Archive for the ‘Financial Knowledge’ Category
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?
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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.
Case for High-Yield Bonds (Advance)
What Are High-Yield Bonds?
High-yield bonds, otherwise known as “junk bonds”, are issued by organizations that do not qualify for “investment- grade” ratings by one of the leading credit rating agencies – Moody’s, Standard & Poor and Fitch Ratings.
Credit rating agencies evaluate issuers and assign ratings based on their opinions of the issuer’s ability to pay interest and principal as scheduled. From the table of credit rating definitions, bonds rated Baa or BBB and above are considered investment-grade securities. Bonds rated Ba or BB and below are high-yield bonds, and generally have default rates in a range of 2-8% per year.
These issuers are usually
1) Newer, emerging companies raising money for expansion
2) Older companies which have weak balance sheets and/or weak profits
3) Companies taking on large debts for acquisitions or leveraged buyouts
What Currency Movements Mean For Your Investments
The world now, more than before, is facing some structural changes with will propel currencies movement. Previously, currencies of the world have been affected by economy, interest rate and investor usage. Now the movements of currencies will be broader in a clearer direction. With Singapore Dollar going to be strong, whole reason why knowing what to do is important.
So what do these currency movements mean for investors’ investments? A lot of investors (sadly a lot of financial advisers, even bankers too) make mistakes when determining where the currency matters and where it does not. For example, you can hear an investor, or financial adviser, saying, “I’m not advising this fund because it is in USD. USD is going to depreciate.” This reasoning is WRONG.
Market Updates May to Jul 2010
The past 3 months has been a ride for most investors and money managers. With a variety of issues such as Yuan value, China property bubble, European debt crisis, stake holders have been watching each reported data like hawks and volatility shot up.
We have reached a stage where things have settled down a bit. And also arrived at a realization that there is going to be a new normal in the global economy. I do feel that the new normal is a good thing if it eliminates the pattern of peaks and troughs in the economy.
Chinese Yuan Off The Peg To US Dollar
China’s shift toward a stronger exchange rate may alter the shape of the world economy’s expansion more than its speed, economists said. The currency move is likely to affect the composition of global gross domestic product rather than the growth rate
Chinese consumers might buy more as the rising yuan boosts their purchasing power, while their counterparts in the U.S. cut back on their spending as the cost of goods imported into America rises. The shift will add 0.1 percentage point to global growth this year and next, leaving the rate at about 4 percent, according to the median of 17 forecasts in a Bloomberg News survey of economists.
China’s central bank said June 19 it will increase flexibility in the yuan, marking an end to the crisis policy of pegging to the dollar.
May – A Volatile Month With 2 Tales To Tell
May has been a volatile month. Europe’s sovereign debt risks and tensions in Korean Peninsular weighs down heavily on the financial markets while economic data has shown that the recovery is underway.
Speculation and intense debate on 2 issues, whether Greece will be forced to default and whether Euro will lose some of its weaker member countries has died down a little. However, things are still not certain a month after attacks lead to a trillion dollar bailout package. Euro skeptics say the forced spending cuts and tax increases will scuttle a recovery before it takes hold. The fiscal austerity measures will be a big drag on growth. Spain lost its AAA credit grade at Fitch Ratings, dropping one step to AA+ to a “stable” outlook.
A Greece default?
You will have heard me mention the Greek sovereign debt problem before. In February, this issue has been weighing down the markets somewhat pending a response from European Central Bank. Last Thursday, a serious contagion forced ECB to response seriously with a huge EUR750 billion safety net to arrest the fiscal crisis and stop the turmoil from spreading to the other 15 nations that use the euro.
Bank of America – Europe Bailout
Markets have been really volatile last 2 weeks due to this issue, other issues like China’s property prices and inflation do not help in calming the market. Main story goes, after the drop last week, traders and investors gave positive response and the markets for fixed income, equity and Euro rebounded on Monday, a day after hard fought European lifeline.
Alternatives to a Savings Account
Recently, I arranged for a client to put his cash to an instrument that earns higher interest rate than the bank’s savings account. If there is a alternative that has the characteristics of to the savings account and earns more than the savings account, a lot of people will be interested if it fits their requirements. This is because the interest rates of saving accounts are very low!
The alternatives is the Cash Fund or a short-term SGD money market fund. You can get them from iFast platform through your Independent Financial Adviser. If you do not need any advise or further information, you can get it from www.fundsupermart.com.
