2012 – The Year Where It Happens
What happens? Actually, there are cross roads in 2012 for a lot of the economies. Back in 2011, it was said it will be a year of 2 halves. Now in 2012, that is being brought up again. I do think volatility will be lesser in 2012 as compared to 2H 2011.
U.S.
The economy has probably picked up speed in the last few months and will grow moderately in 2012, staving off the need for additional stimulus from the Federal Reserve, a Reuters poll in December. Payrolls rose 200,000 in December, double the gain in November. A weekly measure of consumer confidence ended 2011 at a five-month high. And manufacturers reported their business in December grew at the fastest pace in six months. Companies added 1.64 million employees in 2011, the best year for the American worker since 2006, after a 940,000 increase in 2010. Even with the gains, little headway has been made in recovering the 8.75 million jobs lost as a result of the recession that ended in June 2009. GDP grew 1.8 percent last year, according to the median forecast of economists surveyed by Bloomberg News.
Even though the jobless rate dropped to 8.5 percent, it is still very high. And the massive US$15.17 trillion debt is slowing rolling into the world’s concern. In 2012 GDP is estimated to expand by as much as 2.5 percent.
China
A fast growing economy always have numerous threats that surfaces. For China, the threat of inflation retreated somewhat with authorities considering lowering interest rates for the first time since 2008. China’s home prices fell for a fourth month in December, something the government hoped for in addressing a possible property bubble. Hard landing probability lowered with small manufacturing growth from China. However, there appears larger and not so visible signs of trouble. Local government debt through investment and financing platforms have attracted borrowings of conservatively estimated 10 trillion Yuan. The funds are used for infastructural and property projects and the key concern now is repayment.
To meet their commitments local governments need to generate income from land sales, which is fuelling unrest in the world’s second largest economy as residents increasingly complain that land is being unlawfully seized. A recent downturn in China’s housing market will also weigh on the finances of cities and provinces that had planned to pay off debt by selling land at high prices. Corruption allegations against local governments’ methods to raise money and pay debts have culminated in protests, another source of roadblock for economic growth.
For the stock market, even after a two-year bear market wiped 33 percent from China’s benchmark stock index (SHCOMP), there’s no consensus on the direction in equity prices this year among the nation’s biggest and most accurate brokerage firms. Earnings growth are at estimated 10%, and record low EPS should signal a strong upside, but we have seen that over many months in 2011. Twelve of 13 firms surveyed by Bloomberg forecast Chinese stocks will rise this year. The nation’s equities haven’t posted three straight years of declines since the Shanghai Stock Exchange opened in 1990. One thing to note, China continues to achieve the highest GDP growth of any major country in the world.
India
When the Financial Crisis happened 3 years ago India barely felt it. Now it is hurting more than any other Asian economy. SENSEX lost about 20% in 2011. Having a few years of 6 percent growth rates have propelled the stock market and economic power of the BRIC country. However, crippling troubles require huge efforts to address.
Politically, India represents democratic mess China wants to avoid. The government with different factions sharing power lack cohesiveness and direction. Power shortage in major states like Tamil Nadu, Deli, Maharashtra and Haryana, all engines of the economy is worsening. Corruption and social unrest are increasing concerns. Employment intensive sectors have experienced negative growth since April.
Fortunes of the India stock market lies in domestic progress, not U.S. recovery or the containment of Europe debt crisis. In 2012, the government continues to overspend, inflation seems beyond control and attempts to control prices through interest rate hikes have hurt just about everyone, including big corporations, causing the economy to brake sharply. It is unlikely that the market is getting any good news soon.
Europe
Ironically, Europe seems to be the only region that there is no confusion. There is no confusion that it is in a bad shape, that is. European financial crisis is the result in part of the financial crisis and in part of government’s poor fiscal discipline. After the market decided the risk warrants a higher yield, there is little the sovereign bond issuers can do. After many rounds of meetings promising ‘comprehensive solution’ to the problem, markets just battered the Euro bonds after every meeting. Until, European Financial Stability Facility (EFSF) is agreed on by twenty-seven member states of the EU in May 2010; and its successor, after 2013, the European Stability Mechanism (ESM) is at least acknowledged. This does not solve the deficient and high debt level issues as the facilities are inadequately funded.
After some time, the market has digested the negative news and it is no longer a shock. general consenses is that Europe will be in a mild recession and a period of very slow growth for a couple of years till the debt levels are fall from current levels.
What To Stay Away From
European Equity – Certain to undergo more bashing, especially if France is downgraded, that could scuttle the region’s efforts to stem its debt crisis. For long term bargain hunters, look for funds invested in large cap European multinationals with substantial portion of company operations in America and Emerging markets.
Sovereign Bonds – Sovereign bonds in Europe, needless to say, they are not for usual investors, if there are opportunities from the crisis, leave them to the traders. U.S. sovereign bonds are less risky, but yields almost nothing. Longer duration bonds may be safe for now as interest rate should remain low for this year. However after a year of fantastic performance, it is hard to see much upside left.
Underweight China and India – Domestic problems and stress of the European debt crisis will weigh these 2 economies down, even after a year where the stock indexes fell 24% and 20% respectively.
What To Focus On
Emerging Markets Equities – equities are undervalued even in a slowing growth environment. Company balance sheets are strong, there are still growth in Asia and emerging countries. It will not be long before investor turn to equities from fixed income.
U.S. Equity –
S&P 500 rose to highest level since July 2011. Clients who have invested into U.S. equity consistently over the last 1.5 year will find themselves in profit with good upside potential. There is still significant ‘crisis premium’ baked into the markets, just avoiding disaster could be enough for the upside. Most companies will surprise on the upside and markets will react positively to more higher than estimated earnings reports.
High Yield Bonds – Less prone to interest rate risks than investment grade bonds and gives higher interests. Will benefit from return of risk appetite and when interest demanded from these less credit-worthy bonds lowers compared to a risk-free bond.
Multiple Currency Fixed Deposits – interest rates offered by foreign urrencies such as the Australian dollar, New Zealand dollar and even British Pound and U.S. dollar are higher than what you can get in Sing dollar. Diversify your investment exposure to stocks and bonds, using one or a few foreign currency fixed deposits as they do not track market fluctuations of stocks and bonds. Of course, there are other risk like exchange rate risk and minimal credit risk.
Gold and Precious Metals – Gold currently at ~US$1500, presents modest upside in an environment of volatility and negative real interest rates.
Singapore Sits Moodily Atop Wealth Pole
This is an article that appeared in The Business Times. We, as Singaporeans should be appreciative that we live in a wealthy and comfortable environment. Compared to the world population, which is exceedingly poor, Singaporean middle class is considered well-off.
Read the full article here.
I do understand the discontent and anxieties of the middle class too. On one hand, in monetary terms, our generation have huge salary and wealth increase from our parents’ generation, on the other hand fierce competition for space, opportunities in a small crowded island means real standard of living have not improved very much. I believe many Singaporeans dream to have a relaxed and comfortable life. However, as the situation is, the consensus view is that if a working adult does not strive doubly hard, he/she will find himself/herself at the bottom of a huge population of wealthy residents, with difficulty in purchases such as a home.
Overall, I think there needs to be a change in mentality in what Singaporean pursue in life. We have always looked to Switzerland as a country to be envious of. Perhaps, more effort should be spent thinking about how to mould a comfortable a stress free society.
Get A Second Opinion On Your Investment
I recently decided to go on a campaign, to call for readers seeking second opinions and explanation of any investment(s) they have entered into.
One of the reasons I feel motivated as a Financial Adviser is that I wanted to put in effort to use my knowledge and capabilities to give a objective and accurate assessment of ANY financial investment. I have this thinking that advise can be based on providing information alone, not sales presentation. In this scenario, I provide investment advise and analysis on any investment and products the client is deciding on and/or is introduced to.
If you have any investment which you have entered into or deciding on now, it may help to get quality and impartial second opinion. I have experience dealing with clients who have absolutely no understanding of the investment they entered into. Read here
Information Required for any Investment
- Amount:
- Product Name:
- Product Provider:
- Product Code:
- Date entered:
- A url with the specific investment information:
Email the information together with a scanned copy of the product fact sheet, if any, to info@managedwealthsingapore.com. If it is a portfolio, please indicate that all the funds are in a portfolio and I will comment on the whole portfolio.
Research Information Provided
- Brief description: Brief history, what category of investment it is, any important information.
- Risk analysis: What are the risk that is taken on by the investment and product. How serious are the risks.
- What affects the investment: What in the world, economies, prices or human actions that may affect the performance of the investments
- Links to outlook for the investment: I will not draw any conclusions on the outlook of the investment, but provide links to news, information and opinions related to the investment.
Care will be taken to adhere to MA regulations. I will not be giving opinions on whether the investment should be entered to, kept or redeemed as I believe that such advise requires a client-adviser relationship.
Why Am I Doing This?
To gain valuable information and experience: Through this I may be able to get knowledge and awareness on some investments which have not been very prominent on my mind. This exposure and experience is very important to an Adviser.
To gain some interaction and conversations with readers: Conversation with any potential client is good. I don’t seek to sell anything, never even suggest any products through this.
Understand a little about investor’s habits: Hopefully, I can gain some knowledge on what some investors invest in and what was on their mind.
What Is The Benefit For Readers
Hear it from someone who is not the seller: No matter how impartial a sales person is, it is always different hearing it from a independent party. I have this experience too in situations when I am the Adviser who is getting the commissions I recommend to clients.
Recall some information which may be forgotten for investments entered into long ago: Some investors believe understood the investment they entered into at the point in time of acquiring it. However, after some time and lack of communication, the investors lost knowledge of what it is about.
Email the information together with a scanned copy of the product fact sheet, if any, to info@managedwealthsingapore.com. If it is a portfolio, please indicate that all the funds are in a portfolio and I will comment on the whole portfolio.
Regrets Of The Dying – Bronnie Ware
I am sure some of you have read this before. It is a short article by Bronnie Ware.
“For many years I worked in palliative care. My patients were those who had gone home to die. Some incredibly special times were shared. I was with them for the last three to twelve weeks of their lives.
People grow a lot when they are faced with their own mortality. I learnt never to underestimate someone’s capacity for growth. Some changes were phenomenal. Each experienced a variety of emotions, as expected, denial, fear, anger, remorse, more denial and eventually acceptance. Every single patient found their peace before they departed though, every one of them.
When questioned about any regrets they had or anything they would do differently, common themes surfaced again and again. Here are the most common five:
1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
This was the most common regret of all. When people realise that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made.
It is very important to try and honour at least some of your dreams along the way. From the moment that you lose your health, it is too late. Health brings a freedom very few realise, until they no longer have it.
2. I wish I didn’t work so hard.
This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret. But as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.
By simplifying your lifestyle and making conscious choices along the way, it is possible to not need the income that you think you do. And by creating more space in your life, you become happier and more open to new opportunities, ones more suited to your new lifestyle.
3. I wish I’d had the courage to express my feelings.
Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a result.
We cannot control the reactions of others. However, although people may initially react when you change the way you are by speaking honestly, in the end it raises the relationship to a whole new and healthier level. Either that or it releases the unhealthy relationship from your life. Either way, you win.
4. I wish I had stayed in touch with my friends.
Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.
It is common for anyone in a busy lifestyle to let friendships slip. But when you are faced with your approaching death, the physical details of life fall away. People do want to get their financial affairs in order if possible. But it is not money or status that holds the true importance for them. They want to get things in order more for the benefit of those they love. Usually though, they are too ill and weary to ever manage this task. It is all comes down to love and relationships in the end. That is all that remains in the final weeks, love and relationships.
5. I wish that I had let myself be happier.
This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content. When deep within, they longed to laugh properly and have silliness in their life again.
When you are on your deathbed, what others think of you is a long way from your mind. How wonderful to be able to let go and smile again, long before you are dying.
Life is a choice. It is YOUR life. Choose consciously, choose wisely, choose honestly. Choose happiness.”
Bronnie is an inspiring and creative soul from Australia. After years searching for a purposeful job, she ended up in palliative care. Her official website. Bronnie has now released a full-length book, titled The Top Five Regrets of the Dying. It is a memoir of her own life and how it was transformed by the regrets of dying people. You can read more about the book here.
Why is this article here? I find that in managing wealth, both personally and as an Adviser, the perception and the view of life closely ties to the view and perception of wealth. Chances of success and satisfaction success comes with wealth working for us instead of us working for wealth. Advisers role is to satisfy this balance.
Advantages Of Investments Structured As Insurance
Over the last few years, a type of insurance policy has been gaining popularity in Singapore. Where investors have sometimes find themselves putting money into ILPs with insurance cover for investment purposes, which I have discouraged in this POST, there is a type of ILPs which is meant for investments. They are commonly called the 101 Products, Insurance Wrappers or the Portfolio Bonds in Singapore. The development of this type of policies arises from tax considerations in Europe and US, since investment returns in the policy is deemed insurance proceeds and is treated differently for taxation. A variation of this in Europe is the Private Placement Life Insurance, which generally comes in larger quantum.
Investors pay premium, regularly or a lump sum to start, into the policy which will be used in investments into funds or other financial instruments. The policy lasts for a number of years at the choice of the investor. There is also the flexibility of stopping investments and drawing funds out of the policy after a certain time period of about 1 to 2 years.
Main Features that differ from a policy for Insurance purpose: (exact details may differ with different companies’ policies)
NO insurance charges. The reason for this is because there is negligible insurance cover. The policy gives an insurance value of 1% above portfolio value upon death of the policy holder before maturity period. At maturity, investors receive the full value of the investments in the policy. As you can see the insurance structure is only symbolic.
Advantages of these investment policies as comparing to investing periodically in funds
Long Term Mentality
One of the main advantages I wish to highlight is not an outright cost or quality advantage, but the perception the investor have when entering into this investment. Investors usually comes to the conclusion themselves that this is a long term investment, be it 8 years or 20 years for one or many purpose(s).
Common investor behaviour is to invest when mood is right. This is highly erratic and harmful to the investment objective. Moreover, this situation requires Adviser’s effort to manage client emotions; to align
and focus the client back to the investment purpose and investment views. There are investors who would have stopped their investments during this year due to market uncertainty, thereby missing the opportunity to invest at a low, for returns in the future.
A marketing gimmick which some of these policies adopt is to allocate extra investment amount over what the investors contributed in the first number of months. This initial additional amount the policy allocate to the investor will sum up to a small percentage of the maturity sum in years to come, but it helps the investor stick to the investment plans.
Investment Choices
There are many investment instruments within the policies that are not readily available to retail clients in Singapore. Additionally, with the fund managers being located in different parts of the world, the selection of funds are less prone to geographical and familiarity bias.
Portfolio Bonds – Any asset can be placed into the portfolio bond to make it the most complete portfolio you can construct. Real estate, foreign currency fixed deposits, hedge funds, securities, bonds, etc. These instruments can be acquired at close to cost from the companies’ broker relationships.
Tax and Other Advantages (for foreign investors)
For foreign investors, there may be tax advantages associated with its status as a life assurance policy. These policies can also be easily structured into a trust, with the beneficiary being a minor, a trustee who is a guardian and managed with the help of a Financial Adviser. For example, grandparents can invest in this policy for the benefit of a grandchild with a widowed mum as the trustee, the policy to mature when the grandchild turns 25.
Contact info@managedwealthsingapore.com to know more.
Investing in Private Companies
Recently, I have been exposed to a different kind of investments. This is the lesser explored kind of investment as it usually involve more participation and longer search and understanding process. I was involved in several small businesses and startups, mostly in business development. I also gained knowledge of meetings involving proposals and updates from other businesses of investors who invests in businesses, from region of $50 thousand to a few hundred thousands. An associate of mine have also set up a business facilitating setting up of offshore private investment companies with wholly own some of these businesses.
This got me interested in this form of investment, investments in small businesses, not as a executive or management in the business, but as an investor seeking returns. Is it really profitable? It really depends of course, each deal is different, there are coffeeshops and IT start ups. As this is meant to be a blog entry, not a guide book, I will share some of my experiences.
How much to invest?
This goes in relation to 2 issues. First – what is your financial situation and the risk you that comes on this portion of money you will be investing in. This area involves the financial planning before even looking at the investment itself.
Second – what is the value of the business? This is extremely difficult and very small number of professionals are available in Singapore providing business valuation services. There is no precise way of doing private company valuation, but plenty of accepted means of making estimates. The most common are listed.
- Rule of Thumb/Multiple of Sales
- Comparable Firm Method
- Estimated Discounted Cash Flow
- Price to Earning (P/E) Method and the EBIT Method
- Return On Investment (R.O.I) Method
These methods are usually for bigger firms. How do you value, for example, a cafe? Most business owners use ‘gut feel’ to arrive a value. They form this based on their vast experience and knowledge in the same business. This is something an investor, an architect investing in a yoghurt business run by a young entrepreneur, cannot rely on. There are other framework of thinking to assist in the determination of the value to invest in.
Other considerations are largely non-financial but requiring strong business acumen will be required to gauge.
WIll the current owner be still running the business? How important is the key man? Is the business a long term one or a trend business? Other issues like competitors, location and risks. Of course, there are endless other considerations and many professionals spent years acquiring CPAs and have written books on this.
Over all I have seen quite lucrative and high potential in this kind of investment, given the equally volatile financial markets uncertain returns. Furthermore, there is pleasure in being the owner of a small business and the satisfaction of being involved in entrepreneurship is sited as one of the reasons why some of these investors are hooked.
After Optimism of A Plan To Save Europe, Crisis Again.
Just one week after European leaders agreed to bolster lenders’ capital and boost the region’s rescue fund in a bid to stem the debt crisis, Greece Prime Minister, at pressure holding on to political power, sends the world uneasy again with a decision.
Last week, European leaders agreed to boost the firepower of the region’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to accept a 50 percent loss on their holdings of Greek government debt. Banks will, as part of the plan, need to raise capital to insulate themselves against losses on government debt. Still to be decided are the details of the haircut, what assets banks can count as capital, how banks will raise it, and whether future bank debt is backed by a national or European guarantee. The European Financial Stability Facility which includes the possibility of China, Brazil and Russia involvement. Having the an agreement on the plan assured global financial markets that the details will be worked out and Europe will avoid a messy default. The European Financial Stability Facility which includes the possibility of China, Brazil and Russia involvement.
Europe Banks and Financial Services Index rose 8.8 percent higher in London the following day. Societe Generale jumped 23 percent and Credit Agricole 22 percent. Barclays climbed 18 percent, BNP Paribas (BNP) SA 17 percent and Deutsche Bank AG (DBK), Germany’s largest lender, 16 percent.
Greek Prime Minister George Papandreou triggered the latest upheaval in the two-year- long crisis by abruptly announcing on Oct. 31 a parliamentary confidence vote and his desire to hold a referendum on the rescue pact. The first asks parliament to say by the end of this week whether it has confidence in his leadership. The second is a referendum in which Greek voters would approve or reject, possibly by year’s end, Europe’s latest debt-crisis workout.
The prospect that this new twist could derail the European bailout package and possibly provoke an uncontrolled Greek default raised alarm bells around the world. Asian stocks and U.S. equity futures sank, while bond risk rose after European leaders withheld 8 billion euros ($11 billion) aid payments to Greece. Greek Prime Minister argued that the country’s citizens need to express their consent to the sacrifices required by the bailout deal.
German and French leaders held emergency talks on the eve of a Group of 20 summit in Cannes, France, yesterday and meet with Greek Prime Minister Papandreou today. It is unknown if the meeting will give any reprieve. For now till the next few weeks to the referendum, it does seem that the year will end a underperforming year for risk investments.
And though US companies are beating Wall Street profit estimates for the 11th straight quarter and S&P 500 traded at 11.7 times reported income, some analyst say enough to revive a bull market that will eclipse any rally in the past 12 years. I bet to differ, existing tail risk will continue to weigh down prices. Till the excessive tail risk is addressed, I believe the rally will have to wait.
Of Art and Wealth
I have been meaning to write about art investments for some time. According to Merrill Lynch Global Wealth Management and Capgemini, Singapore’s millionaires are quite fond of having art as part of their investments in luxury items, at 26% of value of luxury investments. The top preference are small items: gems, watches and other jewelry.
Investments in art is not only restricted to the very wealthy. As the middle-class art buyers in wealthy Singapore grow, galleries are aiming lower, taking advantage of an art-buying boom. Growth of so called affordable art and second Affordable Art Fair is reported HERE.
I recently met a friend who started a online Art portal for emerging countries’ artists – www.artyii.com. She wrote an article for Business Times as an introduction to art investment.
“
By Ng Cai Lin
FOR the nouveau riche seeking diversification, investing in art now seems to be easier, given the greater accessibility.
Two global art fairs held maiden shows in Singapore recently and both reported healthy sales. Local art auction sales have also overtaken those in Taiwan, South Korea and Japan.
Art is said to be a good hedge against traditional asset classes. At the close of the rump year 2008, art funds outperformed various equity and fixed income markets.
Like all traditional securities, art is affected by the state of the economy. Yet, there are unique factors contributing to the outlook for the art market.
Apart from supply, an artwork’s medium, condition, period, theme and current collecting trends play a role in determining its value. These factors, therefore, give art a low correlation to equity and money markets.
Creating hedge positions with art investments can also be done with art funds. The first crop of art funds came about between 2005 and 2007.
When the recent financial crisis struck, capital was withdrawn and plans for new funds were immediately shelved – including one advertised by renowned British art collector Charles Saatchi. Post-crisis, with the art world showing new life, art funds are returning and claiming to bring greater transparency to this historically shadowy sector.
The idea behind many art funds is simple: A few rich investors pool their money to buy paintings. Smaller investors buy ownership units – much like real estate investment trusts (Reits) – whose values are determined by the underlying art.
Trading takes place in a private market. To realise the market value, investors have to trade stakes. New funds also feature an innovative spin by allowing holders to experience not only capital gains but also an ‘emotional yield’ in receiving actual works upon fund redemption.
Before you jump to put your dollar into funds investing in hot picks like Andy Warhol and Jackson Pollock or in emerging art markets like China, India and Indonesia, familiarise yourself with the risks involved.
First, the accuracy of indicators used to measure performance is questionable. How do you measure net asset value (NAV) accurately when two works by Monet, both 30 x 30 inches and painted in similar style, in the same fund can be of vastly different values?
Stocks and bonds are homogenous in nature and it is, therefore, fair to appoint an equal pricing to each unit of a particular stock or bond. To explain this in the simplest terms, one share of DBS common stock has an equal value to all other DBS shares – and the NAV per share is simply the NAV of DBS divided by the total number of shares.
But because of art’s heterogeneity and individuality, NAVs may be skewed tremendously by a single piece.
Second, like all funds, art funds also have a redemption date. Given greater volatility in the art market, an investor faces greater chances of being forced to liquidate holdings in a bear market.
Howard Rutkowski, director of Fortune Cookie Projects, an independent art curatorial firm, explains: ‘ (Art) funds are time-sensitive: they often need to be liquidated on a fixed schedule, which may occur during a downturn in the market.’
Third, the cost of using these funds as a diversification tool is its illiquidity.
Invested in by wealthy people who usually do not have huge incentives to sell, price discovery is irregular. Hence,although historical returns may look uncorrelated,this is largely due to the art market’s inefficiency rather than its fundamental non-need nature.
For aficionados, art is acquired purely for enjoyment and any price appreciation is a bonus. ‘I buy art only because it speaks to me; I buy only what I love,’ says Daryl Low, 28, chief executive of Quantine Pte Ltd.
While Mr Rutkowski is against investing into art funds for the average investor, he has some advice for potential investors who are keen to purchase actual artworks: ‘Investing in art is neither for neophytes nor the faint-hearted. Only seasoned collectors and art professionals can actually buy correctly. The key – now and always – is to buy quality work by artists that have quantifiable career tracks and are internationally recognised.’
Without a doubt, art as an asset class can offer diversification and investment benefits. However, like all financial instruments, how beneficial it can ultimately be depends on one’s understanding of the underlying fundamentals.
The writer is a recent graduate of the Singapore Management University and the co-founder of Artyii, an online community for Asian emerging artists.”
After A Third Quarter Market Down Comes Opportunities
Past 2 months have seen financial markets took a turn for the worst. Beginning with the US government debt downgrade and following up with European debt crisis. Though, all of the reasons existed well before, it is the way investors flip-flop – focusing on just the positives at one moment and just the negatives at another – and the speed at which it happens that caused so much volatility.
The European Central Bank’s move to keep euro-area banks afloat is buying governments more time to recapitalize them as Greece edges closer to default. ECB will resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign-debt crisis threatens to freeze money markets.
Equity markets will remain highly volatile given that Greece is under increasing difficulty to stick to
targets set for its austerity measures. The tough cost cutting measures in Greece have strung the economy and tax income making it even harder to lower budget deficit.
US new payrolls continued its expansion, though disappointing. Unemployment claims rose, though less than forecasted.The Fed may be waiting for real long-term fiscal reform before adopting further QE3 measures and this may mean not until November/December 2011.Rather than be proactive at explaining the “range of policy tools available” it is refusing to explain its strategy, hence the near-term risk to equity markets.
Jan Hatzius, chief economist at Goldman Sachs Group Inc., says the odds of a renewed U.S. recession are rising to about 40 percent chance as confidence and spending have slumped. Julia Coronado, chief economist for North America at BNP Paribas, forecasts a “mild recession.”
How are corporations doing?
Where most companies’ forecast of profits in 2012 have been adjusted down to reflect the recession that may happen, equity still looks like a bargain. Remember the gloom and doom of 1st quarter of 2009? Even as we speak equity markets rebounded the last 2 days.
Price to earnings ratios has reached as low as back in 2008. However, unlike in 2008, the problem now is with the public sector. It’s the debt of Portugal, Italy, Ireland, Greece and Spain at risk of default, not the debt of corporations. Corporations are in demonstrably better financial shape today than they were in 2008 and yet they’re trading at their 2008-2009 lows.
I have mentioned in mid-August about the drop being a good time to enter the
market and that no one knows if the market will fall 4-5%. The MSCI Asia Pacific index did fall about 8% to Wednesday’s low. I see so much in common on economic cycles, the lastest that happened in 1998 to 2001. It is true though that volatility is not over. Warren Buffett said Berkshire Hathaway Inc. added about $4 billion in common stock to its investments during the third quarter, up from second quarter. Now I was never and will never be a advocate that we can invest like Berkshire, but you get my point.
In the long-run you get some of your best investment in the middle of a crisis. This is the second time, I am calling for a market timing, first one in mid-August. In conclusion, market is down, you probably have your portfolio in the red from a year ago. If you are investing for 5 years or more, its a good entry. Question to ask is are you having such a thinking?
Case Study – Universal Life for Estate Preservation.
In event of a death of a wealthy patriarch, his estate has to be carefully administered. 80% of the time the time a passing of a patriarch is not anticipated and his/her assets not in the ideal state to facilitate either a transfer into an estate or division among beneficiaries.
Let us take a simple example of wealth of a deceased male HNWI, Mr Seah, of age 56 as such: $4.5 million worth net investments in 4 different businesses, 2 restaurants, a trading firm and a logistics company. 2 properties worth $3 million, one of which is residence of the family, and $0.5 million in cash equivalent. However, at the time of passing, Mr Seah is actively involved in the running of 3 of these 4 companies. He had taken out a personal guarantee on $3 million dollars on capital loans, trade and credit lines in total. The banks will require either a repayment of the loans or another guarantee on the original loans. The children, 2 sons are just 22 and 25 years old and fresh out of college. Though they are fully independent, neither of them are involved in the businesses as they started working in big corporations gaining experiences and exposure. As such, it is likely that the banks will not find the personal guarantees of them sufficient. Either that or sell their residence and the other property. If no alternative is found, the estate will have to sell of parts or full of the businesses for repayment of the loan. That will be a pity, as the restaurant and the logistics company is just about to take off after running for 3 and 5 years respectively.
The thorny situation arises when the new businesses are worth keeping and has the potential to grow, even with the 2 sons leading, but due to the pull back of capital, they have to close. Having a Universal Whole Life insurance mitigates the situation in a way. An amount of $0.5 million is used to set up a Universal Life Policy. The policy has a guaranteed cover of $2.5 million upon Mr Seah’s passing with cash value if all is well. That way a loan of $0.5 million is more palatable for the 2 sons and they will be more able to secure funding for the businesses.
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