowance was given for the ability of the markets and private financial institutions to get things horrendously wrong. That redoubles, not reduces, the weakness of unfettered financial markets.
What is needed now is not a rejection of capitalism but rather a radical reform of some of its institutions and practices. In a way, this is nothing new. What we now think of as capitalism did not emerge fully formed in an act of creation, but rather evolved. So why should it have stopped its process of evolution now?
We have been trying to live comfortably in a completely new era with a system of controls fashioned for an age long past. This is not the end of capitalism but the beginning of a new phase of it, a phase in which it is not controlled or suppressed, but channelled and marshalled, rather like a great river whose course is managed.
Such a thought will offend those who tend the flame of the free market ideal. But an effective market system is like democracy: how it operates in practice can be very different from how it works in theory. Effective market systems and effective democracies are fuzzy. In both cases there is a theoretically pure version that appears to embody the essence of the thing, whereas in practice the presence of this thing alone often sees the essence escape.
The essence of democracy, you might think, is free elections. Yet it is comparatively easy to establish elections that are free in a system that is democratic in only the most tenuous sense. For markets, it is a similar story. Paradoxically, markets need the state to keep them on the straight and narrow. They even need the state to keep them competitive.
Capitalism always throws up problems and failings. This is neither surprising nor a fatal criticism. Society has to find a way of either living with them or correcting them. However, as capitalism evolves, so the nature of its failings and problems changes. So too must be the way in which society copes with them.
The Great Implosion has laid bare several different sorts of failing. First, it has revealed just how fragile the financial system is. Second, it has demonstrated the markets' excessive risk-taking. Third, it has shown how bloated the financial sector has become. Fourth, it has exhibited a failure of the market with regard to the setting of executive remuneration in general, and pay in the financial sector in particular. Fifth, it has uncovered a deep-seated failure of the corporate system, arising from the separation between owners and managers and the weakness of institutional shareholders in influencing corporate policy.
It is no wonder that these problems have emerged only recently, since it is only since the early 1970s that the financial markets have grown to such size and importance in the economy, that markets have been given free rein, and that large-scale institutional shareholders have become dominant. Moreover, the serious problems for society that would be unleashed by blatant self-interest only burst forth once the combination of deregulation and the doctrine of "greed is good" released them in the 1980s.
But now we know. Greed is dangerous, and the encouragement of it is stupid. In order for society to work efficiently, never mind fairly and cohesively, there has to be a balance between the competitive and co-operative parts of the system. This balance goes right to the heart of human nature.
In many areas, such as health care, education, pollution control and road usage, we need more of the market, not less. But in finance, although we need the market, it must be restricted.
Moreover, financial markets do not offer a blueprint for the whole of society. Society cannot live by greed alone. Even if it can cope perfectly well if some of its members are motivated in this way, it needs millions of people to be motivated by duty, responsibility, and a sense of public purpose. These are feelings that the triumph of unbridled greed in the financial markets threatens to overwhelm. The market was made for man, not man for the market.
Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. The Trouble with Markets (Nicholas Brealey £18) is available from Telegraph Books for £16 plus £1.25 p&p. Call 0844 871 1515 or go to books.telegraph.co.uk
http://www.telegraph.co.uk/finance/comment/rogerbootle/6336861/Greed-isnt-good--its-dangerous.html
When to sell?
One of the great advice given by investment guru, the late Philip Fisher, was that one should exit a stock once the fundamentals of the stock starts to deteriorate.
Or as Warren Buffett says he would hold on to a stock for many years as long as the economics of the business didn't change dramatically for the worse.
Or as Warren Buffett says he would hold on to a stock for many years as long as the economics of the business didn't change dramatically for the worse.
Opportunity costs of our investments
"There is this company in an emerging market that was presented to Warren. His response was, 'I don't feel more comfortable buying that than I do of adding to Wells Fargo.' He was using that as his opportunity cost. No one can tell me why I shouldn't buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."
When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions:
(1) Do I understand the investment as well or better than one I already own?
(2) Is the risk and reward profile of the investment superior to all other alternatives?
If the answer is "no" to either questions, it is probably best to stay away.
When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions:
(1) Do I understand the investment as well or better than one I already own?
(2) Is the risk and reward profile of the investment superior to all other alternatives?
If the answer is "no" to either questions, it is probably best to stay away.
Sit on Your Assets, if You Can
While most investors associate Buffett and Munger with finding good stocks cheap, Munger points out that quality can trump price.
"If you buy something because it's undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value," he says. "That's hard. But if you buy a few great companies, then you can sit on your ass. That's a good thing."
"If you buy something because it's undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value," he says. "That's hard. But if you buy a few great companies, then you can sit on your ass. That's a good thing."
Intelligent Investing
“We think all intelligent investing is value investing,” he says. “What the hell could it be if it wasn’t value?”
Charlie Munger
Berkshire Hathaway
While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
“That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”
Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.
The strategy sounds simple enough, but Mr Munger says few investors practise it.
“You can’t believe the way that conventional wisdom invests money,” he explains. “They tend to rush into whatever fad has worked lately. In my opinion, a lot of them are going to get creamed.”
17th May 2009: Today he's negative about the economy, but positive about stocks -- a bullish sign. In the late 1990s, Munger complained that he didn't see much to buy. The market quickly proved him right. But, at current market prices, Munger sees many long-term investment opportunities.
"I am willing to buy common stocks with long-term money at these prices," Munger said. "Is Coca-Cola worth what it's selling for? Yes. Is Wells Fargo? Yes." He owns both.
"If you wait until the economy is working properly to buy stocks, it's almost certainly too late," he said. "I have no feeling that just because there's more agony ahead for the economy you should wait to invest."
But you need to be selective.
Charlie Munger
Berkshire Hathaway
While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
“That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”
Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.
The strategy sounds simple enough, but Mr Munger says few investors practise it.
“You can’t believe the way that conventional wisdom invests money,” he explains. “They tend to rush into whatever fad has worked lately. In my opinion, a lot of them are going to get creamed.”
17th May 2009: Today he's negative about the economy, but positive about stocks -- a bullish sign. In the late 1990s, Munger complained that he didn't see much to buy. The market quickly proved him right. But, at current market prices, Munger sees many long-term investment opportunities.
"I am willing to buy common stocks with long-term money at these prices," Munger said. "Is Coca-Cola worth what it's selling for? Yes. Is Wells Fargo? Yes." He owns both.
"If you wait until the economy is working properly to buy stocks, it's almost certainly too late," he said. "I have no feeling that just because there's more agony ahead for the economy you should wait to invest."
But you need to be selective.
RHB maintains outperform call on LPI
RHB maintains outperform call on LPI
Tags: LPI | RHB
Written by The Edge Financial Daily
Monday, 12 October 2009 15:30
RHB Research has maintained its outperform call on LPI CAPITAL BHD [] with a higher fair value to RM14.95 following an upwards revision in its earnings forecast.
LPI recorded 3Q09 net profit of RM32.9 million, an increase of 44.7% quarter-on-quarter (q-o-q), which took its 9M09 earnings to RM91.1 million, up 27.3% year-on-year (y-o-y).
“This accounts for 80.2% and 82.7% of our and consensus expectations respectively. The deviation was mainly due to higher insurance gross premium and investment income at holding level,” RHB said. No dividend was declared in the quarter.
LPI’s 9M09 revenue grew by 11.9% y-o-y on the back of higher premium underwritten by Lonpac, which RHB believed was closely related to its expanding agency force and loan growth from PUBLIC BANK BHD [].
However, it said underwriting surplus was slightly below its expectation due to lower retained ratio against its assumption as a result of its fire-skewed portfolio, which the research house said has a lower retention rate versus motor, and higher management expenses due to increase in manpower.
RHB cut retention ratio to 35% from 34.5% and increased management expense to 19.8% from 19.5% previously. However, it noted that LPI’s 3Q09 underwriting surplus increased by 59.6% y-o-y, resulting in its 9M09 underwriting surplus to increase by 57.1% y-o-y.
“We believe this was caused by lower claims ratio, as economy has gradually improved, as well as its ability to obtain more retail business which is more profitable against lumpy underwriting,” RHB said.
It also increased the rate of return for investment at the holding level to 5.5% from 5% previously. Hence, earnings forecasts were increased by 2.3% to 10.1% per annum in FY09-11.
It added that LPI’s investment income in the quarter has expanded ten-fold q-o-q and 25.8% y-o-y. Going forward, it expected investment income from interest and dividend to remain a consistent contributor to overall earnings.
The fair value revision to RM14.95 from 13.58 previously is based on unchanged 15 times FY12/10 earnings per share.
http://www.theedgemalaysia.com/business-news/151122-rhb-maintains-outperform-call-on-lpi.html
Tags: LPI | RHB
Written by The Edge Financial Daily
Monday, 12 October 2009 15:30
RHB Research has maintained its outperform call on LPI CAPITAL BHD [] with a higher fair value to RM14.95 following an upwards revision in its earnings forecast.
LPI recorded 3Q09 net profit of RM32.9 million, an increase of 44.7% quarter-on-quarter (q-o-q), which took its 9M09 earnings to RM91.1 million, up 27.3% year-on-year (y-o-y).
“This accounts for 80.2% and 82.7% of our and consensus expectations respectively. The deviation was mainly due to higher insurance gross premium and investment income at holding level,” RHB said. No dividend was declared in the quarter.
LPI’s 9M09 revenue grew by 11.9% y-o-y on the back of higher premium underwritten by Lonpac, which RHB believed was closely related to its expanding agency force and loan growth from PUBLIC BANK BHD [].
However, it said underwriting surplus was slightly below its expectation due to lower retained ratio against its assumption as a result of its fire-skewed portfolio, which the research house said has a lower retention rate versus motor, and higher management expenses due to increase in manpower.
RHB cut retention ratio to 35% from 34.5% and increased management expense to 19.8% from 19.5% previously. However, it noted that LPI’s 3Q09 underwriting surplus increased by 59.6% y-o-y, resulting in its 9M09 underwriting surplus to increase by 57.1% y-o-y.
“We believe this was caused by lower claims ratio, as economy has gradually improved, as well as its ability to obtain more retail business which is more profitable against lumpy underwriting,” RHB said.
It also increased the rate of return for investment at the holding level to 5.5% from 5% previously. Hence, earnings forecasts were increased by 2.3% to 10.1% per annum in FY09-11.
It added that LPI’s investment income in the quarter has expanded ten-fold q-o-q and 25.8% y-o-y. Going forward, it expected investment income from interest and dividend to remain a consistent contributor to overall earnings.
The fair value revision to RM14.95 from 13.58 previously is based on unchanged 15 times FY12/10 earnings per share.
http://www.theedgemalaysia.com/business-news/151122-rhb-maintains-outperform-call-on-lpi.html
CEOs need to stick with vision for growth
CEOs need to stick with vision for growth
Tags: CEOs | Chief executives | David Frigstad | Frost and Sullivan | growth
Written by Fong Min Hun
Wednesday, 14 October 2009 11:11
KUALA LUMPUR: Chief executives may be saying the right things during this crisis, but their actions may not necessarily reflect what they are saying, David Frigstad, the chairman of Frost and Sullivan, said yesterday.
“Now more than ever, investments in company’s growth strategy and execution capabilities can set businesses apart from their competitors,” he said.
He was speaking to the media at the Growth, Innovation and Leadership Congress 2009 held here to discuss how CEOs can sustain growth in the current operating environment.
Frigstad said growth opportunities were emerging, but CEOs needed to position their companies to best exploit them. This meant sticking with a growth vision while taking advantage of opportunities that arise, he added.
This meant picking up depressed assets, hiring talent that may be out on the streets, and sticking to a vision. While many CEOs say they do that, Frigstad said their actions belie what they say.
“When we surveyed CEOs, 80%-90% say they don’t change their long-term growth strategies,” he said. “You look at what they’ve actually done and it’s just the opposite.”
Frigstad added that there were also contrasting views between how CEOs thought of themselves and how their staff thought of them. Frost and Sullivan’s survey showed that CEOs appraisals of themselves and their leadership qualities generally differed quite vastly from their staff’s appraisal of them.
This article appeared in The Edge Financial Daily, October 14, 2009.
Tags: CEOs | Chief executives | David Frigstad | Frost and Sullivan | growth
Written by Fong Min Hun
Wednesday, 14 October 2009 11:11
KUALA LUMPUR: Chief executives may be saying the right things during this crisis, but their actions may not necessarily reflect what they are saying, David Frigstad, the chairman of Frost and Sullivan, said yesterday.
“Now more than ever, investments in company’s growth strategy and execution capabilities can set businesses apart from their competitors,” he said.
He was speaking to the media at the Growth, Innovation and Leadership Congress 2009 held here to discuss how CEOs can sustain growth in the current operating environment.
Frigstad said growth opportunities were emerging, but CEOs needed to position their companies to best exploit them. This meant sticking with a growth vision while taking advantage of opportunities that arise, he added.
This meant picking up depressed assets, hiring talent that may be out on the streets, and sticking to a vision. While many CEOs say they do that, Frigstad said their actions belie what they say.
“When we surveyed CEOs, 80%-90% say they don’t change their long-term growth strategies,” he said. “You look at what they’ve actually done and it’s just the opposite.”
Frigstad added that there were also contrasting views between how CEOs thought of themselves and how their staff thought of them. Frost and Sullivan’s survey showed that CEOs appraisals of themselves and their leadership qualities generally differed quite vastly from their staff’s appraisal of them.
This article appeared in The Edge Financial Daily, October 14, 2009.
AmResearch bullish on Kossan’s prospect
AmResearch bullish on Kossan’s prospect
Tags: AmResearch | Kossan Rubber Industries Bhd | strong demand | strong earnings
Written by Tony C H Goh
Wednesday, 14 October 2009 22:24
KUALA LUMPUR: AmResearch has upgraded its recommendation on KOSSAN RUBBER INDUSTRIES BHD [] to buy from hold previously, on the expectation that the glovemaker is poised to pose strong earnings on the back of better pricing and product mix.
Kossan is also set to benefit from the strong demand growth trend underpinned by a capacity boost to 18 billion pieces per annum by the end of 2011 from 11.1 billion currently.
In addition, AmResearch said it remained assured by the strong demand growth trend for examination gloves, as reflected by the group’s high utilisation rate in excess of 90%-91%.
“We have turned positive of Kossan’s earnings deliverance going forward, given the stronger earnings in the second half of FY09 on the back of smaller forex losses, better margins on its product portfolio mix and pricing power,” said the research house.
Kossan had previously entered into aggressive structured currency contracts to hedge its receivables for up to 10 months, with expiry in November 2009. So far, the group has recognised forex losses of RM12.2 million and RM12.5 million in 1Q and 2QFY09, respectively.
As the average US dollar to the ringgit exchange rate has weakened by around 3% to RM3.43 compared with RM3.52 in 3Q, the favourable exchange rate outlook has provided room for an earnings improvement for FY09.
Higher margins owing to Kossan’s product portfolio mix and better pricing power, as well as a strong demand will fuel Kossan's growth trend going forward.
All in, AmResearch raised its FY09 earnings forecast by 2% to RM57 million, and a further 25% and 26% to RM97 million and RM120 million for FY10 and FY11 respectively.
Ahead of buoyant earnings for rubber glove manufacturers and backed by strong fundamentals, it conservatively pegged Kossan’s FY10 earnings to a higher target price earnings (PE) of 10 times.
“Valuation is undemanding as the stock is still trading below its eight-year historical average of 12 times, and at a steep 40% discount against a 25% to 30% historical discount gap of 13 times that of Top Glove,” said AmResearch.
Kossan added 17 sen to close at RM4.95 on Oct 14.
http://www.theedgemalaysia.com/business-news/151331-amresearch-bullish-on-kossans-prospect.html
Tags: AmResearch | Kossan Rubber Industries Bhd | strong demand | strong earnings
Written by Tony C H Goh
Wednesday, 14 October 2009 22:24
KUALA LUMPUR: AmResearch has upgraded its recommendation on KOSSAN RUBBER INDUSTRIES BHD [] to buy from hold previously, on the expectation that the glovemaker is poised to pose strong earnings on the back of better pricing and product mix.
Kossan is also set to benefit from the strong demand growth trend underpinned by a capacity boost to 18 billion pieces per annum by the end of 2011 from 11.1 billion currently.
In addition, AmResearch said it remained assured by the strong demand growth trend for examination gloves, as reflected by the group’s high utilisation rate in excess of 90%-91%.
“We have turned positive of Kossan’s earnings deliverance going forward, given the stronger earnings in the second half of FY09 on the back of smaller forex losses, better margins on its product portfolio mix and pricing power,” said the research house.
Kossan had previously entered into aggressive structured currency contracts to hedge its receivables for up to 10 months, with expiry in November 2009. So far, the group has recognised forex losses of RM12.2 million and RM12.5 million in 1Q and 2QFY09, respectively.
As the average US dollar to the ringgit exchange rate has weakened by around 3% to RM3.43 compared with RM3.52 in 3Q, the favourable exchange rate outlook has provided room for an earnings improvement for FY09.
Higher margins owing to Kossan’s product portfolio mix and better pricing power, as well as a strong demand will fuel Kossan's growth trend going forward.
All in, AmResearch raised its FY09 earnings forecast by 2% to RM57 million, and a further 25% and 26% to RM97 million and RM120 million for FY10 and FY11 respectively.
Ahead of buoyant earnings for rubber glove manufacturers and backed by strong fundamentals, it conservatively pegged Kossan’s FY10 earnings to a higher target price earnings (PE) of 10 times.
“Valuation is undemanding as the stock is still trading below its eight-year historical average of 12 times, and at a steep 40% discount against a 25% to 30% historical discount gap of 13 times that of Top Glove,” said AmResearch.
Kossan added 17 sen to close at RM4.95 on Oct 14.
http://www.theedgemalaysia.com/business-news/151331-amresearch-bullish-on-kossans-prospect.html
THIS is the first of a two-part report by Deutsche Bank.on Malaysia
Listing Petronas, or parts of it, could reinvigorate investor interest
Tags: Barisan Nasional | Datuk Seri Najib Razak | Deutsche Bank | FIC | GLCs | Khazanah | KWAP | Listing Petronas | Low free float | LTAT | MoE | MSCI index market cap | NEP | New IPOs | PNB | Umno
Written by Financial Daily
Thursday, 15 October 2009 10:54
THIS is the first of a two-part report by Deutsche Bank. The first part contains two key messages — 1. Why listing Petronas (or parts of it) is critical for the market and 2. A bold start by Datuk Seri Najib Razak, but largely ignored by the market. The second part, on the challenging valuations and stocks picks in Malaysia, will be published tomorrow. (Note: The Deutsche Bank report is dated Oct 4, 2009)
Restructuring the market
The market is fully aware of how Malaysia has been marginalised as an investment destination since the Asian crisis. And as an analyst, it is all too tempting to write yet another report highlighting what is wrong with the market. Instead, in this report, we have taken a hard look at what can be done to revive interest in this market. First, let us address the challenges.
• Low free float relative to the regional markets — with North Asian markets swamped with new issuances, Malaysia runs the risk of market weightings easing further than it already has. More needs to be done to liberalise ownership structures in ‘nationalistic’ assets and/or the government should consider reducing their stakes in GLCs.
• Lack of new IPOs — the government must consider listing Petronas and, if not in its entirety, the LNG and refinery businesses alone could make a significant difference.
• Fund flows into Malaysia are still lagging the region and Asean. This is the most underowned market in Asia
(1) Addressing the market’s low free float
One of the biggest challenges for Malaysia is this — the low level of market free float versus other markets in the region.
Here are a few numbers to ponder: government-related agencies (Khazanah, PNB, Petronas, KWAP, LTAT, MoF, etc.) collectively own about 28.4% of the market (based on MSCI universe). If one includes EPF’s stakes in various companies, this figure goes up to 39.4%, based on our estimates.
Although EPF (Employees Provident Fund) is considered free-float, it does provide some perspective as to how tightly domestic funds have a dominant presence in the market. Therefore, this explains Malaysia’s weighted free float of only 49%, at the lower end of the region and lower than that of Indonesia and Singapore.
What needs to be done?
• Khazanah stake reduction. Khazanah should reduce its stakes in companies where they have ownership dominance. Indeed, we estimate that Khazanah’s exposure in the market represents 8% of MSCI Malaysia component stocks.
This may not be much, but Khazanah’s stakes are meaningful in large-cap companies such as Tenaga, Axiata (RM3.15, hold, target price RM2.79), etc.
The positive news is that Khazanah recently ‘signalled’ its intention to improve market free float when it disposed of 5% of Malaysia Airports Holdings Berhad (MAHB, RM3.47, NR) via a private placement.
PNB loosens its grip on key stocks
Although PNB’s mandate (largest government managed unit trust funds) is very different from that of Khazanah, a reduction in its dominance in large caps, such as Sime Darby (RM8.54, hold, target price RM7.60), would also help to improve free float.
This outcome is quite unlikely given PNB’s need for consistent dividends from its major investments. The market’s free float could improve if Khazanah gradually reduced its stakes in their key holdings.
(2) Increasing IPOs and listing Petronas (or at least the downstream businesses)
The region is awash with new IPOs, and Malaysia desperately needs a few large IPOs to draw attention back to the market. Equity raising is anticipated to be higher (as a percentage of market cap) versus the last two years, but this is mostly with the inclusion of Maxis’ relisting. Much more needs to be done. Indeed, just to keep up with the region, Malaysia has to expand the depth and breadth of the market at a higher rate. Here are our suggestions:
What needs to be done to improve the IPO pipeline?
• To improve the depth and breath of the market, Malaysian companies with foreign subsidiaries should be encouraged to list on Bursa (RM8.17, sell, target price RM3.30). Bursa should encourage companies, such as Sime Darby, YTL Power (RM2.17, hold), etc to list their profitable businesses in Malaysia to raise funds for future investment plans.
• Encourage the government to list Petronas. If the government is not willing to list its prized exploration and production division (E&P), the LNG and refinery divisions are substantial enough on their own to make a significant difference to the market. After culling through various scenarios and possible options, this is the most effective means for addressing a large part of the market’s structural issues.
• Encourage Malaysian entrepreneurs to list their businesses in Malaysia (and not in HK or Singapore). With the recent liberalisation rules on bumiputra shareholdings relating to pre- and post-IPO structures, such an option should now be met with less objections. Promoters are now able to stay in control, with up to 75% (post IPO) vs 45% under the previous structure.
Petronas is large; could potentially raise Malaysia’s weightings from 3.8% to 6.4%. In a country report on Malaysia by IPE.com (dated Jan 30, 2009), it was stated that Petronas could be worth US$207 billion (RM912.6 billion) assuming 15x forward PER. This is almost the same as Malaysia’s entire market cap of US$257 billion.
Based on this and assuming that only 25% of Petronas is listed, Malaysia’s free-float adjusted weightings in MSCI Asia ex-Japan could rise from 3.8% to 6.4% based on our estimates.
This is a material change, and one we believe the government should consider. It would transform the Malaysian market and would allow the government to unlock value in Petronas but still maintain control, in our view. This could also help raise US$52 billion (25% listing) in order to help narrow the government’s fiscal deficit.
Conclusions: Petronas is critical to lifting market profile and size
• The listing of Petronas could almost double the total market cap of Malaysia, to US$464 billion from US$257 billion currently.
• If listed in its entirety, Petronas alone would be 40% of MSCI Malaysia’s weighting (assuming 25% free float).
• Petronas is such a behemoth entity that a mere 10% release of its equity interest will result in an increase of Malaysia’s MSCI index market cap from US$76 billion to US$101 billion with the index weighting rising to 4.99% from 3.84% currently.
• While the listing of Petronas as a whole entity remains uncertain, a plausible scenario would be for Petronas to list its downstream subsidiaries such as gas/LNG and refineries while preserving its upstream E&P. The current outlook for LNG is positive, thanks to an increase in the current and future global demand for a cleaner, greener energy source. Malaysia is currently the third-largest LNG producer in the world.
• A partial listing of Petronas’ gas/LNG and refineries alone would also create a dramatic impact on the market. Just a 25% injection of Petronas gas/LNG and refineries equity stakes combined would push Malaysia’s MSCI index market cap to US$123 billion and index weighting to 5.95% by itself.
• Combining the Petronas possibility and Khazanah’s 25% uniform reduction of holdings, Malaysia should have an MSCI index market cap of US$130 billion and weighting of 6.28% within Asia ex-Japan. This combination can provide the catalyst that would allow Malaysia to command a more meaningful weighting and one that is on par with Singapore.
• Petronas will be a critical component in determining how sizeable Malaysia can become in the MSCI Asia Pac, ex Japan Index, we believe. Divesting the holdings from Khazanah and possibly other GLCs is certainly a good start. However, if the intention is for Malaysia to be able to tip the scale, and PNB is certainly unlikely to scale back its holdings, any strategy or attempt has to include Petronas as part of the equation. This is absolutely essential.
(3) Fund flows into Malaysiastill lagging
Fund flows into Asia ex-Japan rebounded in late August/early September, largely led by India, Korea, and Singapore. Again, Malaysia lagged. This would explain why foreign ownership in the market has barely changed since the start of the year. Malaysia’s weightings and fund flows are in sharp contrast to Indonesia.
Najib’s first six months
Surprising his critics: delivering punchy initiatives so far...
Najib’s first six months in power as prime minister have been closely watched by all. So far, so good — he had a positive start despite inheriting a weak economy, a fractured coalition party, a disenchanted voter base, and an unloved market facing significant structural challenges.
Three significant market-related initiatives were introduced by Najib. Critics may argue that these capital markets initiatives were late in a regional context. We do not disagree with this view, but in the context of Malaysia’s national economic policy (NEP), these changes should be viewed as bold. No other prime minister has attempted to address these issues.
• In June, the Foreign Investment Committee (FIC), which oversees mergers, acquisitions and equity stakes (viewed largely as an administrative roadblock by many), was abolished. Pre-IPO bumiputra ownership was also reduced from 30% to 12.5%, with no requirement post-IPO or for future fund raising.
This, in our opinion, was positive as it provided clarity on ownership rules and should allow promoters of companies to maintain a comfortable majority (75% vs. 45% previously) post-IPO.
The re-listing of Maxis may be an important step in forcing investors to reconsider the Malaysian market again. The positive ownership liberalisation measures will take time to translate into greater depth and breadth in the market. Unfortunately, Malaysia faces stiff competition in the region.
• Foreigners are now able to own 100% of a commercial property asset if acquired from a non-bumiputra controlled entity. Also, ownership in selected sub-sectors of the financial industry was liberalised too; eg, foreigners are now able to own 70%-100% of a local fund management entity, 70% of local stockbrokers vs 40% previously.
• CONSTRUCTION [] jobs are finally hitting the economy. The lack of policy implementation was one of the weaknesses of the previous administration. The good news is that contractors’ feedback so far tells us that government infrastructure jobs have been awarded and the knock- on effect is beginning to have an impact on the real economy.
... but much still needs to be done; politics still a dominant issue
Politics matters more than ever for this market, especially when investors’ confidence in Indonesia’s political backdrop has improved significantly over the last 12 months. There has never been a time when all political parties are at odds with their own identity.
The ruling coalition party, Barisan Nasional (BN), remains fractured, with Umno trying to find the right balance between embracing structural change to stay relevant to its increasingly young voters and on the other hand, being seen to be protecting Malay rights, where applicable.
Rebuilding confidence and renewed aspirations in the ruling coalition party
Najib has made some strides in trying to rebuild confidence and political momentum within the party.
The recent proposal to abolish the nomination quota structure for Umno elections was a significant milestone for the party and it sends a clear message that the party has little choice but to reform. But BN has other challenges too, especially with other key component parties like MCA and MIC squabbling internally.
Challenges within the opposition party, too
The opposition coalition too has its own challenges. PKR component parties have aired their internal disagreements publicly on issues perceived to be minor. Datuk Seri Anwar Ibrahim, the opposition leader, appears to be distracted by his court proceedings.
Eighteen months since the March 2008 general election, Malaysians are still unsure what PKR truly stands for given the absence of a manifesto and a much-needed shadow cabinet. Critics argue the opposition party may well be squandering a rare opportunity to gain greater support.
All eyes on the outcome of the Bagan Pinang by-electionon Oct 10
The Bagan Pinang by-election, the ninth since the general election, is an important bellweather to determine how BN has fared since Najib became prime minister. The polling date was for Oct 10 and BN was tipped to regain the seat as it is the clear incumbent supported by sizeable postal votes. If BN loses, this would be negative for the market. BN won the Bagan Pinang by-election by an increased majority of 5,435 votes.
A positive start; much more required
Najib has surprised the market so far by delivering much-needed market reforms in his first six months. The market will now be watching to see if these initiatives can be implemented effectively. Much still needs to be done to lift investor confidence in Malaysia.
This will certainly take time to take effect, especially given the competitive environment for capital across the region. In fact, we believe Malaysia has to work doubly hard to win back investors’ “mind share” in order to keep up with the dynamism of structural reforms in the region.
This article appeared in The Edge Financial Daily, October 15, 2009.
Tags: Barisan Nasional | Datuk Seri Najib Razak | Deutsche Bank | FIC | GLCs | Khazanah | KWAP | Listing Petronas | Low free float | LTAT | MoE | MSCI index market cap | NEP | New IPOs | PNB | Umno
Written by Financial Daily
Thursday, 15 October 2009 10:54
THIS is the first of a two-part report by Deutsche Bank. The first part contains two key messages — 1. Why listing Petronas (or parts of it) is critical for the market and 2. A bold start by Datuk Seri Najib Razak, but largely ignored by the market. The second part, on the challenging valuations and stocks picks in Malaysia, will be published tomorrow. (Note: The Deutsche Bank report is dated Oct 4, 2009)
Restructuring the market
The market is fully aware of how Malaysia has been marginalised as an investment destination since the Asian crisis. And as an analyst, it is all too tempting to write yet another report highlighting what is wrong with the market. Instead, in this report, we have taken a hard look at what can be done to revive interest in this market. First, let us address the challenges.
• Low free float relative to the regional markets — with North Asian markets swamped with new issuances, Malaysia runs the risk of market weightings easing further than it already has. More needs to be done to liberalise ownership structures in ‘nationalistic’ assets and/or the government should consider reducing their stakes in GLCs.
• Lack of new IPOs — the government must consider listing Petronas and, if not in its entirety, the LNG and refinery businesses alone could make a significant difference.
• Fund flows into Malaysia are still lagging the region and Asean. This is the most underowned market in Asia
(1) Addressing the market’s low free float
One of the biggest challenges for Malaysia is this — the low level of market free float versus other markets in the region.
Here are a few numbers to ponder: government-related agencies (Khazanah, PNB, Petronas, KWAP, LTAT, MoF, etc.) collectively own about 28.4% of the market (based on MSCI universe). If one includes EPF’s stakes in various companies, this figure goes up to 39.4%, based on our estimates.
Although EPF (Employees Provident Fund) is considered free-float, it does provide some perspective as to how tightly domestic funds have a dominant presence in the market. Therefore, this explains Malaysia’s weighted free float of only 49%, at the lower end of the region and lower than that of Indonesia and Singapore.
What needs to be done?
This may not be much, but Khazanah’s stakes are meaningful in large-cap companies such as Tenaga, Axiata (RM3.15, hold, target price RM2.79), etc.
The positive news is that Khazanah recently ‘signalled’ its intention to improve market free float when it disposed of 5% of Malaysia Airports Holdings Berhad (MAHB, RM3.47, NR) via a private placement.
PNB loosens its grip on key stocks
Although PNB’s mandate (largest government managed unit trust funds) is very different from that of Khazanah, a reduction in its dominance in large caps, such as Sime Darby (RM8.54, hold, target price RM7.60), would also help to improve free float.
This outcome is quite unlikely given PNB’s need for consistent dividends from its major investments. The market’s free float could improve if Khazanah gradually reduced its stakes in their key holdings.
(2) Increasing IPOs and listing Petronas (or at least the downstream businesses)
The region is awash with new IPOs, and Malaysia desperately needs a few large IPOs to draw attention back to the market. Equity raising is anticipated to be higher (as a percentage of market cap) versus the last two years, but this is mostly with the inclusion of Maxis’ relisting. Much more needs to be done. Indeed, just to keep up with the region, Malaysia has to expand the depth and breadth of the market at a higher rate. Here are our suggestions:
What needs to be done to improve the IPO pipeline?
• To improve the depth and breath of the market, Malaysian companies with foreign subsidiaries should be encouraged to list on Bursa (RM8.17, sell, target price RM3.30). Bursa should encourage companies, such as Sime Darby, YTL Power (RM2.17, hold), etc to list their profitable businesses in Malaysia to raise funds for future investment plans.
• Encourage the government to list Petronas. If the government is not willing to list its prized exploration and production division (E&P), the LNG and refinery divisions are substantial enough on their own to make a significant difference to the market. After culling through various scenarios and possible options, this is the most effective means for addressing a large part of the market’s structural issues.
• Encourage Malaysian entrepreneurs to list their businesses in Malaysia (and not in HK or Singapore). With the recent liberalisation rules on bumiputra shareholdings relating to pre- and post-IPO structures, such an option should now be met with less objections. Promoters are now able to stay in control, with up to 75% (post IPO) vs 45% under the previous structure.
Petronas is large; could potentially raise Malaysia’s weightings from 3.8% to 6.4%. In a country report on Malaysia by IPE.com (dated Jan 30, 2009), it was stated that Petronas could be worth US$207 billion (RM912.6 billion) assuming 15x forward PER. This is almost the same as Malaysia’s entire market cap of US$257 billion.
Based on this and assuming that only 25% of Petronas is listed, Malaysia’s free-float adjusted weightings in MSCI Asia ex-Japan could rise from 3.8% to 6.4% based on our estimates.
This is a material change, and one we believe the government should consider. It would transform the Malaysian market and would allow the government to unlock value in Petronas but still maintain control, in our view. This could also help raise US$52 billion (25% listing) in order to help narrow the government’s fiscal deficit.
Conclusions: Petronas is critical to lifting market profile and size
• The listing of Petronas could almost double the total market cap of Malaysia, to US$464 billion from US$257 billion currently.
• If listed in its entirety, Petronas alone would be 40% of MSCI Malaysia’s weighting (assuming 25% free float).
• Petronas is such a behemoth entity that a mere 10% release of its equity interest will result in an increase of Malaysia’s MSCI index market cap from US$76 billion to US$101 billion with the index weighting rising to 4.99% from 3.84% currently.
• While the listing of Petronas as a whole entity remains uncertain, a plausible scenario would be for Petronas to list its downstream subsidiaries such as gas/LNG and refineries while preserving its upstream E&P. The current outlook for LNG is positive, thanks to an increase in the current and future global demand for a cleaner, greener energy source. Malaysia is currently the third-largest LNG producer in the world.
• A partial listing of Petronas’ gas/LNG and refineries alone would also create a dramatic impact on the market. Just a 25% injection of Petronas gas/LNG and refineries equity stakes combined would push Malaysia’s MSCI index market cap to US$123 billion and index weighting to 5.95% by itself.
• Combining the Petronas possibility and Khazanah’s 25% uniform reduction of holdings, Malaysia should have an MSCI index market cap of US$130 billion and weighting of 6.28% within Asia ex-Japan. This combination can provide the catalyst that would allow Malaysia to command a more meaningful weighting and one that is on par with Singapore.
• Petronas will be a critical component in determining how sizeable Malaysia can become in the MSCI Asia Pac, ex Japan Index, we believe. Divesting the holdings from Khazanah and possibly other GLCs is certainly a good start. However, if the intention is for Malaysia to be able to tip the scale, and PNB is certainly unlikely to scale back its holdings, any strategy or attempt has to include Petronas as part of the equation. This is absolutely essential.
(3) Fund flows into Malaysiastill lagging
Fund flows into Asia ex-Japan rebounded in late August/early September, largely led by India, Korea, and Singapore. Again, Malaysia lagged. This would explain why foreign ownership in the market has barely changed since the start of the year. Malaysia’s weightings and fund flows are in sharp contrast to Indonesia.
Najib’s first six months
Surprising his critics: delivering punchy initiatives so far...
Najib’s first six months in power as prime minister have been closely watched by all. So far, so good — he had a positive start despite inheriting a weak economy, a fractured coalition party, a disenchanted voter base, and an unloved market facing significant structural challenges.
Three significant market-related initiatives were introduced by Najib. Critics may argue that these capital markets initiatives were late in a regional context. We do not disagree with this view, but in the context of Malaysia’s national economic policy (NEP), these changes should be viewed as bold. No other prime minister has attempted to address these issues.
• In June, the Foreign Investment Committee (FIC), which oversees mergers, acquisitions and equity stakes (viewed largely as an administrative roadblock by many), was abolished. Pre-IPO bumiputra ownership was also reduced from 30% to 12.5%, with no requirement post-IPO or for future fund raising.
This, in our opinion, was positive as it provided clarity on ownership rules and should allow promoters of companies to maintain a comfortable majority (75% vs. 45% previously) post-IPO.
The re-listing of Maxis may be an important step in forcing investors to reconsider the Malaysian market again. The positive ownership liberalisation measures will take time to translate into greater depth and breadth in the market. Unfortunately, Malaysia faces stiff competition in the region.
• Foreigners are now able to own 100% of a commercial property asset if acquired from a non-bumiputra controlled entity. Also, ownership in selected sub-sectors of the financial industry was liberalised too; eg, foreigners are now able to own 70%-100% of a local fund management entity, 70% of local stockbrokers vs 40% previously.
• CONSTRUCTION [] jobs are finally hitting the economy. The lack of policy implementation was one of the weaknesses of the previous administration. The good news is that contractors’ feedback so far tells us that government infrastructure jobs have been awarded and the knock- on effect is beginning to have an impact on the real economy.
... but much still needs to be done; politics still a dominant issue
Politics matters more than ever for this market, especially when investors’ confidence in Indonesia’s political backdrop has improved significantly over the last 12 months. There has never been a time when all political parties are at odds with their own identity.
The ruling coalition party, Barisan Nasional (BN), remains fractured, with Umno trying to find the right balance between embracing structural change to stay relevant to its increasingly young voters and on the other hand, being seen to be protecting Malay rights, where applicable.
Rebuilding confidence and renewed aspirations in the ruling coalition party
Najib has made some strides in trying to rebuild confidence and political momentum within the party.
The recent proposal to abolish the nomination quota structure for Umno elections was a significant milestone for the party and it sends a clear message that the party has little choice but to reform. But BN has other challenges too, especially with other key component parties like MCA and MIC squabbling internally.
Challenges within the opposition party, too
The opposition coalition too has its own challenges. PKR component parties have aired their internal disagreements publicly on issues perceived to be minor. Datuk Seri Anwar Ibrahim, the opposition leader, appears to be distracted by his court proceedings.
Eighteen months since the March 2008 general election, Malaysians are still unsure what PKR truly stands for given the absence of a manifesto and a much-needed shadow cabinet. Critics argue the opposition party may well be squandering a rare opportunity to gain greater support.
All eyes on the outcome of the Bagan Pinang by-electionon Oct 10
The Bagan Pinang by-election, the ninth since the general election, is an important bellweather to determine how BN has fared since Najib became prime minister. The polling date was for Oct 10 and BN was tipped to regain the seat as it is the clear incumbent supported by sizeable postal votes. If BN loses, this would be negative for the market. BN won the Bagan Pinang by-election by an increased majority of 5,435 votes.
A positive start; much more required
Najib has surprised the market so far by delivering much-needed market reforms in his first six months. The market will now be watching to see if these initiatives can be implemented effectively. Much still needs to be done to lift investor confidence in Malaysia.
This will certainly take time to take effect, especially given the competitive environment for capital across the region. In fact, we believe Malaysia has to work doubly hard to win back investors’ “mind share” in order to keep up with the dynamism of structural reforms in the region.
This article appeared in The Edge Financial Daily, October 15, 2009.
Pantech: Strong growth prospects on cheap valuations
Pantech: Strong growth prospects on cheap valuations
Tags: InsiderAsia | Pantech
Written by InsiderAsia
Thursday, 15 October 2009 16:50
WE are upbeat on Pantech's (RM1) prospects going forward. The company has built a strong business franchise, reputation and track record as one of the largest one-stop centres for PFF (pipes, fittings and flow control products) solutions in the country.
In addition to a strong hold on the domestic market, Pantech has also made inroads overseas with its range of manufactured carbon steel fittings. Its customised long bends, in particular, have enjoyed good demand abroad including in the US, Asia and the Middle East.
Pantech maintains good profitability
Demand for PFF has demonstrated resilience over the past few quarters amid uncertainties in the global economy. And despite the sharp plunge in prices for steel products, Pantech is still running a very profitable business. This is underscored by its earnings results for the first half (1H) of the financial year ending February 2010.
Sales were up by about 2% year-on-year (y-o-y), totalling RM243.3 million, in 1HFY10. Even though net profit dropped 16% y-o-y to RM28.3 million, the results were admirable given the sharp drop in prices for steel products since hitting peak levels in mid-2008. To be sure, Pantech is no longer earning "abnormal" margins/profits due to record prices. But the underlying fundamentals of the business remain very much intact.
Sales for the manufacturing arm, the bulk of which were for export, fell sharply in 1HFY10 as a result of the global downturn. Demand in the US, one of its biggest markets, in particular was weak.
Positively, strong demand in the local market picked up the slack. The company's trading arm remains its biggest earnings generator, servicing, primarily, the domestic oil and gas sector as well as palm oil and refinery, petrochemical and oleo-chemicals industries.
The oil and gas sector is estimated to account for about 70% of Pantech's sales and will be the key driver for growth going forward.
Still very much a growing company
Pantech is committed to a growth strategy. Crude oil is expected to remain the primary fuel source for the world in the foreseeable future. Hence, exploration and development activities will continue to drive growth in the supporting industries.
The company is in the process of acquiring a piece of land totaling some 20 acres in the Pasir Gudang Industrial Area, Johor, for RM12.85 million. The land will be used for its new corporate office and warehouse, which will consolidate its southern region warehouse, office and supply chain.
Also on the drawing board are plans to build a new factory — to expand its current range of manufactured PFF products. Total capex for the buildings is estimated at RM50 million.
In addition to expanding its product range, Pantech is focused on tapping new export markets. Most recently, Pantech gained approval from the EU Commission to sell its products in the euro zone without attracting the hefty anti-dumping duties currently levied on many countries, including Malaysia.
It has already made promising inroads. The euro zone market, which is relatively protected, offers vast potential. At the same time, Pantech is working hard to further penetrate the Middle East markets, including oil-rich Saudi Arabia.
If all goes to plan, sales to these new markets will boost utilisation at the company's existing manufacturing plant, for a start. Utilisation has fallen to about 55% currently, due to weak global demand, especially in the US. Success will also diversify the company's geographical risks going forward.
Another of the company's main strategies is to move towards higher-value products, such as corrosion resistant PFF for the subsea segment of the oil and gas industry.
Low valuations offer upside gains
Pantech's shares are very attractively valued against our estimated growth for the company as well as the broader market's average valuations. This promises good capital gains potential as the stock is gradually rerated upwards.
The stock is now trading at only 6.7 times our estimated earnings of 15 sen per share for FY10. Earnings are forecast to grow a further 18% to RM66.5 million in FY11, underpinned by the global economic recovery.
Thus, Pantech's prevailing valuations compare favourably to its prospective growth rates as well as the average valuations for oil and gas stocks (estimated at about 10-12 times price-to-earnings or P/E) and the broader market (about 17-18 times P/E).
Pantech also pays higher-than-market average yields. Based on estimated dividends totalling three sen per share for the current financial year, shareholders will earn a fairly attractive net yield of 3%. Dividends are expected to grow further in line with Pantech's earnings expansion going forward.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/151411-pantech-strong-growth-prospects-on-cheap-valuations.html
Tags: InsiderAsia | Pantech
Written by InsiderAsia
Thursday, 15 October 2009 16:50
WE are upbeat on Pantech's (RM1) prospects going forward. The company has built a strong business franchise, reputation and track record as one of the largest one-stop centres for PFF (pipes, fittings and flow control products) solutions in the country.
In addition to a strong hold on the domestic market, Pantech has also made inroads overseas with its range of manufactured carbon steel fittings. Its customised long bends, in particular, have enjoyed good demand abroad including in the US, Asia and the Middle East.
Pantech maintains good profitability
Demand for PFF has demonstrated resilience over the past few quarters amid uncertainties in the global economy. And despite the sharp plunge in prices for steel products, Pantech is still running a very profitable business. This is underscored by its earnings results for the first half (1H) of the financial year ending February 2010.
Sales were up by about 2% year-on-year (y-o-y), totalling RM243.3 million, in 1HFY10. Even though net profit dropped 16% y-o-y to RM28.3 million, the results were admirable given the sharp drop in prices for steel products since hitting peak levels in mid-2008. To be sure, Pantech is no longer earning "abnormal" margins/profits due to record prices. But the underlying fundamentals of the business remain very much intact.
Sales for the manufacturing arm, the bulk of which were for export, fell sharply in 1HFY10 as a result of the global downturn. Demand in the US, one of its biggest markets, in particular was weak.
Positively, strong demand in the local market picked up the slack. The company's trading arm remains its biggest earnings generator, servicing, primarily, the domestic oil and gas sector as well as palm oil and refinery, petrochemical and oleo-chemicals industries.
The oil and gas sector is estimated to account for about 70% of Pantech's sales and will be the key driver for growth going forward.
Still very much a growing company
The company is in the process of acquiring a piece of land totaling some 20 acres in the Pasir Gudang Industrial Area, Johor, for RM12.85 million. The land will be used for its new corporate office and warehouse, which will consolidate its southern region warehouse, office and supply chain.
Also on the drawing board are plans to build a new factory — to expand its current range of manufactured PFF products. Total capex for the buildings is estimated at RM50 million.
In addition to expanding its product range, Pantech is focused on tapping new export markets. Most recently, Pantech gained approval from the EU Commission to sell its products in the euro zone without attracting the hefty anti-dumping duties currently levied on many countries, including Malaysia.
It has already made promising inroads. The euro zone market, which is relatively protected, offers vast potential. At the same time, Pantech is working hard to further penetrate the Middle East markets, including oil-rich Saudi Arabia.
If all goes to plan, sales to these new markets will boost utilisation at the company's existing manufacturing plant, for a start. Utilisation has fallen to about 55% currently, due to weak global demand, especially in the US. Success will also diversify the company's geographical risks going forward.
Another of the company's main strategies is to move towards higher-value products, such as corrosion resistant PFF for the subsea segment of the oil and gas industry.
Low valuations offer upside gains
Pantech's shares are very attractively valued against our estimated growth for the company as well as the broader market's average valuations. This promises good capital gains potential as the stock is gradually rerated upwards.
The stock is now trading at only 6.7 times our estimated earnings of 15 sen per share for FY10. Earnings are forecast to grow a further 18% to RM66.5 million in FY11, underpinned by the global economic recovery.
Thus, Pantech's prevailing valuations compare favourably to its prospective growth rates as well as the average valuations for oil and gas stocks (estimated at about 10-12 times price-to-earnings or P/E) and the broader market (about 17-18 times P/E).
Pantech also pays higher-than-market average yields. Based on estimated dividends totalling three sen per share for the current financial year, shareholders will earn a fairly attractive net yield of 3%. Dividends are expected to grow further in line with Pantech's earnings expansion going forward.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/151411-pantech-strong-growth-prospects-on-cheap-valuations.html
Saturday 17 October 2009
Public Bank on track to meet full-year estimates
Update Public Bank on track to meet full-year estimates
Tags: 52-week high | Cambodian Public Bank plc | Islamic banking business | Maybank IB | OPR | OSK Research | Public Bank Bhd | Public Islamic Bank Bhd | Tan Sri Tay Ah Lek | third quarter
Written by Ellina Badri
Friday, 16 October 2009 00:42
KUALA LUMPUR: PUBLIC BANK BHD [] surged to its 52-week high of RM10.70 on Oct 15, the highest it has been since May 2008, following the release of its third quarter ended Sept 30, 2009 (3QFY09) results, which put it on track to meet full-year consensus estimates.
Its net profit in 3QFY09 rose 3.68% year-on-year (y-o-y) to RM639.05 million on the back of strong loans and deposit growth and stable asset quality, coming in slightly above analysts’ expectations of a growth of between 2% and 3%.
Upon mild profit taking, the stock closed unchanged at RM10.62 on Oct 15, with 2.3 million shares done. Its foreign shares rose two sen to RM10.62 on 681,400 shares traded.
In a statement on Oct 15, the country’s third-largest lender said the growth in profit was despite the negative impact of the drop in Bank Negara Malaysia’s overnight policy rate (OPR) and the slowing economy.
Revenue, however, fell 12.5% to RM2.44 billion in 3QFY09 from a year earlier, while earnings per share grew to 18.52 sen from 18.37 sen. It did not declare any dividend.
Its annualised net return on equity stood at 25.5%.
For the nine months to Sept 30, 2009, net profit declined 4.66% to RM1.84 billion from a year earlier, as its results in the previous corresponding period had included a one-off goodwill income of RM200 million from ING Asia/Pacific Ltd in respect to a regional strategic alliance on bancassurance distribution, it said.
It said excluding the goodwill, the group’s net profit rose 3.2% y-o-y during the nine-month period. Revenue dipped to RM7.22 billion from RM7.94 billion, while earnings per share declined to 53.66 sen from 57.44 sen.
If it maintains the profit momentum for the rest of the financial year, its net profit for FY09 could come in at RM2.45 billion, higher than consensus estimates of RM2.38 billion.
In a note on Oct 15, OSK Research said Public Bank’s annualised nine-month results were largely within its and consensus full-year forecasts, accounting for 73% and 77% of consensus estimates.
OSK and Maybank Investment Bank had both revised upwards its FY09 earnings forecasts for Public Bank ahead of its 3QFY09 results announcement.
OSK now expects the bank’s net profit to grow 5.9% to RM2.58 billion, after raising its loans growth estimates to 15% from 13.4% previously, while Maybank IB has upped its FY09 net profit forecast by 3%, expecting recurring net profit to come in at RM2.69 billion for the full year after adjusting for lower loan loss provisions.
Pre-tax profit at its local commercial bank, Public Bank Bhd, was lower at RM1.92 billion compared with RM2.13 billion in the nine months to Sept 30, 2008, mainly due to the goodwill as well as from the vesting of its Islamic banking business to its unit, Public Islamic Bank Bhd in November 2008.
Pre-tax profit contributions from its overseas operations fell by 35.9% to RM186.8 million, also due to the goodwill from ING.
Commenting on its higher nine-month net profit, the bank said: “The profit improvement was primarily due to higher net interest and financing income by RM273.1 million, which grew 8.6%, and higher other operating income by RM92.7 million, or 9.9%.”
It said the higher net interest and financing income, despite the negative impact arising from the reduction in OPR three times since November 2008, was attributable to the sustained high rate of growth in both quality loans and customer deposits, whilst asset quality remained stable.
It also said its higher other operating income was mainly due to higher investment income from securities held, as well as higher foreign exchange profit during the nine months to Sept 30.
“These were partially offset by higher other operating expenses by RM225.2 million and higher loan loss and impairment loss allowances by RM87.8 million resulting from higher business volumes,” it said.
It added the higher other operating expenses was due to an increase in personnel costs from the growth of its marketing sales force, while the higher loan loss allowance was partly due to higher general allowance by RM41.9 million, resulting from higher loan growth achieved during the nine month period.
Public Bank said total loans, advances and financing rose 10.7% year-on-year to RM133.6 billion in the nine months to Sept 30.
Its annualised loans growth and core deposit growth was 14.3% and 19.5%, respectively, ahead of the banking system’s annualised growth of 6.8% and 6.3%, it said.
“We are on track to achieve the targeted 14%-15% loan growth for 2009, supported by demand from small and medium-sized business enterprises and increases in housing loans and motor vehicle hire purchase financing,” the bank’s managing director and chief executive officer, Tan Sri Tay Ah Lek said.
Despite the above-average loans growth, the banking group maintained its asset quality, with its net non-performing loans ratio strengthening to 0.82% as at Sept 30 compared with 0.87% a year earlier, compared with the industry’s net NPL ratio of 2.1% as at end-August, the bank said.
It said loan loss coverage stood at 171%, from 160% in FY08, due to additional general allowance, amounting to RM1.99 billion, set aside for its loans growth.
The bank’s risk-weighted capital and core capital ratios stood at 11% and 12.1%, respectively, it said.
Meanwhile, the bank said total customer deposits grew 12.6% to RM182.7 billion, as core customer deposits rose 14.6% to RM128.8 billion.
Its overseas operations also contributed to deposits growth, especially Public Financial Holdings Group in Hong Kong and Cambodian Public Bank plc, which reported deposits growth of 15.6% and 53.6%, respectively.
Its unit trust and fund management business’s net asset value of funds under management grew 45% y-o-y to RM33.8 billion in the nine months to Sept 30, and recorded total unit trust sales of RM6.1 billion, while its bancassurance business reported a 64% increase in sales.
On the group’s prospects, Tay said: “As the global recession begins to recede and with recovery on the horizon, the outlook for the banking industry is expected to improve. However, margins continue to be under pressure due to continued intense competition.”
http://www.theedgemalaysia.com/business-news/151451-update-public-bank-on-track-to-meet-full-year-estimates.html
Tags: 52-week high | Cambodian Public Bank plc | Islamic banking business | Maybank IB | OPR | OSK Research | Public Bank Bhd | Public Islamic Bank Bhd | Tan Sri Tay Ah Lek | third quarter
Written by Ellina Badri
Friday, 16 October 2009 00:42
KUALA LUMPUR: PUBLIC BANK BHD [] surged to its 52-week high of RM10.70 on Oct 15, the highest it has been since May 2008, following the release of its third quarter ended Sept 30, 2009 (3QFY09) results, which put it on track to meet full-year consensus estimates.
Its net profit in 3QFY09 rose 3.68% year-on-year (y-o-y) to RM639.05 million on the back of strong loans and deposit growth and stable asset quality, coming in slightly above analysts’ expectations of a growth of between 2% and 3%.
Upon mild profit taking, the stock closed unchanged at RM10.62 on Oct 15, with 2.3 million shares done. Its foreign shares rose two sen to RM10.62 on 681,400 shares traded.
In a statement on Oct 15, the country’s third-largest lender said the growth in profit was despite the negative impact of the drop in Bank Negara Malaysia’s overnight policy rate (OPR) and the slowing economy.
Revenue, however, fell 12.5% to RM2.44 billion in 3QFY09 from a year earlier, while earnings per share grew to 18.52 sen from 18.37 sen. It did not declare any dividend.
Its annualised net return on equity stood at 25.5%.
For the nine months to Sept 30, 2009, net profit declined 4.66% to RM1.84 billion from a year earlier, as its results in the previous corresponding period had included a one-off goodwill income of RM200 million from ING Asia/Pacific Ltd in respect to a regional strategic alliance on bancassurance distribution, it said.
It said excluding the goodwill, the group’s net profit rose 3.2% y-o-y during the nine-month period. Revenue dipped to RM7.22 billion from RM7.94 billion, while earnings per share declined to 53.66 sen from 57.44 sen.
If it maintains the profit momentum for the rest of the financial year, its net profit for FY09 could come in at RM2.45 billion, higher than consensus estimates of RM2.38 billion.
In a note on Oct 15, OSK Research said Public Bank’s annualised nine-month results were largely within its and consensus full-year forecasts, accounting for 73% and 77% of consensus estimates.
OSK and Maybank Investment Bank had both revised upwards its FY09 earnings forecasts for Public Bank ahead of its 3QFY09 results announcement.
OSK now expects the bank’s net profit to grow 5.9% to RM2.58 billion, after raising its loans growth estimates to 15% from 13.4% previously, while Maybank IB has upped its FY09 net profit forecast by 3%, expecting recurring net profit to come in at RM2.69 billion for the full year after adjusting for lower loan loss provisions.
Pre-tax profit at its local commercial bank, Public Bank Bhd, was lower at RM1.92 billion compared with RM2.13 billion in the nine months to Sept 30, 2008, mainly due to the goodwill as well as from the vesting of its Islamic banking business to its unit, Public Islamic Bank Bhd in November 2008.
Pre-tax profit contributions from its overseas operations fell by 35.9% to RM186.8 million, also due to the goodwill from ING.
Commenting on its higher nine-month net profit, the bank said: “The profit improvement was primarily due to higher net interest and financing income by RM273.1 million, which grew 8.6%, and higher other operating income by RM92.7 million, or 9.9%.”
It said the higher net interest and financing income, despite the negative impact arising from the reduction in OPR three times since November 2008, was attributable to the sustained high rate of growth in both quality loans and customer deposits, whilst asset quality remained stable.
It also said its higher other operating income was mainly due to higher investment income from securities held, as well as higher foreign exchange profit during the nine months to Sept 30.
“These were partially offset by higher other operating expenses by RM225.2 million and higher loan loss and impairment loss allowances by RM87.8 million resulting from higher business volumes,” it said.
It added the higher other operating expenses was due to an increase in personnel costs from the growth of its marketing sales force, while the higher loan loss allowance was partly due to higher general allowance by RM41.9 million, resulting from higher loan growth achieved during the nine month period.
Public Bank said total loans, advances and financing rose 10.7% year-on-year to RM133.6 billion in the nine months to Sept 30.
Its annualised loans growth and core deposit growth was 14.3% and 19.5%, respectively, ahead of the banking system’s annualised growth of 6.8% and 6.3%, it said.
“We are on track to achieve the targeted 14%-15% loan growth for 2009, supported by demand from small and medium-sized business enterprises and increases in housing loans and motor vehicle hire purchase financing,” the bank’s managing director and chief executive officer, Tan Sri Tay Ah Lek said.
Despite the above-average loans growth, the banking group maintained its asset quality, with its net non-performing loans ratio strengthening to 0.82% as at Sept 30 compared with 0.87% a year earlier, compared with the industry’s net NPL ratio of 2.1% as at end-August, the bank said.
It said loan loss coverage stood at 171%, from 160% in FY08, due to additional general allowance, amounting to RM1.99 billion, set aside for its loans growth.
The bank’s risk-weighted capital and core capital ratios stood at 11% and 12.1%, respectively, it said.
Meanwhile, the bank said total customer deposits grew 12.6% to RM182.7 billion, as core customer deposits rose 14.6% to RM128.8 billion.
Its overseas operations also contributed to deposits growth, especially Public Financial Holdings Group in Hong Kong and Cambodian Public Bank plc, which reported deposits growth of 15.6% and 53.6%, respectively.
Its unit trust and fund management business’s net asset value of funds under management grew 45% y-o-y to RM33.8 billion in the nine months to Sept 30, and recorded total unit trust sales of RM6.1 billion, while its bancassurance business reported a 64% increase in sales.
On the group’s prospects, Tay said: “As the global recession begins to recede and with recovery on the horizon, the outlook for the banking industry is expected to improve. However, margins continue to be under pressure due to continued intense competition.”
http://www.theedgemalaysia.com/business-news/151451-update-public-bank-on-track-to-meet-full-year-estimates.html
CIMB Research keeps Outperform call on Public Bank
CIMB Research keeps Outperform call on Public Bank
Written by Joseph Chin
Friday, 16 October 2009 09:54
KUALA LUMPUR: CIMB Equities Research reaffirmed its Outperform recommendation on Public Bank following its superior 3Q09 performance with double-digit loan growth, benign non-performing loans (NPL) ratio and returns on equity (ROE) of 25.7%.
"It remains our pick of the big-cap Malaysian banks. Potential share price triggers include ROEs of 28%-29% for FY10-11; iincreased contributions from Greater China, and new growth avenue in bancassurance," it said.
CIMB said on Friday, Oct 16 another plus factor was Public Bank was the bank's dividend yield of 9%-10%, the highest in the sector.
On Thursday, Public Bank posted net profit of RM639.04 million compared with the RM616.34 million a year ago. Revenue was RM2.438 billion, a slight decline from the RM2.79 billion a year ago. Earnings per share were 18.52 sen compared with 18.37 sen.
For the nine-months ended Sept 30, 2009, net profit declined to RM1.839 billion compared with RM1.927 billion. Revenue slipped to RM7.22 billion from RM7.94 billion.
"Public Bank's nine-months net profit slipped 4.6% to RM1.84 billion, which is within expectations, being 72% of our full-year forecast and 76% of consensus. As expected, the bank did not declare a dividend for the quarter, keeping the YTD dividend per share at 30 sen.
"We are tweaking our FY09-11 earnings up by 0.2-0.6% while retaining our target price of RM15.00 as we continue to apply a 10% premium over our DDM value (unchanged cost of equity of 14.3% and interim dividend growth rate of 11.4%). The stock remains an Outperform," it said.
http://www.theedgemalaysia.com/business-news/151460-cimb-research-keeps-outperform-call-on-public-bank.html
Written by Joseph Chin
Friday, 16 October 2009 09:54
KUALA LUMPUR: CIMB Equities Research reaffirmed its Outperform recommendation on Public Bank following its superior 3Q09 performance with double-digit loan growth, benign non-performing loans (NPL) ratio and returns on equity (ROE) of 25.7%.
"It remains our pick of the big-cap Malaysian banks. Potential share price triggers include ROEs of 28%-29% for FY10-11; iincreased contributions from Greater China, and new growth avenue in bancassurance," it said.
CIMB said on Friday, Oct 16 another plus factor was Public Bank was the bank's dividend yield of 9%-10%, the highest in the sector.
On Thursday, Public Bank posted net profit of RM639.04 million compared with the RM616.34 million a year ago. Revenue was RM2.438 billion, a slight decline from the RM2.79 billion a year ago. Earnings per share were 18.52 sen compared with 18.37 sen.
For the nine-months ended Sept 30, 2009, net profit declined to RM1.839 billion compared with RM1.927 billion. Revenue slipped to RM7.22 billion from RM7.94 billion.
"Public Bank's nine-months net profit slipped 4.6% to RM1.84 billion, which is within expectations, being 72% of our full-year forecast and 76% of consensus. As expected, the bank did not declare a dividend for the quarter, keeping the YTD dividend per share at 30 sen.
"We are tweaking our FY09-11 earnings up by 0.2-0.6% while retaining our target price of RM15.00 as we continue to apply a 10% premium over our DDM value (unchanged cost of equity of 14.3% and interim dividend growth rate of 11.4%). The stock remains an Outperform," it said.
http://www.theedgemalaysia.com/business-news/151460-cimb-research-keeps-outperform-call-on-public-bank.html
Nam Cheong delivers vessel worth US$22.5m
Nam Cheong delivers vessel worth US$22.5m
Tags: Nam Cheong Dockyard Sdn Bhd
Written by Financial Daily
Friday, 16 October 2009 11:21
HO CHI MINH CITY: Nam Cheong Dockyard Sdn Bhd recently signed a deal with Petroleum Technical Services Corporation (PTSC) here to mark the delivery of an offshore support vessel (OSV) valued at US$22.5 million (RM75.6 million) before the end of the month.
Headquartered in Hanoi, PTSC, a unit of the Vietnamese state-owned Vietnam Oil & Gas Group, provides oil and gas technical services in Vietnam and internationally.
“Nam Cheong is not new in the Vietnam market. This year alone, we have sold three vessels to buyers here. This is in addition to six other vessels built by us that are operating in the Vietnam waters currently,” said Nam Cheong managing director Leong Seng Keat.
The agreement was signed between Nam Cheong’s executive chairman Datuk Tiong Su Kouk and PTSC general director Nguyen Hung Bung. YINSON HOLDINGS BHD [] managing director Lim Han Weng witnessed the ceremony. Yinson was the shipbroker of the deal.
Miri-based Nam Cheong specialises in building OSVs. It built and sold 12 vessels last year.
This article appeared in The Edge Financial Daily, October 16, 2009.
Tags: Nam Cheong Dockyard Sdn Bhd
Written by Financial Daily
Friday, 16 October 2009 11:21
HO CHI MINH CITY: Nam Cheong Dockyard Sdn Bhd recently signed a deal with Petroleum Technical Services Corporation (PTSC) here to mark the delivery of an offshore support vessel (OSV) valued at US$22.5 million (RM75.6 million) before the end of the month.
Headquartered in Hanoi, PTSC, a unit of the Vietnamese state-owned Vietnam Oil & Gas Group, provides oil and gas technical services in Vietnam and internationally.
“Nam Cheong is not new in the Vietnam market. This year alone, we have sold three vessels to buyers here. This is in addition to six other vessels built by us that are operating in the Vietnam waters currently,” said Nam Cheong managing director Leong Seng Keat.
The agreement was signed between Nam Cheong’s executive chairman Datuk Tiong Su Kouk and PTSC general director Nguyen Hung Bung. YINSON HOLDINGS BHD [] managing director Lim Han Weng witnessed the ceremony. Yinson was the shipbroker of the deal.
Miri-based Nam Cheong specialises in building OSVs. It built and sold 12 vessels last year.
This article appeared in The Edge Financial Daily, October 16, 2009.
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