Market Updates October 2010
I have decided to put forth my thought on portfolio strategy first
For clients with substantial portfolio, will look into entering the US market as a diversification. I believe US market is in a better place now, but returns of US market will likely be lower than growth markets. (note: a market need not be in a good place, lesser risk more upside to rally, as can be seen previously). US equity has been in the overbought region. As shown below, the S&P 500 index has been trading within the red zone (between 1 and 2 standard deviations above the 50-day) for some time now. It seldom goes above 2 standard deviations and everytime over the last 10 years it reach, it pulls back.
I still favour Asia and emerging markets, especially some of the less mentioned regions like Indonesia, Brazil, South Korea and South East Asia. I favour markets with good domestic consumption and commodities driven mix. It does seem like the markets are very correlated nowadays.
For fixed income I favour Asian emerging market bonds and high yield bond market. Lower risk fixed income will go to SGD, AUD money markets, countries more developed but stable.
Commodities have run up quite a lot and I believe it is a long term story. Pretty hard to reach a convincing conclusion about outperforming equity markets now.
What Makes Brazil An Attractive Investment.
Many investors have heard about investing in BRIC, which is the well-known acronym for Brazil, Russia, India and China. Economists have determined that BRIC countries could rank among the world’s dominant economies by mid century based on gross domestic product. Some important growth factors in these countries are the huge reserves of natural resources and a large and well-qualified work force with relatively low wage levels. A growing consumer demand stimulated by increases in income across broad categories of the large BRIC population is also an important factor.
Due to proximity and racial demographics, we are more knowledgeable about China’s economy; similarly for India. Many investors have invested in Brazil through BRIC funds and emerging market funds, but know very little about the country. Same goes for their Financial Advisers. I’m going to present some basic facts an investor should know about Brazil here.
GDP
Brazil’s GDP now stands at $2.0 trillion, the 8th-largest economy in the world, compared with China’s $5.7 trillion, $1.5 trillion for Russia, $1.4 trillion for India, $2.1 trillion for Italy.
Currency
Brazilian Real has appreciated against the USD about 6% year to date. 1.70 BRL = 1 USD
Foreign Reserves
US$285.7 billion in November 2009
Equity Market
Brazil usually has the highest weighting in Latin American equity funds.
The Bovespa Index is a total return index weighted by traded volume. It’s made up of about 50 of the most-liquid stocks traded on the BM&FBovespa. The portfolio is rebalanced three times in a year. Total market cap is US$1.27 trillion as of August 2010.
As at 13 April 2010, Petrobras (Brazil’s largest oil producer) and Vale (the world’s second largest mining company) are the key players and they account for over one-third of the market capitalisation in the Bovespa. Steel maker Gerdau is also among heavily weighted resource stocks
Outlook
What concerns investors is usually outlook of the equity market, unless the investor is investing in Real denominated bonds, which is unlikely.
Early Critical Illness Insurance, is it worth it?
On 27th August, I published a post on At Which Stage of Cancer Does Critical Insurance Pay? On 31st August, a story was published in The New Paper about a lady who got cancer and removed her breast but was denied claims on critical illness for the insurance policies she has. Article
In the New Paper article, Ms Tan had a condition of carcinoma in situ, where the cancer starts in the milk ducts of the breast. It was considered a non-invasive stage as the cancer had not spread into the surrounding breast tissue. In Ms Tan’s case, she had a mastectomy because the cancer cells were located in various parts of her breast. In other words, she had a few of the cases of carcinoma in situ. The insurance company denied her claim based on the the condition not fulfilling the definition in the policy.
During my earlier post, I mentioned that i was discussing this with a radiologist husband and staff nurse wife. They do admit that at this stage of cancer, the condition is not life threatening and with treatment, the patient is likely to continue normal life and working after 1-3 months.
‘Dr Wong Seng Weng, 40, consultant oncologist at The Cancer Centre, drew a distinction between cancers where the person’s longevity is compromised versus conditions which are treatable. He said: “DCIS, if diagnosed and treated early, usually the survival rate is 100 per cent. Usually life insurers pay out when a person’s longevity is compromised.” But this doesn’t mean that the cancer has to be very advanced, before a claim can be made, he clarified. Even if the cancer is at stage 1, the insurer can pay out if it is an invasive form that spreads, he said.’
More about interest rates, inflation and investment instruments.
A few days ago I posted on how interest rates and inflation have been affecting investors and savers. One day later, on Friday, DBS announced that it will be slashing what it pays savers. Business Times Article
Effective Oct 15, interest rates for its POSB savings account will be pared to 0.1 per cent from 0.125 per cent for small savers. The next higher rate of 0.25 per cent, all savings accounts – POSB and DBS – will require a minimum of $100,001, double the existing $50,001. For balances above $1 million, DBS will pay 0.275 per cent for all savings accounts.
DBS autosave, which is the current account, will continue to earn the highest interest rates. Balances will have to be above $250,000 to earn 0.325 per cent, current balances above $100,000 earn 0.325 per cent. Remaining balances above $1 million will earn a princely 0.35 per cent.
DBS, the nation’s largest bank, has been struggling with record low interest rates which eats into its profit margins. The benchmark three-month Sibor or wholesale lending rate has been hitting new lows last month. It has slid to 0.50501 per cent from a week ago, and down from 0.51889 per cent on Sept 13 – the lowest in at least 23 years.
Also recently, Lorna Tan wrote an article Straits Times “How to make your money work harder.” In the article, she suggested 4 instruments, Structured deposits, Bonds, Bond Funds and Stocks with dividend yields.
Capgemini & Merrill Lynch Asia-Pacific Wealth Report
Every year Capgemini and Merrill Lynch Global Wealth Management will publish a World Wealth Report, in its 14th year now and also a Asia-Pacific Wealth Report, their fifth annual in-depth look at the high net worth (HNW) marketplace in the region. Both reports are the result of an extensive collaboration between the two firms, studying the key trends that affect high net worth individuals (HNWIs). It is really interesting read.
Download page here. Alternatively, you can ask me for a copy.
Asia-Pacific HNWI segment showed substantial gains in 2009. The combined wealth of Asia-Pacific millionaires surged 30.9 per cent to US$9.7 trillion in 2009, erasing losses in 2008 and surpassing Europe’s rich. More relevant to me is how HNWI invest. Some of the findings below.
Read More…
Low interest rates hurts retirees, savers.
Global Financial Crisis of 2007-08 has brought about changes that affected lives of common people. Interest rates are at 1% or below in most developed countries, and there seems to be little prospect of their rising soon. The futures market believes that American rates will still be below 1% in July 2012 while Fed has pledged to keep “exceptionally low . . . for an extended period.”
In Singapore, interest rates have dropped in tandem with US dollar interest rates. While much less drastic than a 5% to 1% for US dollar, fixed deposit interest rates dropped from 3% to about 1%. However, the problem is that inflation in developing countries like Singapore are higher than developed countries. Singapore’s inflation is expected to be 3-4% this year. The Monetary Authority of Singapore keeps inflation in check through exchange rate policy but does not control interest rates. Advance explanation found here and here.
How does low interest rates in the many economies affect the world and life in Singapore? Here are a few effects.
Where will S&P 500 go from here?
An investment consultancy group, Bespoke Investment Group did a recent commentary on direction of the S&P 500 recently. As shown in the chart below, after a sharp decline in late April and early May, the S&P 500 has essentially been range bound for the last three months. The question now is, what’s next?
Read More…
Greed and Fear. Market Update Aug-Sep 2010
There has been not clear indication what is next for the global economy and also about decoupling of economies that affects where and what to invest in. These few months, markets has been reacting to data announcements, with each market having its general trend.
Over the past few weeks, risks of another recession and of deflation have increased then decreased again. The outlook for the global economy remains uncertain, particularly in developed countries where there has been divergent performance in recent weeks.
Data from U.S. includes non-farm payroll, ISM manufacturing index, unemployment claims, unemployment rate, trade deficit, US retail sales, etc. Shall not bore you with the numbers.
In Asia, China and India continued to show momentum despite variations such as India’s interest rate increase and China’s tightening measures. China’s PMI rose to 51.7 in August, marking an end to months of deceleration and also the 18th straight month the index is above the boom-bust level of 50. India reported GDP growth of 8.8% in 2Q10 vs. 2Q09. Expansion in the manufacturing and services drove India’s growth rate to its fastest pace since 2008.
The major indices fell in August as doubts about the economic recovery caused fear and uncertainty in the market. US equity indices fell between 6 and 8% while the Asian and Emerging Markets equities fared slightly better with some positive growth for August.
At which stage of Cancer does Critical Insurance pay?
Recently I have met a client, a female who is concerned about payout in event of being diagnosed with cancer, which is the benefit under critical illness portion of her insurance policy. Being a head nurse and her husband, a doctor, radiologist to be exact, they are quite familiar with the medical terms in the small print. After consultation with them, I decided on a post.
Invest Fair 2010 Experience
I went to the Invest Fair 2010 at Marina Bay Sands last Saturday. The event was jointly organised by ShareInvestor and The Business Times. My purpose there is feel the atmosphere, find out what people are after and just get a little exposure to this side of financial product sales.
As I walked in, was approached constantly by promoters speaking to me about what they are promoting. Not surprising, considering this is a free event and the exhibitors and participants paid the organizers to have a booth there. Main aim is to do promotion and sales.
