Wednesday 17 June 2009
POH KONG
# POH KONG HOLDINGS BHD posted a lower pre-tax profit of RM6.798 million in the third quarter ended April 30, 2009, compared to RM12.816 million a year before. Revenue fell to RM121.3 million from RM124.236 million previously.
'The market is as cheap as in 1953'
'The market is as cheap as in 1953'
When the market turns it will be one of the most stunning bull markets any of us has experienced.
By James Bartholomew
Published: 3:03PM GMT 19 Mar 2009
These are truly extraordinary times. Share prices of many smaller companies are almost unbelievably low. I was once told by an editor never to use the word "cheap" and he had good reason. You can say something looks "cheap" today and look pretty silly when it is even cheaper tomorrow. But really these times make it very difficult not to employ the "c" word.
There is no pleasing the market. On Monday, two of the companies in which I have serious stakes – worth more than 7pc of my portfolio – announced results. Aero Inventory, which manages aircraft parts for airlines, produced excellent profits – up by nearly half. How did the shares respond? They fell 17pc.
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Yes, there were one or two reasons for the fall. Above the rest, the company said it had not been able to agree terms for a new contract with a major airline. That was a disappointment. But the irony is in the past six months or so, I have been told that the share price has been weak because of fear of overexpansion leading to a need for capital-raising. So, one minute the company is distrusted because it is expanding too fast, the next it is spurned for not expanding quickly enough. Damned if you do, damned if you don't.
The other company that reported on Monday is safe and exciting. Healthcare Locums, an agency for health and social workers, still slumped 6pc on Tuesday morning.
Sometimes the market seems moody. Shares can rise or fall 20pc with no apparent cause. I wonder if it can be occasionally a single, relatively modest buyer or seller who moves the market a great deal because the turnover in shares has fallen so low. Some of my shares, REA Holdings for example, can easily go through a day without a share being bought or sold. I would also guess that sometimes the buying and selling is just because some people – or funds – need cash.
In theory, this should provide an ideal hunting ground for those seeking good long-term investments. Aero Inventory is forecast by Numis Securities to make earnings per share this year of 83p. The share price earlier this week was 168p. So the share price was only a fraction over two times forecast earnings. Normally my rule of thumb is to say that anything with an earnings multiple of less than 10 is lowly rated. A good company on a multiple of five I would normally regard as extremely good value. But a multiple of two? That is astonishing.
No, gritting my teeth, I won't use the "c" word. But what can you say? It is hard to do justice to how astonishing this kind of valuation is. And it is not as though the company is in any discernible danger. Yes, it is geared but it is profitable and has banking facilities right the way through to 2013. Aero Inventory is an extreme example of the market as a whole.
On the bad side, the chart of the FTSE 100, like the chart of Aero, offers no encouragement. There has been no break in the downward trend. On the other, by any traditional measure, shares are excellent value. The redemption yield on 15-year government stock is currently 3.6pc, whereas the dividend yield on shares is 5.3pc.
Normally, it is the other way around: the dividend yield is lower than the return on government stock for the simple reason that, over time, dividends have historically risen whereas the yield on a government stock does not. True, some companies are reducing or cutting their dividends but this is at the margin. On this method of valuation, as far as I can discover, shares have not been such good value compared to government stock since about 1953.
My view is simple: shares are extremely good value, but it is impossible to know when the turn will come. When it does arrive, from this low valuation, it will be one of the most stunning bull markets any of us has experienced.
http://www.telegraph.co.uk/finance/personalfinance/investing/5017022/The-market-is-as-cheap-as-in-1953.html
When the market turns it will be one of the most stunning bull markets any of us has experienced.
By James Bartholomew
Published: 3:03PM GMT 19 Mar 2009
These are truly extraordinary times. Share prices of many smaller companies are almost unbelievably low. I was once told by an editor never to use the word "cheap" and he had good reason. You can say something looks "cheap" today and look pretty silly when it is even cheaper tomorrow. But really these times make it very difficult not to employ the "c" word.
There is no pleasing the market. On Monday, two of the companies in which I have serious stakes – worth more than 7pc of my portfolio – announced results. Aero Inventory, which manages aircraft parts for airlines, produced excellent profits – up by nearly half. How did the shares respond? They fell 17pc.
Related Articles
Opportunities still abound in tougher financial times
London rental market 'worst' performer
Gold falls for a third day
Bank bosses have bought just £1,500 worth of bank shares
Income funds in focus
Fantasy Fund Manager: Tips from the expert
Yes, there were one or two reasons for the fall. Above the rest, the company said it had not been able to agree terms for a new contract with a major airline. That was a disappointment. But the irony is in the past six months or so, I have been told that the share price has been weak because of fear of overexpansion leading to a need for capital-raising. So, one minute the company is distrusted because it is expanding too fast, the next it is spurned for not expanding quickly enough. Damned if you do, damned if you don't.
The other company that reported on Monday is safe and exciting. Healthcare Locums, an agency for health and social workers, still slumped 6pc on Tuesday morning.
Sometimes the market seems moody. Shares can rise or fall 20pc with no apparent cause. I wonder if it can be occasionally a single, relatively modest buyer or seller who moves the market a great deal because the turnover in shares has fallen so low. Some of my shares, REA Holdings for example, can easily go through a day without a share being bought or sold. I would also guess that sometimes the buying and selling is just because some people – or funds – need cash.
In theory, this should provide an ideal hunting ground for those seeking good long-term investments. Aero Inventory is forecast by Numis Securities to make earnings per share this year of 83p. The share price earlier this week was 168p. So the share price was only a fraction over two times forecast earnings. Normally my rule of thumb is to say that anything with an earnings multiple of less than 10 is lowly rated. A good company on a multiple of five I would normally regard as extremely good value. But a multiple of two? That is astonishing.
No, gritting my teeth, I won't use the "c" word. But what can you say? It is hard to do justice to how astonishing this kind of valuation is. And it is not as though the company is in any discernible danger. Yes, it is geared but it is profitable and has banking facilities right the way through to 2013. Aero Inventory is an extreme example of the market as a whole.
On the bad side, the chart of the FTSE 100, like the chart of Aero, offers no encouragement. There has been no break in the downward trend. On the other, by any traditional measure, shares are excellent value. The redemption yield on 15-year government stock is currently 3.6pc, whereas the dividend yield on shares is 5.3pc.
Normally, it is the other way around: the dividend yield is lower than the return on government stock for the simple reason that, over time, dividends have historically risen whereas the yield on a government stock does not. True, some companies are reducing or cutting their dividends but this is at the margin. On this method of valuation, as far as I can discover, shares have not been such good value compared to government stock since about 1953.
My view is simple: shares are extremely good value, but it is impossible to know when the turn will come. When it does arrive, from this low valuation, it will be one of the most stunning bull markets any of us has experienced.
http://www.telegraph.co.uk/finance/personalfinance/investing/5017022/The-market-is-as-cheap-as-in-1953.html
Financial crisis: The options for nervous investors?
Financial crisis: The options for nervous investors?
For everyday investors who have so far stood firm and headed the calls not to panic, they must be wondering whether their courage will pay dividends.
By Paul Farrow
Published: 9:10AM BST 30 Sep 2008
The FTSE100 has fallen to four year low leaving investors wondering whether worse is to come.
Henk Potts at Barclays Stockbrokers, said: "Inevitably this will be an extremely volatile market for sometime and there are some big hurdles to overcome. But many people with a brave heart are seeing this as a buying opportunity - our ratio of buyers to sellers yesterday was 72:28."
Related Articles
Barclays to increase UK lending by £11bn
Is it too late to buy bank shares?
'The market is as cheap as in 1953'
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This time a year ago the overall message was also to stay calm – although one stockbroker was a little more frank: "If you are going to panic, then panic early."
Those that refused to hold their nerve and did indeed panic, will be feeling smug right now because the bear market has long arrived. The FTSE100 has fallen from 6,200 to below 4,600 since 2004.
All but the most hardened investors will be wondering whether it still makes sense to cut and run. It is easy to be advised to stick with it, but seeing the pounds drop day by day is difficult to take – and with further woe widely predicted then who can blame investors from saying enough is enough.
Mark Dampier, head of research at Hargreaves Lansdown, said: "In all honesty no one has experience anything quite like this so any view is just that a view. In the UK the financial/property crisis will herald a UK recession for the whole of 2009. But stock markets are a discounting mechanism and will bottom well before the economy does which makes it very difficult to judge, as bad news will predominate.
"September and October are notoriously bad months in the stock markets and are living up to their name but we are now nearer the end game with markets. The politicians in the US will have to swallow their pride and egos as John Major did in 1992 and comeback with a package. This is not a bail out of Wall Street rich kids – it hits everyone and especially those in the real economy. It will be messy until economically illiterate politicians are made to see sense by the markets.
"At times like this I am reminded of the words of St John Templeton that 'the time of maximum pessimism is the best time to buy'. We are surely getting very close to that point."
Andrew Merricks, at Brighton-based Skerritts Consultants, says: "Thinking logically, not every company will go bust (far from it), so there must be a floor to which valuations can fall before bouncing. Perhaps we need to take notice of other regions than the UK, which is traditionally where we feel most comfortable. The positives are, admittedly, relative, but there are some. Firstly, the dividend yield on the FTSE All Share has exceeded the yield on the 10-year gilt.
"This historically has been a great indicator to future share price rallies, with the last time this happened being in March 2003 just as the markets took off. The other similarity with 2003 is that there were articles at that time questioning whether equities would ever work again and we had entered the “capitulation” stage, when the everyday investor had given up hope. Today feels somewhat similar. The world will be a different place as a consequence of September 2008. If this is so, it should be at the top of everyone’s priorities who has savings, investments or pensions to reassess how theirs will fare as events unfold."
Boll Doll, vice-chairman and chief investment officer for global equities at BlackRock, said: "The current situation ranks among the most difficult investors have faced in memory, and perhaps in generations. De-leveraging and re-pricing of risk have been exacting a heavy toll on the housing, credit and equity markets. The volatility in oil and other commodity prices, coupled with uncertainty about the direction of government policy and the outcome of the coming election, have made it difficult for investors to find their footing.
Nevertheless, investors should recognise that we are in the midst of panic and outright liquidation conditions, which are usually signs of the climax in selling. While the U.S. financial sector (which has been at the heart of the problem) has experienced a significant downturn in recent weeks, that sector has not broken through the lows it established in mid-July. To us, all of this suggests that equity markets are still in the midst of a bottoming phase."
Anthony Bolton, the Fidelity fund guru – who has delivered the goods – says that if you find it difficult to stay invested in the bear market and are panicked by the bad news, then perhaps equity investing is not right for you. If that's you, cash is the obvious alternative. You can get rates of more than 6.5 per cent on the market. Bolton has started to buy shares over the past few days.
Gold is the other classic safe haven and despite its price rising in recent days as investors search for low risk assets, it is still viewed as such. About a year ago, the gold price was $667 an ounce, but it rose to a peak of over $1,000 on 17 March – coinciding with the collapse of Bear Stearns – before falling back to its current level of around $900 this week.
If you are worried about losing money, consider a guaranteed equity bond (Geb). These are fixed-term savings plans that pay out a proportion of any gains in the stock market index or indices to which they are linked. If the market falls, the initial investment is returned in full. But be aware that any index growth excludes dividends, which make a huge difference to overall returns. And ensure the plan gives you a cast iron guarantee that your capital will be returned in full whatever happens to the stock market.
For those happy to remain invested in shares, Bolton says to focus on large, good quality companies. Avoid at all costs smaller and medium-sized companies with weak balance sheets, he says.
And if you want to stick with it then take these words from Maynard Keynes, perhaps the most famous investor of them all for comfort. He wrote in 1937: "It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind. When I can persuade the board of my insurance company to buy a share, that, I am learning from experience, is the right moment for selling it."
For everyday investors who have so far stood firm and headed the calls not to panic, they must be wondering whether their courage will pay dividends.
By Paul Farrow
Published: 9:10AM BST 30 Sep 2008
The FTSE100 has fallen to four year low leaving investors wondering whether worse is to come.
Henk Potts at Barclays Stockbrokers, said: "Inevitably this will be an extremely volatile market for sometime and there are some big hurdles to overcome. But many people with a brave heart are seeing this as a buying opportunity - our ratio of buyers to sellers yesterday was 72:28."
Related Articles
Barclays to increase UK lending by £11bn
Is it too late to buy bank shares?
'The market is as cheap as in 1953'
Private investors pile in to bank shares
Why gilt investors aren't buying into Darling's fantasy world
This time a year ago the overall message was also to stay calm – although one stockbroker was a little more frank: "If you are going to panic, then panic early."
Those that refused to hold their nerve and did indeed panic, will be feeling smug right now because the bear market has long arrived. The FTSE100 has fallen from 6,200 to below 4,600 since 2004.
All but the most hardened investors will be wondering whether it still makes sense to cut and run. It is easy to be advised to stick with it, but seeing the pounds drop day by day is difficult to take – and with further woe widely predicted then who can blame investors from saying enough is enough.
Mark Dampier, head of research at Hargreaves Lansdown, said: "In all honesty no one has experience anything quite like this so any view is just that a view. In the UK the financial/property crisis will herald a UK recession for the whole of 2009. But stock markets are a discounting mechanism and will bottom well before the economy does which makes it very difficult to judge, as bad news will predominate.
"September and October are notoriously bad months in the stock markets and are living up to their name but we are now nearer the end game with markets. The politicians in the US will have to swallow their pride and egos as John Major did in 1992 and comeback with a package. This is not a bail out of Wall Street rich kids – it hits everyone and especially those in the real economy. It will be messy until economically illiterate politicians are made to see sense by the markets.
"At times like this I am reminded of the words of St John Templeton that 'the time of maximum pessimism is the best time to buy'. We are surely getting very close to that point."
Andrew Merricks, at Brighton-based Skerritts Consultants, says: "Thinking logically, not every company will go bust (far from it), so there must be a floor to which valuations can fall before bouncing. Perhaps we need to take notice of other regions than the UK, which is traditionally where we feel most comfortable. The positives are, admittedly, relative, but there are some. Firstly, the dividend yield on the FTSE All Share has exceeded the yield on the 10-year gilt.
"This historically has been a great indicator to future share price rallies, with the last time this happened being in March 2003 just as the markets took off. The other similarity with 2003 is that there were articles at that time questioning whether equities would ever work again and we had entered the “capitulation” stage, when the everyday investor had given up hope. Today feels somewhat similar. The world will be a different place as a consequence of September 2008. If this is so, it should be at the top of everyone’s priorities who has savings, investments or pensions to reassess how theirs will fare as events unfold."
Boll Doll, vice-chairman and chief investment officer for global equities at BlackRock, said: "The current situation ranks among the most difficult investors have faced in memory, and perhaps in generations. De-leveraging and re-pricing of risk have been exacting a heavy toll on the housing, credit and equity markets. The volatility in oil and other commodity prices, coupled with uncertainty about the direction of government policy and the outcome of the coming election, have made it difficult for investors to find their footing.
Nevertheless, investors should recognise that we are in the midst of panic and outright liquidation conditions, which are usually signs of the climax in selling. While the U.S. financial sector (which has been at the heart of the problem) has experienced a significant downturn in recent weeks, that sector has not broken through the lows it established in mid-July. To us, all of this suggests that equity markets are still in the midst of a bottoming phase."
Anthony Bolton, the Fidelity fund guru – who has delivered the goods – says that if you find it difficult to stay invested in the bear market and are panicked by the bad news, then perhaps equity investing is not right for you. If that's you, cash is the obvious alternative. You can get rates of more than 6.5 per cent on the market. Bolton has started to buy shares over the past few days.
Gold is the other classic safe haven and despite its price rising in recent days as investors search for low risk assets, it is still viewed as such. About a year ago, the gold price was $667 an ounce, but it rose to a peak of over $1,000 on 17 March – coinciding with the collapse of Bear Stearns – before falling back to its current level of around $900 this week.
If you are worried about losing money, consider a guaranteed equity bond (Geb). These are fixed-term savings plans that pay out a proportion of any gains in the stock market index or indices to which they are linked. If the market falls, the initial investment is returned in full. But be aware that any index growth excludes dividends, which make a huge difference to overall returns. And ensure the plan gives you a cast iron guarantee that your capital will be returned in full whatever happens to the stock market.
For those happy to remain invested in shares, Bolton says to focus on large, good quality companies. Avoid at all costs smaller and medium-sized companies with weak balance sheets, he says.
And if you want to stick with it then take these words from Maynard Keynes, perhaps the most famous investor of them all for comfort. He wrote in 1937: "It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind. When I can persuade the board of my insurance company to buy a share, that, I am learning from experience, is the right moment for selling it."
Recession: How to invest
Recession: How to invest – an expert's view
Britain is on the brink of a recession and stock markets have been falling, leaving investors in a dilemma of where to invest. Nick Sketch, senior investment director Rensburg Sheppards Investment Management gives his view on where to put your money in the months ahead.
By Nick Sketch
Published: 9:14AM BST 24 Oct 2008
Nick Sketch at Rensburg Sheppards advises investors where invest for the recession. "Our policy remains to selectively increase risk, taking some cash off the sidelines to deploy into firstly corporate bond funds. We think that equities are cheaper than corporate bonds, in the same way that the latter are cheaper then gilts.
Nevertheless, we expect corporate bonds to outperform gilts before equities start going up in any useful way. In fact it is close to being a required precondition before equities can post a major & sustained recovery. Equities in aggregate should rise further on a (say) two or three year view than corporate bonds, but corporate bonds will rise first. What to buy depends on your risk tolerance and particularly on whether you are looking for a shorter term bounce or simply to buy long term value. After all, an active investor might buy corporate bonds now and then simply move some of that cash to equities if and when corporate bonds see a price recovery over the next few months.
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Much the same argument applies within the bond sectors. Non-financial-sector bonds may well start doing better before financial sector bonds, even though we expect financial sector bonds in aggregate to outperform non-financials over the next two or three years, as what we regard as their excessive undervaluation unwinds. However, financial sector bonds are in general a good deal more risky than non-financial bonds and are not likely to stop being so any time soon.
On this basis, a long term, risk-tolerant investor who does not want to trade too actively might just leap the intermediate steps and buy equities now. However, that would be going up the risk curve a long way. A cautious investor might buy some non-financial corporate bonds, but regard anything else as too risky.
And an active investor might well reckon that the best risk/return trade-off will come from owning non-financial corporate bonds now, then increasing the weighting in financial sector bonds.
Well-run corporate bond funds with low exposure to financial sector bonds certainly include the M&G Corporate Bond fund. Fidelity's corporate bond fund is still underweight in financial bonds too.
Corporate bond funds managed by Henderson are generally overweight financial bonds. Our favourite Henderson Bond funds, however, are not like-for-like competitors to the M&G & Fidelity funds – the Henderson Preference & Bond fund is in the riskier "Other Bond" category.
It is also worth remembering that well run funds in this area tend to have low fees. The Annual management fees of the Henderson, Fidelity and M&G funds are all well below 1 per cent. Thus, the hurdle of covering the fund's costs and then outperforming the benchmark is not being made impossible as a result of high fees on any of these funds. Moreover, given the high stock-specific risk in the sector, fees of that level look a small price to pay for good management and good diversification.
For the more contrarian-inclined, diversified global growth funds and the highest quality equities are additional options. Admittedly, this is some way short of advice to wholeheartedly “embrace” equity risk again, but until credit spreads narrow further and stocks reaction to “bad news” is more favourable, this is not felt to be advisable.”
http://www.telegraph.co.uk/finance/personalfinance/investing/3251558/Recession-How-to-invest--an-experts-view.html
Britain is on the brink of a recession and stock markets have been falling, leaving investors in a dilemma of where to invest. Nick Sketch, senior investment director Rensburg Sheppards Investment Management gives his view on where to put your money in the months ahead.
By Nick Sketch
Published: 9:14AM BST 24 Oct 2008
Nick Sketch at Rensburg Sheppards advises investors where invest for the recession. "Our policy remains to selectively increase risk, taking some cash off the sidelines to deploy into firstly corporate bond funds. We think that equities are cheaper than corporate bonds, in the same way that the latter are cheaper then gilts.
Nevertheless, we expect corporate bonds to outperform gilts before equities start going up in any useful way. In fact it is close to being a required precondition before equities can post a major & sustained recovery. Equities in aggregate should rise further on a (say) two or three year view than corporate bonds, but corporate bonds will rise first. What to buy depends on your risk tolerance and particularly on whether you are looking for a shorter term bounce or simply to buy long term value. After all, an active investor might buy corporate bonds now and then simply move some of that cash to equities if and when corporate bonds see a price recovery over the next few months.
Related Articles
Investors cash in Isas and unit trusts
Economic slump 'will knock £50,000 off average house price'
Bank of England pressured to make emergency interest rate cut
Insure yourself against a recession
Britain's first recession in 16 years may have begun
Much the same argument applies within the bond sectors. Non-financial-sector bonds may well start doing better before financial sector bonds, even though we expect financial sector bonds in aggregate to outperform non-financials over the next two or three years, as what we regard as their excessive undervaluation unwinds. However, financial sector bonds are in general a good deal more risky than non-financial bonds and are not likely to stop being so any time soon.
On this basis, a long term, risk-tolerant investor who does not want to trade too actively might just leap the intermediate steps and buy equities now. However, that would be going up the risk curve a long way. A cautious investor might buy some non-financial corporate bonds, but regard anything else as too risky.
And an active investor might well reckon that the best risk/return trade-off will come from owning non-financial corporate bonds now, then increasing the weighting in financial sector bonds.
Well-run corporate bond funds with low exposure to financial sector bonds certainly include the M&G Corporate Bond fund. Fidelity's corporate bond fund is still underweight in financial bonds too.
Corporate bond funds managed by Henderson are generally overweight financial bonds. Our favourite Henderson Bond funds, however, are not like-for-like competitors to the M&G & Fidelity funds – the Henderson Preference & Bond fund is in the riskier "Other Bond" category.
It is also worth remembering that well run funds in this area tend to have low fees. The Annual management fees of the Henderson, Fidelity and M&G funds are all well below 1 per cent. Thus, the hurdle of covering the fund's costs and then outperforming the benchmark is not being made impossible as a result of high fees on any of these funds. Moreover, given the high stock-specific risk in the sector, fees of that level look a small price to pay for good management and good diversification.
For the more contrarian-inclined, diversified global growth funds and the highest quality equities are additional options. Admittedly, this is some way short of advice to wholeheartedly “embrace” equity risk again, but until credit spreads narrow further and stocks reaction to “bad news” is more favourable, this is not felt to be advisable.”
http://www.telegraph.co.uk/finance/personalfinance/investing/3251558/Recession-How-to-invest--an-experts-view.html
Asian shares fall as recovery hopes fade
Asian shares fall as recovery hopes fade
Asian stock markets tumbled on Tuesday, with Hong Kong's benchmark down more than 3pc, after weak US manufacturing figures knocked confidence in a quick recovery from global recession.
AP
Published: 6:52AM BST 16 Jun 2009
Oil retreating from eight-month highs dragged commodity stocks lower in Asia while top manufacturers such as Japanese automaker Toyota fell on the weak data.
Indexes in big Asian markets such as Japan and Hong Kong have gained 40pc or more since early March, powered by ample liquidity and signs the economic slump has leveled out.
But as the rally gathered pace, it became increasingly vulnerable to any evidence that a recovery wasn't unfolding as quickly as investors hoped.
Wall Street faltered overnight on one such sign, with the Dow Jones industrials posting its biggest drop in nearly a month.
A monthly index of manufacturing conditions around the New York region fell to minus 9.4 in June from minus 4.6 the previous month, underscoring that any recovery in the world's largest economy — a critical market for Asian exporters — will be tepid and slow.
"All the global stock markets have been overbought so the manufacturing data was a trigger, an excuse to sell and take some profit," said Peter Lai, investment manager at DBS Vickers in Hong Kong.
"I don't believe the economy will recover so fast," he said. "China and Asia will be the pioneers of the recovery but I don't see it happening until the first or second quarter of 2010."
Japan's Nikkei 225 stock average shed 256.83 points, or 2.6pc, to 9,782.84, and Hong Kong's Hang Seng slid 584.39, or 3.2pc, to 17,914.57. South Korea's Kospi dropped 1.1pc to 1,396.62.
Elsewhere, Australia's index lost 1.8pc, Singapore retreated 1.9pc and the Philippine market dived 3.8pc.
Oil's decline hit commodity stocks with Chinese offshore oil producer CNOOC plunging 5.1pc in Hong Kong and BHP Billiton, the world's biggest mining company, off 2.1pc in Sydney trade.
Benchmark crude for July delivery fell 54 cents to $70.08 a barrel in Asia trade, taking a breather from a three-month rally that has doubled the price of oil. Last week, it rose above $73.
In the US on Monday, the Dow Jones industrial average tumbled 187.13, or 2.1pc, to 8,612.13, returning to a loss for the year. The broader Standard & Poor's 500 index dropped 2.4pc to 923.72, and the Nasdaq composite index sank 2.3pc, to 1,816.38.
Markets in Europe also closed down. London's FTSE 100 fell 2.6pc, Germany's DAX 3.5pc, and France's CAC 3.2pc.
http://www.telegraph.co.uk/finance/markets/5547360/Asian-shares-fall-as-recovery-hopes-fade.html
Asian stock markets tumbled on Tuesday, with Hong Kong's benchmark down more than 3pc, after weak US manufacturing figures knocked confidence in a quick recovery from global recession.
AP
Published: 6:52AM BST 16 Jun 2009
Oil retreating from eight-month highs dragged commodity stocks lower in Asia while top manufacturers such as Japanese automaker Toyota fell on the weak data.
Indexes in big Asian markets such as Japan and Hong Kong have gained 40pc or more since early March, powered by ample liquidity and signs the economic slump has leveled out.
But as the rally gathered pace, it became increasingly vulnerable to any evidence that a recovery wasn't unfolding as quickly as investors hoped.
Wall Street faltered overnight on one such sign, with the Dow Jones industrials posting its biggest drop in nearly a month.
A monthly index of manufacturing conditions around the New York region fell to minus 9.4 in June from minus 4.6 the previous month, underscoring that any recovery in the world's largest economy — a critical market for Asian exporters — will be tepid and slow.
"All the global stock markets have been overbought so the manufacturing data was a trigger, an excuse to sell and take some profit," said Peter Lai, investment manager at DBS Vickers in Hong Kong.
"I don't believe the economy will recover so fast," he said. "China and Asia will be the pioneers of the recovery but I don't see it happening until the first or second quarter of 2010."
Japan's Nikkei 225 stock average shed 256.83 points, or 2.6pc, to 9,782.84, and Hong Kong's Hang Seng slid 584.39, or 3.2pc, to 17,914.57. South Korea's Kospi dropped 1.1pc to 1,396.62.
Elsewhere, Australia's index lost 1.8pc, Singapore retreated 1.9pc and the Philippine market dived 3.8pc.
Oil's decline hit commodity stocks with Chinese offshore oil producer CNOOC plunging 5.1pc in Hong Kong and BHP Billiton, the world's biggest mining company, off 2.1pc in Sydney trade.
Benchmark crude for July delivery fell 54 cents to $70.08 a barrel in Asia trade, taking a breather from a three-month rally that has doubled the price of oil. Last week, it rose above $73.
In the US on Monday, the Dow Jones industrial average tumbled 187.13, or 2.1pc, to 8,612.13, returning to a loss for the year. The broader Standard & Poor's 500 index dropped 2.4pc to 923.72, and the Nasdaq composite index sank 2.3pc, to 1,816.38.
Markets in Europe also closed down. London's FTSE 100 fell 2.6pc, Germany's DAX 3.5pc, and France's CAC 3.2pc.
http://www.telegraph.co.uk/finance/markets/5547360/Asian-shares-fall-as-recovery-hopes-fade.html
Which shares for income?
Which shares for income?
The yield on BT of 19pc sounds good, but remember the adage "if it looks too good to be true, it probably is.
By Gavin Oldham
Published: 3:32PM BST 09 Apr 2009
With the equity market close to a six-year low and with equity yields at historically high levels compared with gilts, the temptation is there for investors to switch into shares: not only in the hunt for income but also factoring in that one day the equity market will recover.
The challenge is, however, to find those rewards without shouldering too much risk; because whereas cash savings can face risk of default, it is in equities that you face investment risk.
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Deflation: how to protect your portfolio
However, it is also worth remembering that since 1900 high-yielding shares have outperformed the stock market as a whole, 85pc of the time over 10-year periods. They've also outperformed the market since September 2008, when the markets really went into freefall.
As an example of the relationship between risk and yield, let's compare two blue chips with apparent dividend attractions: BP and BT.
This week, the yield on BT is 19pc net of basic-rate tax. Sounds good, but remember the adage "if it looks too good to be true, it probably is". Every analyst in the City expects BT to cut its dividend next time around. Investors should be cautious of above-average share yields: the market is telling you "the higher the yield the higher the risk".
BP has a yield of 9pc. Recently, there has been speculation that the low oil price may force the company to cut the dividend. This has proved unfounded, as BP's management has said the dividend will be maintained this year and it will try to maintain it into 2010, even if the oil price stays at current levels. So here we have some medium-term visibility and potential for capital growth if the oil price rises over the medium term.
When considering an investment for yield, note the dividend cover; this is how many times the profits cover the dividend and is an indicator of whether a company will be able to pay future dividends at the current rate or higher. It is calculated by dividing the net earnings per share by the net dividend per share.
Dividend cover = EPS / DPS
or
Dividend cover = 1 / DPO
For example, if a company has earnings per share of 5p and it pays out a dividend of 2.5p, the dividend cover will be 5/2.5 = 2. The higher the cover, the better the chance of maintaining the dividend if profits fall. However, a lower figure may be acceptable if the group's profits are relatively stable.
So a good portfolio of equity income shares would feature mainstream companies with good dividend cover and a relatively recession-proof business (such as energy), plus a good helping of the FTSE 100 iShare – a form of exchange traded fund (ETF) marketed by Barclays – to provide some extra diversification, and to provide the opportunity to take advantage of market volatility.
Such a portfolio might include BP, yielding 9pc with 2.6 times dividend cover; GlaxoSmithKline, yielding 5.5pc with 1.6 times cover; National Grid, yielding 6.5pc with 2 times cover; Scottish & Southern, yielding 5.7pc (1.7); Shell, yielding 4.2pc (3.5); Vodafone, yielding 6pc (1.8) plus the FTSE iShare yielding 5.1pc with no cover calculation available.
An investment of £12,000 could therefore give you about £710 income over a full year, an overall yield of 5.9pc.
These equity shares could provide a relatively stable source of income combined with the potential for capital growth. There is, of course, a risk of further setbacks in the markets that could take your investment value lower, but with blue-chip companies like these it's a relatively low-risk portfolio as equities go.
Keep in touch with the companies you've invested in: if you hold the shares in an Isa or a broker's nominee, opt in for shareholder communications direct from the company. It's your right to be kept informed and it shouldn't cost you extra.
Your holding in the FTSE 100 iShare may provide the opportunity to do some tactical purchases or sales. Rather than buying the whole holding at once, you could invest in £1,000 steps as the market falls back, then set a limit at, say, 10pc up on your purchase price to sell as the market strengthens.
This way you can take advantage of short-term volatility to improve the return on the portfolio as a whole. Finally, if you're a taxpayer make sure you use your Isa allowance to minimise your income tax bill.
Gavin Oldham is chief executive of the Share Centre
http://www.telegraph.co.uk/finance/personalfinance/investing/5131421/Which-shares-for-income.html
The yield on BT of 19pc sounds good, but remember the adage "if it looks too good to be true, it probably is.
By Gavin Oldham
Published: 3:32PM BST 09 Apr 2009
With the equity market close to a six-year low and with equity yields at historically high levels compared with gilts, the temptation is there for investors to switch into shares: not only in the hunt for income but also factoring in that one day the equity market will recover.
The challenge is, however, to find those rewards without shouldering too much risk; because whereas cash savings can face risk of default, it is in equities that you face investment risk.
Related Articles
Dividend reprieve as dozens of FTSE companies increase payouts by 10pc
Other inflation hedges
Is silver the new gold?
US fund manager declares war on UK trackers
Inflation: how to protect your portfolio
Deflation: how to protect your portfolio
However, it is also worth remembering that since 1900 high-yielding shares have outperformed the stock market as a whole, 85pc of the time over 10-year periods. They've also outperformed the market since September 2008, when the markets really went into freefall.
As an example of the relationship between risk and yield, let's compare two blue chips with apparent dividend attractions: BP and BT.
This week, the yield on BT is 19pc net of basic-rate tax. Sounds good, but remember the adage "if it looks too good to be true, it probably is". Every analyst in the City expects BT to cut its dividend next time around. Investors should be cautious of above-average share yields: the market is telling you "the higher the yield the higher the risk".
BP has a yield of 9pc. Recently, there has been speculation that the low oil price may force the company to cut the dividend. This has proved unfounded, as BP's management has said the dividend will be maintained this year and it will try to maintain it into 2010, even if the oil price stays at current levels. So here we have some medium-term visibility and potential for capital growth if the oil price rises over the medium term.
When considering an investment for yield, note the dividend cover; this is how many times the profits cover the dividend and is an indicator of whether a company will be able to pay future dividends at the current rate or higher. It is calculated by dividing the net earnings per share by the net dividend per share.
Dividend cover = EPS / DPS
or
Dividend cover = 1 / DPO
For example, if a company has earnings per share of 5p and it pays out a dividend of 2.5p, the dividend cover will be 5/2.5 = 2. The higher the cover, the better the chance of maintaining the dividend if profits fall. However, a lower figure may be acceptable if the group's profits are relatively stable.
So a good portfolio of equity income shares would feature mainstream companies with good dividend cover and a relatively recession-proof business (such as energy), plus a good helping of the FTSE 100 iShare – a form of exchange traded fund (ETF) marketed by Barclays – to provide some extra diversification, and to provide the opportunity to take advantage of market volatility.
Such a portfolio might include BP, yielding 9pc with 2.6 times dividend cover; GlaxoSmithKline, yielding 5.5pc with 1.6 times cover; National Grid, yielding 6.5pc with 2 times cover; Scottish & Southern, yielding 5.7pc (1.7); Shell, yielding 4.2pc (3.5); Vodafone, yielding 6pc (1.8) plus the FTSE iShare yielding 5.1pc with no cover calculation available.
An investment of £12,000 could therefore give you about £710 income over a full year, an overall yield of 5.9pc.
These equity shares could provide a relatively stable source of income combined with the potential for capital growth. There is, of course, a risk of further setbacks in the markets that could take your investment value lower, but with blue-chip companies like these it's a relatively low-risk portfolio as equities go.
Keep in touch with the companies you've invested in: if you hold the shares in an Isa or a broker's nominee, opt in for shareholder communications direct from the company. It's your right to be kept informed and it shouldn't cost you extra.
Your holding in the FTSE 100 iShare may provide the opportunity to do some tactical purchases or sales. Rather than buying the whole holding at once, you could invest in £1,000 steps as the market falls back, then set a limit at, say, 10pc up on your purchase price to sell as the market strengthens.
This way you can take advantage of short-term volatility to improve the return on the portfolio as a whole. Finally, if you're a taxpayer make sure you use your Isa allowance to minimise your income tax bill.
Gavin Oldham is chief executive of the Share Centre
http://www.telegraph.co.uk/finance/personalfinance/investing/5131421/Which-shares-for-income.html
Dividends: Which are safe and which may fall?
Dividends: Which are safe and which may fall?
Key: Dividend cover = Earnings / Dividend
The income from shares offers some protection against a bear market – unless it is cut. We asked the experts which companies looked safest.
By Richard Evans
Published: 6:57AM GMT 05 Mar 2009
Share prices have been falling for months now but for many investors there has been one crumb of comfort: dividends.
After all, share prices can recover if you don’t sell – and hanging on can be relatively painless if the income from your investment is maintained or even increased.
Related Articles
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Will the FTSE fall to Iraq War levels?
Broker Tips: Buy British Airways, sell Michael Page
Which shares for income?
Dividend reprieve as dozens of FTSE companies increase payouts by 10pc
Bank shares: Bargain or basket case?
But there have been some worrying developments for dividends recently. HSBC, the bank that seemed relatively unscathed by the financial crisis, was forced to cut its payout; now there are rumours that BP may have to freeze its dividend for the first time in years because of the falling oil price.
So we asked the experts which dividends they thought should be safe despite the turmoil – and which ones could be at risk.
Ian Lance, manager of the Schroder Income fund, said: "Despite all the concerns about the sustainability of dividend payments in the face of falling profits, we believe those invested in UK equities are still being well rewarded, particularly as yield is becoming increasingly difficult to find in many other areas of investment.
"The dividend yield on the highest yielding UK equities has risen to its highest point in around 20 years – even if you exclude financials. The dividend yield on non-financial stocks now exceeds the yield on 10-year government bonds."
As for concerns about how resilient these yields will be, Mr Lance said dividend levels were likely to fall across the UK market as a whole over the next couple of years, but he remained confident that a number of companies had sufficient dividend "cover" – the degree to which the dividend is exceeded by earnings – to support their current payouts even if earnings fell.
Schroders believes that the most resilient and attractive dividend streams will be among the long-established, well-diversified "mega caps" and companies that declare dividends in US dollars, given that sterling’s weakness pushes up their value. "These include names such as GlaxoSmithKline, AstraZeneca, Royal Dutch Shell and Vodafone, which we bought some time ago when they were out of favour with other investors and consequently undervalued, and which we continue to hold today," said Mr Lance.
Jonathan Jackson, an equity analyst at Killik & Co, the stockbroker, is not convinced that BP's dividend is under threat; he expects it to be safe for at least this year and next. "My reading is that BP will let gearing [borrowing relative to equity] increase," he said. "Holding the dollar-denominated dividend means 23pc growth for British shareholders, resulting in a yield of 10pc."
He also backs Vodafone, which is yielding 6.5pc, pointing to its strong balance sheet and "fairly defensive" qualities. "Tobacco stocks such as BAT and Imperial Tobacco have stable cash flows throughout the cycle," he added.
Hugh Duff, an investment manager at Scottish Investment Trust, said that among his holdings were two companies likely to maintain, or possibly grow, their dividends: Serco and De La Rue.
"Serco is a leading international services company operating in a broad range of sectors, servicing both private and public markets. The long-term nature of Serco’s contracts and the significant order book give us confidence in the company’s defensive and highly visible earnings growth," he said.
"De La Rue is the world’s largest commercial security printer and literally has a licence to print money. The company's main operation is the production of 150 currencies on behalf of central banks. The demand for currency printing is expected to continue to show stable growth, with a key driver being the increasing use of cash machines which require notes to be in mint condition. De La Rue has a very good track record of returning the profits from this business to shareholders through special dividends and dividends."
Turning to companies seen as candidates for cutting their dividends, Mr Jackson singled out BT Group. "There are trading difficulties in the global services division and a pension fund gap," he said. A recent ruling from the pensions regulator that pensions should take priority over dividends made a cut more likely, he added.
"The consensus in the City is that the dividend could be halved but we don’t know the size of the pensions deficit. BT used to put £280m into the fund annually to reduce the gap, now it could need to put in twice that figure. The cost of the dividend is £1.2bn."
Mark Hall, a fund manager at Rensburg Sheppards, voiced concern about life insurers. He said: "The sector I am most concerned about now regarding dividend payments is the life assurers such as Legal & General and Aviva. They have big bond portfolios and are vulnerable to any further dislocation in the financial system putting even greater pressure on their solvency ratios.
"This contrasts with the general insurance companies and Lloyd's specialists such as Royal Sun Alliance and Amlin, where we think the dividend prospects are really quite good."
http://www.telegraph.co.uk/finance/personalfinance/investing/4941355/Dividends-Which-are-safe-and-which-may-fall.html
Key: Dividend cover = Earnings / Dividend
The income from shares offers some protection against a bear market – unless it is cut. We asked the experts which companies looked safest.
By Richard Evans
Published: 6:57AM GMT 05 Mar 2009
Share prices have been falling for months now but for many investors there has been one crumb of comfort: dividends.
After all, share prices can recover if you don’t sell – and hanging on can be relatively painless if the income from your investment is maintained or even increased.
Related Articles
Pension deficits rise by £27bn in one day
Will the FTSE fall to Iraq War levels?
Broker Tips: Buy British Airways, sell Michael Page
Which shares for income?
Dividend reprieve as dozens of FTSE companies increase payouts by 10pc
Bank shares: Bargain or basket case?
But there have been some worrying developments for dividends recently. HSBC, the bank that seemed relatively unscathed by the financial crisis, was forced to cut its payout; now there are rumours that BP may have to freeze its dividend for the first time in years because of the falling oil price.
So we asked the experts which dividends they thought should be safe despite the turmoil – and which ones could be at risk.
Ian Lance, manager of the Schroder Income fund, said: "Despite all the concerns about the sustainability of dividend payments in the face of falling profits, we believe those invested in UK equities are still being well rewarded, particularly as yield is becoming increasingly difficult to find in many other areas of investment.
"The dividend yield on the highest yielding UK equities has risen to its highest point in around 20 years – even if you exclude financials. The dividend yield on non-financial stocks now exceeds the yield on 10-year government bonds."
As for concerns about how resilient these yields will be, Mr Lance said dividend levels were likely to fall across the UK market as a whole over the next couple of years, but he remained confident that a number of companies had sufficient dividend "cover" – the degree to which the dividend is exceeded by earnings – to support their current payouts even if earnings fell.
Schroders believes that the most resilient and attractive dividend streams will be among the long-established, well-diversified "mega caps" and companies that declare dividends in US dollars, given that sterling’s weakness pushes up their value. "These include names such as GlaxoSmithKline, AstraZeneca, Royal Dutch Shell and Vodafone, which we bought some time ago when they were out of favour with other investors and consequently undervalued, and which we continue to hold today," said Mr Lance.
Jonathan Jackson, an equity analyst at Killik & Co, the stockbroker, is not convinced that BP's dividend is under threat; he expects it to be safe for at least this year and next. "My reading is that BP will let gearing [borrowing relative to equity] increase," he said. "Holding the dollar-denominated dividend means 23pc growth for British shareholders, resulting in a yield of 10pc."
He also backs Vodafone, which is yielding 6.5pc, pointing to its strong balance sheet and "fairly defensive" qualities. "Tobacco stocks such as BAT and Imperial Tobacco have stable cash flows throughout the cycle," he added.
Hugh Duff, an investment manager at Scottish Investment Trust, said that among his holdings were two companies likely to maintain, or possibly grow, their dividends: Serco and De La Rue.
"Serco is a leading international services company operating in a broad range of sectors, servicing both private and public markets. The long-term nature of Serco’s contracts and the significant order book give us confidence in the company’s defensive and highly visible earnings growth," he said.
"De La Rue is the world’s largest commercial security printer and literally has a licence to print money. The company's main operation is the production of 150 currencies on behalf of central banks. The demand for currency printing is expected to continue to show stable growth, with a key driver being the increasing use of cash machines which require notes to be in mint condition. De La Rue has a very good track record of returning the profits from this business to shareholders through special dividends and dividends."
Turning to companies seen as candidates for cutting their dividends, Mr Jackson singled out BT Group. "There are trading difficulties in the global services division and a pension fund gap," he said. A recent ruling from the pensions regulator that pensions should take priority over dividends made a cut more likely, he added.
"The consensus in the City is that the dividend could be halved but we don’t know the size of the pensions deficit. BT used to put £280m into the fund annually to reduce the gap, now it could need to put in twice that figure. The cost of the dividend is £1.2bn."
Mark Hall, a fund manager at Rensburg Sheppards, voiced concern about life insurers. He said: "The sector I am most concerned about now regarding dividend payments is the life assurers such as Legal & General and Aviva. They have big bond portfolios and are vulnerable to any further dislocation in the financial system putting even greater pressure on their solvency ratios.
"This contrasts with the general insurance companies and Lloyd's specialists such as Royal Sun Alliance and Amlin, where we think the dividend prospects are really quite good."
http://www.telegraph.co.uk/finance/personalfinance/investing/4941355/Dividends-Which-are-safe-and-which-may-fall.html
Answer these Simple Questions to guide your investing
These are the two messages investors are hearing simultaneously these days:
The first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."
The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"
So should investors be buying shares or steering clear?
And should existing investors grit their teeth and hang on – or sell at a huge loss?
Related article:
Stock market: opportunity of a lifetime or priced for a depression?
The first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."
The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"
So should investors be buying shares or steering clear?
And should existing investors grit their teeth and hang on – or sell at a huge loss?
Related article:
Stock market: opportunity of a lifetime or priced for a depression?
Stock market: opportunity of a lifetime or priced for a depression?
Stock market: opportunity of a lifetime or priced for a depression?
By James Bartholomew
Published: 10:45AM GMT 09 Mar 2009
These are the two messages investors are hearing simultaneously these days: the first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."
The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"
So investors are pulled one way and then the other. Let us not pretend it is easy. If possible, one wants to have one's cake and eat it – to finesse the problem by having exposure to shares but, at the same time, owning ones that might hold up even if things worsen.
Related Articles
Dividends: Which are safe and which may fall?
'Fixed interest of 6.4pc for the next 10 years. What's the catch?'
'I did my research and bought the shares. A week later they had halved'
Is your building society safe?
Celtic cool on Phil Gartside's two-tier English Premier League plan
Flight to bonds in tougher times
The trouble is, lots of people are trying to do the same, so anything that looks pretty safe gets a much higher rating than companies that could get into trouble.
The safest ones are often in sectors where it will take a lot to destroy demand. People are always going to want to eat, and will probably want to drink, too. We are going for "the bare necessities of life".
Fortunately, the stock market is so low that, even among such safer companies, shares are clearly good value for the long term. It would be easy to make a little portfolio of relatively reliable companies with modest, but perhaps sustainable, dividend yields. It could include Associated British Foods at 622p on a prospective yield of 3.3pc, British Sky Broadcasting at 452p on a yield of 3.9pc and, say, Tesco at 310p on a yield of 3.7pc.
I prefer to go for smaller companies where I believe share prices are cheaper and potential gains bigger. I have been buying back into REA Holdings, which has a palm oil plantation. Palm oil is used, among other things, as a basic foodstuff.
I have also held onto my stake in Staffline, which provides "blue-collar" labour for a variety of industries, but especially food processing. Staffline produced its annual results this week and they were a perfect illustration of how results announcements have changed.
Press releases of results often start with "Highlights". Twelve months ago, companies shone light on their growth and expansion. "Highlights" were full of bold ambition. Now, the greatest boast a company can make is that it is safe and won't be closed. On Tuesday, Staffline announced its "gearing" – borrowing as a proportion of the shareholders' net assets – had fallen from 28pc to 24pc.
In the old days, companies were criticised if they borrowed so little. They were accused of "failing to make full use of their capital base". Now, low borrowing is absolutely the fashion (except for the Government).
Staffline went on to trill about how the cost of its interest payments had tumbled by a quarter and that these payments were covered a wonderful 10 times by profits. The message was "we have been prudent, we are safe and our bankers are happy". The shares rose 15pc.
Many people feel big companies are safer than such small ones and I don't blame anyone wanting to feel safe. But small companies, as a generality, are much cheaper than large ones at the moment. They also have greater scope for growth. And, after Royal Bank of Scotland, surely no one is confident that size guarantees safety.
I don't hold any particular torch for Staffline, but it is a good example of what I see among plenty of small companies. Its share price, as I write, is 27p, a mere 2.5 times the earnings per share last year. That is seriously cheap. Over the long term, a rating of at least four times that would be normal.
A broker forecasts that its profits will fall this year but only by a little. The historic dividend yield is terrific at just over 10pc. Yes, the dividend could be reduced next year but probably not by much.
It does seem like the opportunity of a lifetime and one might be tempted to fill one's boots with the shares of companies like this.
The only thing that holds me back is the echo of the other message: that the economy is sliding down so fast and unpredictably that one should keep at least some cash in reserve.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4961165/Stock-market-opportunity-of-a-lifetime-or-priced-for-a-depression.html
By James Bartholomew
Published: 10:45AM GMT 09 Mar 2009
These are the two messages investors are hearing simultaneously these days: the first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."
The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"
So investors are pulled one way and then the other. Let us not pretend it is easy. If possible, one wants to have one's cake and eat it – to finesse the problem by having exposure to shares but, at the same time, owning ones that might hold up even if things worsen.
Related Articles
Dividends: Which are safe and which may fall?
'Fixed interest of 6.4pc for the next 10 years. What's the catch?'
'I did my research and bought the shares. A week later they had halved'
Is your building society safe?
Celtic cool on Phil Gartside's two-tier English Premier League plan
Flight to bonds in tougher times
The trouble is, lots of people are trying to do the same, so anything that looks pretty safe gets a much higher rating than companies that could get into trouble.
The safest ones are often in sectors where it will take a lot to destroy demand. People are always going to want to eat, and will probably want to drink, too. We are going for "the bare necessities of life".
Fortunately, the stock market is so low that, even among such safer companies, shares are clearly good value for the long term. It would be easy to make a little portfolio of relatively reliable companies with modest, but perhaps sustainable, dividend yields. It could include Associated British Foods at 622p on a prospective yield of 3.3pc, British Sky Broadcasting at 452p on a yield of 3.9pc and, say, Tesco at 310p on a yield of 3.7pc.
I prefer to go for smaller companies where I believe share prices are cheaper and potential gains bigger. I have been buying back into REA Holdings, which has a palm oil plantation. Palm oil is used, among other things, as a basic foodstuff.
I have also held onto my stake in Staffline, which provides "blue-collar" labour for a variety of industries, but especially food processing. Staffline produced its annual results this week and they were a perfect illustration of how results announcements have changed.
Press releases of results often start with "Highlights". Twelve months ago, companies shone light on their growth and expansion. "Highlights" were full of bold ambition. Now, the greatest boast a company can make is that it is safe and won't be closed. On Tuesday, Staffline announced its "gearing" – borrowing as a proportion of the shareholders' net assets – had fallen from 28pc to 24pc.
In the old days, companies were criticised if they borrowed so little. They were accused of "failing to make full use of their capital base". Now, low borrowing is absolutely the fashion (except for the Government).
Staffline went on to trill about how the cost of its interest payments had tumbled by a quarter and that these payments were covered a wonderful 10 times by profits. The message was "we have been prudent, we are safe and our bankers are happy". The shares rose 15pc.
Many people feel big companies are safer than such small ones and I don't blame anyone wanting to feel safe. But small companies, as a generality, are much cheaper than large ones at the moment. They also have greater scope for growth. And, after Royal Bank of Scotland, surely no one is confident that size guarantees safety.
I don't hold any particular torch for Staffline, but it is a good example of what I see among plenty of small companies. Its share price, as I write, is 27p, a mere 2.5 times the earnings per share last year. That is seriously cheap. Over the long term, a rating of at least four times that would be normal.
A broker forecasts that its profits will fall this year but only by a little. The historic dividend yield is terrific at just over 10pc. Yes, the dividend could be reduced next year but probably not by much.
It does seem like the opportunity of a lifetime and one might be tempted to fill one's boots with the shares of companies like this.
The only thing that holds me back is the echo of the other message: that the economy is sliding down so fast and unpredictably that one should keep at least some cash in reserve.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4961165/Stock-market-opportunity-of-a-lifetime-or-priced-for-a-depression.html
Five ways to profit from oil
Five ways to profit from oil
Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months - motorists will lose out but investors could profit from this rise.
By Rosie Murray-West
Published: 12:40PM BST 08 Jun 2009
Motorists are facing a summer of rising petrol costs, thanks to recent increases to the price of oil. Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months.
Goldman Sachs, the city bank, has raised its forecast on the price that oil will reach by the end of 2009, which has already convinced many speculators to take the plunge. If you think that oil has further to go, however, there are still ways that you can benefit – rather than just fuming at the petrol pumps. Here are five ways to speculate on oil.
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FTSE 100 ends slightly higher
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1. Buy the big boys
BP and Shell are Britain's two big oil and gas companies. Both have been popular buys due to their high dividend yields and exposure to the price of oil. Neither company is expected to cut its dividend in the coming months, although this is likely to lead to an increase in borrowing.
Potential investors in Shell should note that UK investors need to buy Shell's 'B' Class shares.
2. Consider the minnows
BP and Shell may be the supertankers of the oil market, but you can also buy shares in other smaller companies which will also give you exposure to this market.
Many of them have already enjoyed healthy price rises, however, and you may feel that there is little scope for future gains. Tullow Oil and Soco International have recently seen huge rises in price. Dragon Oil and Bowleven are other possibilities in this sector.
3. Look at funds
If you invest in funds, exposure to the oil price is actually quite hard to avoid as commodities and resources companies make up about a third of the FTSE Index. However, some are more heavily exposed than others. Two BlackRock funds – BlackRock Commodities Income investment trust and the Blackrock World Energy fund – have large oil investments.
Investec Global Energy is another hefty investor in a combination of oil producers, refiners and services companies. If you are looking to take risk in this area, the CF Junior Oils Trust invests only in smaller gas exploration and production companies, including many of the minnows mentioned above.
4. Try an ETF or ETC
Exchange Traded Funds and Commodities have become increasingly popular with investors seeking easy ways to take a punt on commodities or indices. An ETF is a relatively low-cost way of gaining exposure to the price of a commodity or to a specific index for either the short or long term.
They can be bought through stockbrokers. Lyxor, for instance, offers the Lyxor DJ Stoxx 600 Oil and Gas ETF, or ETF Securities offers a crude oil fund.
However, buyers of these funds should beware an effect known as 'contango', which occurs when oil prices for future delivery are higher than the current oil price. This effect has caused erosion on funds that invest in near-term futures contracts based on the price of oil, so ETF investments may not be as simple as they seem. Do consult a stockbroker if you are keen on investing in ETFs.
5. Spread betting
Many investors have been seduced by spread betting as a low-cost way of gambling on the price of commodities, but you should always beware the risks. With spread betting, you would take a bet on the future movement of the oil price, but could lose out very rapidly if the price goes the other way.
Companies such as City Index, Cantor Finspreads or IG will allow you to take a bet on the future price of Brent crude. However, do not indulge in spread betting unless you are sure you understand the implications and have appropriate measures in place to limit your losses.
Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months - motorists will lose out but investors could profit from this rise.
By Rosie Murray-West
Published: 12:40PM BST 08 Jun 2009
Motorists are facing a summer of rising petrol costs, thanks to recent increases to the price of oil. Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months.
Goldman Sachs, the city bank, has raised its forecast on the price that oil will reach by the end of 2009, which has already convinced many speculators to take the plunge. If you think that oil has further to go, however, there are still ways that you can benefit – rather than just fuming at the petrol pumps. Here are five ways to speculate on oil.
Related Articles
Petrol soars to £1.39 per litre
Wood will benefit as oil firms continue to invest
Share tips: buy Prudential, sell Wolseley
FTSE 100 ends slightly higher
Rising oil price poses threat to recovery, Alistair Darling warns
1. Buy the big boys
BP and Shell are Britain's two big oil and gas companies. Both have been popular buys due to their high dividend yields and exposure to the price of oil. Neither company is expected to cut its dividend in the coming months, although this is likely to lead to an increase in borrowing.
Potential investors in Shell should note that UK investors need to buy Shell's 'B' Class shares.
2. Consider the minnows
BP and Shell may be the supertankers of the oil market, but you can also buy shares in other smaller companies which will also give you exposure to this market.
Many of them have already enjoyed healthy price rises, however, and you may feel that there is little scope for future gains. Tullow Oil and Soco International have recently seen huge rises in price. Dragon Oil and Bowleven are other possibilities in this sector.
3. Look at funds
If you invest in funds, exposure to the oil price is actually quite hard to avoid as commodities and resources companies make up about a third of the FTSE Index. However, some are more heavily exposed than others. Two BlackRock funds – BlackRock Commodities Income investment trust and the Blackrock World Energy fund – have large oil investments.
Investec Global Energy is another hefty investor in a combination of oil producers, refiners and services companies. If you are looking to take risk in this area, the CF Junior Oils Trust invests only in smaller gas exploration and production companies, including many of the minnows mentioned above.
4. Try an ETF or ETC
Exchange Traded Funds and Commodities have become increasingly popular with investors seeking easy ways to take a punt on commodities or indices. An ETF is a relatively low-cost way of gaining exposure to the price of a commodity or to a specific index for either the short or long term.
They can be bought through stockbrokers. Lyxor, for instance, offers the Lyxor DJ Stoxx 600 Oil and Gas ETF, or ETF Securities offers a crude oil fund.
However, buyers of these funds should beware an effect known as 'contango', which occurs when oil prices for future delivery are higher than the current oil price. This effect has caused erosion on funds that invest in near-term futures contracts based on the price of oil, so ETF investments may not be as simple as they seem. Do consult a stockbroker if you are keen on investing in ETFs.
5. Spread betting
Many investors have been seduced by spread betting as a low-cost way of gambling on the price of commodities, but you should always beware the risks. With spread betting, you would take a bet on the future movement of the oil price, but could lose out very rapidly if the price goes the other way.
Companies such as City Index, Cantor Finspreads or IG will allow you to take a bet on the future price of Brent crude. However, do not indulge in spread betting unless you are sure you understand the implications and have appropriate measures in place to limit your losses.
UK Bank shares: Bargain or basket case?
Bank shares: Bargain or basket case?
As some of Britain's banks languish in the 90pc club, have the shares fallen far enough to be worth buying again?
By Richard Evans
Published: 3:26PM GMT 11 Mar 2009
Britain's banks have been a terrible investment. Many have joined the "90pc club" of companies whose share prices have fallen to a mere 10th of their former highs.
Shares in Royal Bank of Scotland, for example, had lost 94pc of their value at the time of writing, while Lloyds Banking Group was not far behind on 91pc. The figure for Barclays was 88pc. Even HSBC, which is seen as one of the strongest banks around, was trading 62pc below its peak at one stage, while Standard Chartered had lost 54pc of its value.
Related Articles
Bank bosses have bought just £1,500 worth of bank shares
Stock market: Opportunity of a lifetime?
Knives out for Lloyds board
Barclays drags FTSE 100 down
London shares continue to slide
UKFI mulls bond plan for bank sales
Shareholders' gloom is deepened by the fact that they are unlikely to see any dividends for a while and that, in the case of Lloyds and RBS, the Government holds a controlling stake, potentially bringing political as well as commercial considerations into their decision-making.
Contrarian investors, who are used to buying at the point of maximum pessimism, may think it is time to buy the banks' shares. After all, they reason, all the bad news should be in the price, while the banks could prosper again when the economy eventually recovers. In five years' time, today's prices could look very cheap.
Others say the banks are bust in all but name and could be fully nationalised if the recent string of bail-outs fails to work.
So should investors be buying bank shares or steering clear? And should existing investors grit their teeth and hang on – or sell at a huge loss? We asked the experts for their views.
JONATHAN JACKSON, KILLIK & CO
The bottom line is that all banks are high risk at present given the lack of visibility over the economy or the level of possible write downs in the future. It depends on what type of investor you are.
We don't think RBS or Lloyds are likely to be nationalised but the state's stakes could rise further if the economy turns out worse than we think. If you buy shares in Lloyds you are effectively buying an option on it surviving for three to five years and benefiting from its huge market share. Given the lack of visibility, both share prices will be very volatile.
With HSBC, the falling shares price is a reflection of investor concern that the bank may need to come back for more capital and the presence of hedge fund short positions betting on that.
Standard Chartered should benefit from the trend of survival of the fittest; it should be able to mop up market share as weak players fall away. It operates in a part of the world – Asia – that should experience stronger growth in the long term. It is well placed, but short sellers are attracted by the fact that the share price has held up well, so there could be more volatility. In the long term it's a strong bank and is much less likely to go under.
Barclays is not in as bad shape as Lloyds or RBS and has less chance of being nationalised. The market believes that Barclays will have to join the government asset protection scheme. The risk is that it may have to come back for more money. So far, it hasn't turned to the Government for capital, preferring instead to use third party investors.
In the long term, the Lehmans deal should turn out well. We will have more visibility by the end of the month.
MARK HALL, RENSBURG SHEPPARDS
There is a credible case for believing that the equity in the UK banks should already be worthless, given the scale of government intervention that has been necessary to keep the banks afloat.
However, with the authorities seemingly intent on avoiding full nationalisation, at least for now, the case for and against the shares is not quite so clear cut. There are still very realistic scenarios under which the shares are worthless but the upside could also be very substantial for any survivors of the current recession.
The only certainty is that the shares should be held only as part of a well-diversified portfolio or by those with a very high risk tolerance. The stories of pensioners with their life savings in one or two bank shares are very distressing.
NIC CLARKE, CHARLES STANLEY
We have a great deal of sympathy for those Lloyds TSB investors who bought a low-risk bank and through its management launching an ill advised acquisition [of HBOS] have lost a great proportion of the company.
We believe that the threat of complete nationalisation has been reduced significantly through this deal [with the Government to insure toxic assets]. Lloyds says it can now weather the severest of economic downturns as its assets have been thoroughly stress-tested.
The group will be loss-making in 2009 and there is a chance that it will be loss-making in 2010, despite the synergies from HBOS coming through, unless the outlook for the UK economy improves. And of course if the group is making a loss it is unlikely to pay a dividend, whether it is blocked or not. But at least the announcement [of the government deal] should improve the group's credit ratings and takes it a step nearer to a time when the market is able to value the group on an earnings basis. Unfortunately, due to the fallout from the HBOS deal that is the best that investors can hope for and any sort of recovery will take time. Our recommendation remains hold.
Putting a value on RBS currently is really about trying to decide what the odds are that it will be nationalised or whether it remains a listed company in say three years' time when the economy has improved.
Chief executive Stephen Hester's comment that "to make any forecast is hazardous" and that credit losses will rise "probably sharply" underlines the level of risk that investors are exposed to owning the stock during a prolonged recession. On balance our recommendation remains hold.
On Barclays, one key question mark has been whether the group has been conservative enough writing down its wholesale assets. It has seemed odd that RBS's global markets/wholesale bank has performed so markedly worse than Barclays Capital. Moody's cut its long-term ratings on Barclays by two notches to Aa3 on February 2 due to the potential for "significant" further losses due to credit-related write downs and rising impairments.
It would be helpful to know more detail regarding the Government's asset protection scheme. If participation makes economic sense Barclays' risk weighted assets will be reduced, which will diminish markets concerns about its capital.
And of course whether the macroeconomic forecasts improve/deteriorate in a number of key countries (US, UK, Spain and South Africa) will have a huge bearing on stock performance. Our recommendation remains hold.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4973811/Bank-shares-Bargain-or-basket-case.html
As some of Britain's banks languish in the 90pc club, have the shares fallen far enough to be worth buying again?
By Richard Evans
Published: 3:26PM GMT 11 Mar 2009
Britain's banks have been a terrible investment. Many have joined the "90pc club" of companies whose share prices have fallen to a mere 10th of their former highs.
Shares in Royal Bank of Scotland, for example, had lost 94pc of their value at the time of writing, while Lloyds Banking Group was not far behind on 91pc. The figure for Barclays was 88pc. Even HSBC, which is seen as one of the strongest banks around, was trading 62pc below its peak at one stage, while Standard Chartered had lost 54pc of its value.
Related Articles
Bank bosses have bought just £1,500 worth of bank shares
Stock market: Opportunity of a lifetime?
Knives out for Lloyds board
Barclays drags FTSE 100 down
London shares continue to slide
UKFI mulls bond plan for bank sales
Shareholders' gloom is deepened by the fact that they are unlikely to see any dividends for a while and that, in the case of Lloyds and RBS, the Government holds a controlling stake, potentially bringing political as well as commercial considerations into their decision-making.
Contrarian investors, who are used to buying at the point of maximum pessimism, may think it is time to buy the banks' shares. After all, they reason, all the bad news should be in the price, while the banks could prosper again when the economy eventually recovers. In five years' time, today's prices could look very cheap.
Others say the banks are bust in all but name and could be fully nationalised if the recent string of bail-outs fails to work.
So should investors be buying bank shares or steering clear? And should existing investors grit their teeth and hang on – or sell at a huge loss? We asked the experts for their views.
JONATHAN JACKSON, KILLIK & CO
The bottom line is that all banks are high risk at present given the lack of visibility over the economy or the level of possible write downs in the future. It depends on what type of investor you are.
We don't think RBS or Lloyds are likely to be nationalised but the state's stakes could rise further if the economy turns out worse than we think. If you buy shares in Lloyds you are effectively buying an option on it surviving for three to five years and benefiting from its huge market share. Given the lack of visibility, both share prices will be very volatile.
With HSBC, the falling shares price is a reflection of investor concern that the bank may need to come back for more capital and the presence of hedge fund short positions betting on that.
Standard Chartered should benefit from the trend of survival of the fittest; it should be able to mop up market share as weak players fall away. It operates in a part of the world – Asia – that should experience stronger growth in the long term. It is well placed, but short sellers are attracted by the fact that the share price has held up well, so there could be more volatility. In the long term it's a strong bank and is much less likely to go under.
Barclays is not in as bad shape as Lloyds or RBS and has less chance of being nationalised. The market believes that Barclays will have to join the government asset protection scheme. The risk is that it may have to come back for more money. So far, it hasn't turned to the Government for capital, preferring instead to use third party investors.
In the long term, the Lehmans deal should turn out well. We will have more visibility by the end of the month.
MARK HALL, RENSBURG SHEPPARDS
There is a credible case for believing that the equity in the UK banks should already be worthless, given the scale of government intervention that has been necessary to keep the banks afloat.
However, with the authorities seemingly intent on avoiding full nationalisation, at least for now, the case for and against the shares is not quite so clear cut. There are still very realistic scenarios under which the shares are worthless but the upside could also be very substantial for any survivors of the current recession.
The only certainty is that the shares should be held only as part of a well-diversified portfolio or by those with a very high risk tolerance. The stories of pensioners with their life savings in one or two bank shares are very distressing.
NIC CLARKE, CHARLES STANLEY
We have a great deal of sympathy for those Lloyds TSB investors who bought a low-risk bank and through its management launching an ill advised acquisition [of HBOS] have lost a great proportion of the company.
We believe that the threat of complete nationalisation has been reduced significantly through this deal [with the Government to insure toxic assets]. Lloyds says it can now weather the severest of economic downturns as its assets have been thoroughly stress-tested.
The group will be loss-making in 2009 and there is a chance that it will be loss-making in 2010, despite the synergies from HBOS coming through, unless the outlook for the UK economy improves. And of course if the group is making a loss it is unlikely to pay a dividend, whether it is blocked or not. But at least the announcement [of the government deal] should improve the group's credit ratings and takes it a step nearer to a time when the market is able to value the group on an earnings basis. Unfortunately, due to the fallout from the HBOS deal that is the best that investors can hope for and any sort of recovery will take time. Our recommendation remains hold.
Putting a value on RBS currently is really about trying to decide what the odds are that it will be nationalised or whether it remains a listed company in say three years' time when the economy has improved.
Chief executive Stephen Hester's comment that "to make any forecast is hazardous" and that credit losses will rise "probably sharply" underlines the level of risk that investors are exposed to owning the stock during a prolonged recession. On balance our recommendation remains hold.
On Barclays, one key question mark has been whether the group has been conservative enough writing down its wholesale assets. It has seemed odd that RBS's global markets/wholesale bank has performed so markedly worse than Barclays Capital. Moody's cut its long-term ratings on Barclays by two notches to Aa3 on February 2 due to the potential for "significant" further losses due to credit-related write downs and rising impairments.
It would be helpful to know more detail regarding the Government's asset protection scheme. If participation makes economic sense Barclays' risk weighted assets will be reduced, which will diminish markets concerns about its capital.
And of course whether the macroeconomic forecasts improve/deteriorate in a number of key countries (US, UK, Spain and South Africa) will have a huge bearing on stock performance. Our recommendation remains hold.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4973811/Bank-shares-Bargain-or-basket-case.html
How to invest in a bear market
Paralysis and panic is behind us now.
How to invest in a bear market
The FTSE All Share Index lost 29pc in 12 months and there is more pain in store.
By David Stevenson, manager of the Ignis Cartesian UK Opportunities Fund
Published: 10:32PM BST 15 Jun 2009
UK equity investors have had a torrid time of it in the last year. The FTSE All Share Index lost 29pc in the 12 months to the end of March and there is more pain in store. Recent stock market rallies should be taken for what they were, short-term technical bounces rather than the market bottoming on improved fundamentals.
That said, for investors who are able to stomach the volatility and take a longer term view, there are positives. The UK stock market is at one of its lowest points in the last ten years.
In the coming 12 to 18 months, it is likely to fall further taking valuations to levels of 'cheapness' that only present themselves once or twice in a lifetime. Making the most of these opportunities, however, requires a suitable investment approach and there are key considerations for investors in a bear market.
Companies are under considerable pressure and investors need to look in detail at what they are potentially buying into.
This requires careful balance sheet analysis as heavily indebted businesses may not survive the coming years. This may seem extreme but is a reality of economic cyclicality. Companies with low or sustainable levels of borrowing, and which therefore have a degree of control over their future, are relatively attractive, especially when combined with a secure dividend yield.
Earnings provide a barometer of corporate health and are under pressure across the market. Investors can, however, mitigate that risk by targeting certain types of companies.
Defendable earnings are important and are typically generated by companies with big franchises, large market shares and leverage over competitors or suppliers, allowing them to eke out more market share or a better margin. Thinking big is generally a sensible approach.
Big brands have a footprint that will allow them to survive through a difficult environment. Companies like Vodafone, Centrica and Unilever are all likely to outperform, operating in areas where spending remains necessary. Food retailers and pharmaceutical companies are also attractive.
Investors should also focus on sectors that offer predictable growth, rather than those dependent on support from the economic cycle.
Secular trends currently include the long-term growth of outsourcing, both in the public and private sector, and the maintenance and operation of critical infrastructure, such as utility and telecommunication networks and transport links. Both of these should offer resilience in a downturn and will benefit if the government's stimulus plans come to fruition.
It pays for investors to be sceptical in all market conditions but particularly during a downturn. It is important to think independently and not be fooled by consensus views.
Fundamental analysis of balance sheets and earnings will give a clearer picture of companies' future prospects. This then allows a portfolio to be built 'bottom-up' without necessitating a 'top-down' view on overarching macroeconomic, consensus or benchmark themes.
For investors seeking exposure to the market via mutual funds it is important to analyse the investment approach of fund managers. There is a temptation for managers to alter their process when short-term performance numbers disappoint, as can happen in volatile markets.
This, however, tends to be detrimental. Proper analysis of a manager's track record is therefore important, paying particular attention to longevity, consistency of approach and performance during previous downturns.
Certain managers are suited to a rising market, others, typically those able to best identify potential balance sheet holes and signs of earnings weakness, fare better when business models come under increased pressure, as is currently the case.
Another point to consider is the level and type of trading in a fund. Fund managers are generally not good short-term traders. Investment views need to be made on at least a one year basis, and a bear market does not change that.
A sharp pickup in turnover within a portfolio may indicate panic trades or a fundamental shift in strategy. In a bear market the number of attractive stock ideas tends to fall.
This may justify holding a more concentrated portfolio, and then adding new positions when opportunities arise. The important point is to make sure a fund manager is not holding low conviction stocks for the sake of diversification.
Finally, it will pay to be patient. The UK stock market will recover, but not overnight. At the moment market conditions remain challenging and it would be foolish to invest expecting the market to bounce back straightaway.
Equities tend to move before economic data picks up but with the current levels of volatility it is prudent to wait for clear signs that leading indicators are improving and government stimulus packages have laid solid foundations for growth.
This is likely to be some way off but by reinforcing a portfolio based on the points above, and taking advantage of increasingly attractive valuations, long-term investment opportunities in the UK can be exploited.
http://www.telegraph.co.uk/finance/personalfinance/investing/5545094/How-to-invest-in-a-bear-market.html
How to invest in a bear market
The FTSE All Share Index lost 29pc in 12 months and there is more pain in store.
By David Stevenson, manager of the Ignis Cartesian UK Opportunities Fund
Published: 10:32PM BST 15 Jun 2009
UK equity investors have had a torrid time of it in the last year. The FTSE All Share Index lost 29pc in the 12 months to the end of March and there is more pain in store. Recent stock market rallies should be taken for what they were, short-term technical bounces rather than the market bottoming on improved fundamentals.
That said, for investors who are able to stomach the volatility and take a longer term view, there are positives. The UK stock market is at one of its lowest points in the last ten years.
In the coming 12 to 18 months, it is likely to fall further taking valuations to levels of 'cheapness' that only present themselves once or twice in a lifetime. Making the most of these opportunities, however, requires a suitable investment approach and there are key considerations for investors in a bear market.
Companies are under considerable pressure and investors need to look in detail at what they are potentially buying into.
This requires careful balance sheet analysis as heavily indebted businesses may not survive the coming years. This may seem extreme but is a reality of economic cyclicality. Companies with low or sustainable levels of borrowing, and which therefore have a degree of control over their future, are relatively attractive, especially when combined with a secure dividend yield.
Earnings provide a barometer of corporate health and are under pressure across the market. Investors can, however, mitigate that risk by targeting certain types of companies.
Defendable earnings are important and are typically generated by companies with big franchises, large market shares and leverage over competitors or suppliers, allowing them to eke out more market share or a better margin. Thinking big is generally a sensible approach.
Big brands have a footprint that will allow them to survive through a difficult environment. Companies like Vodafone, Centrica and Unilever are all likely to outperform, operating in areas where spending remains necessary. Food retailers and pharmaceutical companies are also attractive.
Investors should also focus on sectors that offer predictable growth, rather than those dependent on support from the economic cycle.
Secular trends currently include the long-term growth of outsourcing, both in the public and private sector, and the maintenance and operation of critical infrastructure, such as utility and telecommunication networks and transport links. Both of these should offer resilience in a downturn and will benefit if the government's stimulus plans come to fruition.
It pays for investors to be sceptical in all market conditions but particularly during a downturn. It is important to think independently and not be fooled by consensus views.
Fundamental analysis of balance sheets and earnings will give a clearer picture of companies' future prospects. This then allows a portfolio to be built 'bottom-up' without necessitating a 'top-down' view on overarching macroeconomic, consensus or benchmark themes.
For investors seeking exposure to the market via mutual funds it is important to analyse the investment approach of fund managers. There is a temptation for managers to alter their process when short-term performance numbers disappoint, as can happen in volatile markets.
This, however, tends to be detrimental. Proper analysis of a manager's track record is therefore important, paying particular attention to longevity, consistency of approach and performance during previous downturns.
Certain managers are suited to a rising market, others, typically those able to best identify potential balance sheet holes and signs of earnings weakness, fare better when business models come under increased pressure, as is currently the case.
Another point to consider is the level and type of trading in a fund. Fund managers are generally not good short-term traders. Investment views need to be made on at least a one year basis, and a bear market does not change that.
A sharp pickup in turnover within a portfolio may indicate panic trades or a fundamental shift in strategy. In a bear market the number of attractive stock ideas tends to fall.
This may justify holding a more concentrated portfolio, and then adding new positions when opportunities arise. The important point is to make sure a fund manager is not holding low conviction stocks for the sake of diversification.
Finally, it will pay to be patient. The UK stock market will recover, but not overnight. At the moment market conditions remain challenging and it would be foolish to invest expecting the market to bounce back straightaway.
Equities tend to move before economic data picks up but with the current levels of volatility it is prudent to wait for clear signs that leading indicators are improving and government stimulus packages have laid solid foundations for growth.
This is likely to be some way off but by reinforcing a portfolio based on the points above, and taking advantage of increasingly attractive valuations, long-term investment opportunities in the UK can be exploited.
http://www.telegraph.co.uk/finance/personalfinance/investing/5545094/How-to-invest-in-a-bear-market.html
Tuesday 16 June 2009
Chartists are the astrologers of the markets
Charts are extremely popular.
Chartists believe that they can see patterns in charts which can predict future price movements.
Chartists believe that they can see patterns in charts which can predict future price movements.
- They like to superimpose straight lines over the charts, usually connecting a series of high or low points. Sometimes, they also have squiggly lines drawn on them as well.
- The chartists all have their own systems that they follow, normally based on the thoughts of a guru from a long time ago, or perhaps some strange pattern which exists in nature.
- And the jargon they use sounds very scientific. Expressions such as 'declining wedge' and 'fourth wave' suggest to outsiders that the systems are profound and well researched.
- The beauty for chartists is that they don't need to know anything about the market they're trading. They have no need to look at fundamentals.
You shouldn't get distracted by charts.
Chartists have no scientific basis
It is fine to look at the odd chart every now and then; it's the crazy theories that chartists use that you should be cautious on. Charts themselves are useful for a feeling of how far markets can move and how they react to news flow.
However, a few things are obvious about chartist theories.
- These ideas are not applied in the economics field which is always searching for theories on human behaviour.
- Nor do the theories have a true mathematical basis, and the chartists often do not have a mathematical background of any kind.
- How many chartists do you know who are successful? Probability would suggest that there are a few out there somewhere.
Chartists are the astrologers of the markets. They use a pseudo-science. At best, it is a clumsy way of following trends. Their methods are unsubstantiated, though extremely popular.
There is simply no reason, for example, why price moves should imitate the pattern of plant growth, star patterns or anything else.
Ref: 100 Secret Strategies for Successful Investing by Richard Farleigh
Property prices often lag stock prices
Strategy: Property prices often lag stock prices
---
What one investor did.
"In 1989, I shocked a lot of people in my dealing room when I suddenly sold my home in Sydney, and put my sale proceeds into Deutschmarks. It was viewed as rather bizzare. However, I was convinced that the property market would start to feel the effects of the share market crash some 18 months earlier.
I was also very keen to rent a stunning apartment overlooking Sydney Harbour. It was directly opposite the Opera House, and nearly as high as the Sydney Harbour Bridge. Despite having one of the best views in the world it wasn't exactly very expensive - amazingly only a few hundred Aussie dollars a week.
Anyway, as it turned out I was right about housing prices (and fortunately the Deutschmark, which went on to rise against the Australian dollar)."
---
In general, share prices have been a good leading indicator for property prices, which often follow the direction that the stock market took two or three years earlier. The economy pushes the shares and property in generally the same direction, but with property, the reaction takes longer.
1. There are always exception to rules
Recently in 2005, however, there may have been a decoupling of the two markets, and this strategy may not have been very effective.
A few years ago, stocks were dominated by weak global economies and the tech wreck. This was followed by a persistent recovery which started after the invasion of Iraq. Housing prices on the other hand, have until recently been surging, inspired by the massive drop in housing interest rates.
So housing has not shown any tendency to follow a lead set by the share market. Whither this strategy?
It is always valuable to be aware of patterns like this and when they don't work, to try and figure out the reason. On this occasion, dramatic events have dominated each of the markets and swamped any usual behaviour.
It is not too bad. We only need among all our strategies, to be right on most occasions or on our bigger positions, to have a comparative advantage.
Don't buy or sell property just because of the share market - always wait until property prices themselves started to move in the right direction, to give you further confidence before taking action.
Ref: 100 Secret Strategies for Successful Investing by Richard Farleigh
---
What one investor did.
"In 1989, I shocked a lot of people in my dealing room when I suddenly sold my home in Sydney, and put my sale proceeds into Deutschmarks. It was viewed as rather bizzare. However, I was convinced that the property market would start to feel the effects of the share market crash some 18 months earlier.
I was also very keen to rent a stunning apartment overlooking Sydney Harbour. It was directly opposite the Opera House, and nearly as high as the Sydney Harbour Bridge. Despite having one of the best views in the world it wasn't exactly very expensive - amazingly only a few hundred Aussie dollars a week.
Anyway, as it turned out I was right about housing prices (and fortunately the Deutschmark, which went on to rise against the Australian dollar)."
---
In general, share prices have been a good leading indicator for property prices, which often follow the direction that the stock market took two or three years earlier. The economy pushes the shares and property in generally the same direction, but with property, the reaction takes longer.
1. There are always exception to rules
Recently in 2005, however, there may have been a decoupling of the two markets, and this strategy may not have been very effective.
A few years ago, stocks were dominated by weak global economies and the tech wreck. This was followed by a persistent recovery which started after the invasion of Iraq. Housing prices on the other hand, have until recently been surging, inspired by the massive drop in housing interest rates.
So housing has not shown any tendency to follow a lead set by the share market. Whither this strategy?
It is always valuable to be aware of patterns like this and when they don't work, to try and figure out the reason. On this occasion, dramatic events have dominated each of the markets and swamped any usual behaviour.
It is not too bad. We only need among all our strategies, to be right on most occasions or on our bigger positions, to have a comparative advantage.
Don't buy or sell property just because of the share market - always wait until property prices themselves started to move in the right direction, to give you further confidence before taking action.
2. Property may be the easiest market
Despite a lot of talk about whether stocks, bonds or cash are the best investment, it may be the property market that is the easiest of the markets, for three reasons:
1. You can watch the stock market for a useful buy or sell indicator, and hve plenty of time to act in the property market.
2. There are not many false trends in property prices. The market is not a listed market where everyone can see the prices - deals are done privately and price trends develop slowly and surely. You can wait for the herd to start to move and then join them for a nice journey.
3. Just about everywhere, there is no tax on capital gains on people's own homes.
Ref: 100 Secret Strategies for Successful Investing by Richard Farleigh
Currencies trading are very difficult.
Currencies trading are very difficult. They are more difficult than stocks and certainly more difficult than interest rates.
You need to learn by looking at price behaviour in the past, but trying to understand what currencies have done even recently is tough. There have been some big moves.
Take the US dollar versus euro rate, for example. It has ranged over the last few years from around 85 to 130. How is it possible that the currencies of the world's two largest economies can change in relative value by over 50%?
These types of currency moves are intriguing.
1. Purchasing price parity (PPP) is not much use
This theory suggests that currencies should tend towards the level where a collection of goods and services costs the same amount in different countries. PPP would suggest that if they are too expensive in one country, then that country's currency should fall.
The famous McDonald's Big Mac index is sometimes published in the Economist magazine, and it applies this analysis, to the price of the burgers in various countries.
The problem is that in reality PPP does not seem to have much impact on currency level. Perhaps it is for the same reason that people living in tiny but very expensive apartments in Tokyo do not migrate to Sydney or LA and buy a huge house. If they did, perhaps currencies would be easier to evaluate.
2. Market sentiment has the most impact
Since there are no reliable benchmarks, market sentiment is the huge factor that dominates events.
In 2005, the US dollar has been out of favour, despite an improving US economy and rising US dollar interest rates. The market is more worried about the US current account deficit. But is that econmies or fashion? There's the difficulty.
Conclusion
You need not avoid currency trading completely.
There are occasional opportunities such as the big market moves that you have seen in the major currencies during the last few years.
You should only be involved when you have a very firm grip on what's driving the market. That doesn't happen too often for any of us!
You need to learn by looking at price behaviour in the past, but trying to understand what currencies have done even recently is tough. There have been some big moves.
Take the US dollar versus euro rate, for example. It has ranged over the last few years from around 85 to 130. How is it possible that the currencies of the world's two largest economies can change in relative value by over 50%?
These types of currency moves are intriguing.
- The first thing to be aware of, is that you are looking at two economies. With stocks and interest rates, youj basically have only one economy to figure out.
- However, the second and bigger challenge is that currencies are largely driven by market sentiment, and the reason is that there is absolutely no successful benchmark for the pricing of a currency.
1. Purchasing price parity (PPP) is not much use
This theory suggests that currencies should tend towards the level where a collection of goods and services costs the same amount in different countries. PPP would suggest that if they are too expensive in one country, then that country's currency should fall.
The famous McDonald's Big Mac index is sometimes published in the Economist magazine, and it applies this analysis, to the price of the burgers in various countries.
The problem is that in reality PPP does not seem to have much impact on currency level. Perhaps it is for the same reason that people living in tiny but very expensive apartments in Tokyo do not migrate to Sydney or LA and buy a huge house. If they did, perhaps currencies would be easier to evaluate.
2. Market sentiment has the most impact
Since there are no reliable benchmarks, market sentiment is the huge factor that dominates events.
In 2005, the US dollar has been out of favour, despite an improving US economy and rising US dollar interest rates. The market is more worried about the US current account deficit. But is that econmies or fashion? There's the difficulty.
Conclusion
You need not avoid currency trading completely.
There are occasional opportunities such as the big market moves that you have seen in the major currencies during the last few years.
You should only be involved when you have a very firm grip on what's driving the market. That doesn't happen too often for any of us!
Government bond markets for major economies are not prone to crash
Strategy: Government bond markets for the major economies are not prone to crashes
The characteristics of bonds:
1. The level of interest rates set by the government are somewhat predictable
2. They are not as risky as stocks.
Many people point out that stocks outperform bonds in the long run. Perhaps. However, one comfort you do have with high-grade bonds is that you are unlikely to wake up in the morning and find you have lost 25% of your investment, which of course does happen occasionally with stocks.
Most unexpected shocks to the economy are bad news:
In the 1987 October share crash, panic was everywhere. Those who were holding bonds did very well. The bad news for the economy was good news for interest rates.
There is also the interesting effect of government deficits on bond yields, especially in the United States.
As an investor in the stock market, bonds are alternatives. There have been dream runs in the share market. This article alerts you to the attractions of the bond market when your strategies steer you in that direction.
The characteristics of bonds:
1. The level of interest rates set by the government are somewhat predictable
2. They are not as risky as stocks.
Many people point out that stocks outperform bonds in the long run. Perhaps. However, one comfort you do have with high-grade bonds is that you are unlikely to wake up in the morning and find you have lost 25% of your investment, which of course does happen occasionally with stocks.
Most unexpected shocks to the economy are bad news:
- a crash in consumer or business confidence,
- a terrorist attack,
- a war,
- a SARS crisis, etc.
In the 1987 October share crash, panic was everywhere. Those who were holding bonds did very well. The bad news for the economy was good news for interest rates.
There is also the interesting effect of government deficits on bond yields, especially in the United States.
- One could argue that the government bond markets should work like all markets, so that if the government wants to borrow more and more, it has to pay a higher interest rate, and sell bonds at a lower price.
- This was a criticism of fiscal policy by one brand of economists - the monetarists. They argued that 'crowding out' would mean that higher deficits don't help a weak economy, because they simply push up borrowing costs for everyone.
- However, current interest rates in the US are normal even though the deficit is at an all time high, therefore such an argument is not convincing.
As an investor in the stock market, bonds are alternatives. There have been dream runs in the share market. This article alerts you to the attractions of the bond market when your strategies steer you in that direction.
Making sense of direction and level of Short term interest rates
Strategy: Short term interest rates will tend toward the inflation rate plus the economic growth rate
There is always a great deal of discussion about interest rates, particularly US rates. Short term rates are set by governments and this can be a fascinating process to watch. The rates affect the economy and many of the markets.
The benchmark strategy helps to make sense of discussions about their direction and their level. It is a rough guide which is often missed by many commentators. With this rough valuation target, interest rates are easier to understand than most markets, where it can be hard to have a clue what the prices should be. Equities, the market that most investors concentrate on, do not have this kind of benchmark.
An interest rate is made up of the inflation rate plus a 'real' rate. That is, the real interest rate is what is left after allowing for inflation.
Interest rate
= Inflation + 'Real interest rate'
The economic growth rate is the percentage expansion or contraction in the economy with inflation stripped out. It can be loosely considered as the dividend paid by the economy in general.
Economic Growth rate
= Rate of expansion or contraction in the economy - Inflation
Rate of expansion or contraction in the economy
= Inflation + Economic Growth rate
Over time, the real interest rate moves towards the economic growth rate. In that way, the return from interest rates and the return from the economy in general, are equal.
In 2005, the short term rates in the US are 1%. When they start to rise, how far could they go? In the US in 2005, you may wish to target 4% because inflation was around 2% and growth was also around 2%. Add them and you get the target.
Rates had started moving lower worldwide and the question was, how far they could fall? Using the rate of contraction in the economy and the inflation rate gives you an estimate of the economic growth rate. As over time, the real interest rate moves towards this economic growth rate, using this simple strategy, you can have an idea how much further interest rate could move and in which direction.
As the level of interest rates are somewhat predictable, this benchmark strategy helps you to invest intelligently in the bond market.
There is always a great deal of discussion about interest rates, particularly US rates. Short term rates are set by governments and this can be a fascinating process to watch. The rates affect the economy and many of the markets.
The benchmark strategy helps to make sense of discussions about their direction and their level. It is a rough guide which is often missed by many commentators. With this rough valuation target, interest rates are easier to understand than most markets, where it can be hard to have a clue what the prices should be. Equities, the market that most investors concentrate on, do not have this kind of benchmark.
An interest rate is made up of the inflation rate plus a 'real' rate. That is, the real interest rate is what is left after allowing for inflation.
Interest rate
= Inflation + 'Real interest rate'
The economic growth rate is the percentage expansion or contraction in the economy with inflation stripped out. It can be loosely considered as the dividend paid by the economy in general.
Economic Growth rate
= Rate of expansion or contraction in the economy - Inflation
Rate of expansion or contraction in the economy
= Inflation + Economic Growth rate
Over time, the real interest rate moves towards the economic growth rate. In that way, the return from interest rates and the return from the economy in general, are equal.
In 2005, the short term rates in the US are 1%. When they start to rise, how far could they go? In the US in 2005, you may wish to target 4% because inflation was around 2% and growth was also around 2%. Add them and you get the target.
Rates had started moving lower worldwide and the question was, how far they could fall? Using the rate of contraction in the economy and the inflation rate gives you an estimate of the economic growth rate. As over time, the real interest rate moves towards this economic growth rate, using this simple strategy, you can have an idea how much further interest rate could move and in which direction.
As the level of interest rates are somewhat predictable, this benchmark strategy helps you to invest intelligently in the bond market.
Be careful at the end of long trends
Another dangerous time in the markets is after the end of a long trend. The fundamentals that caused the trend may have been assessed and fully absorbed by the markets, and, until there are new strong influences, it is hard to have a view.
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