For those people who have received letters from Great Eastern or NTUC Income to upgrade their Eldershield, most would have disposed the letter or they would file it for future reference, hoping that one day someone would explain to them. 

Conclusion: What you don’t understand, you ignore. 

That seems to be the most natural reaction from individuals.  This further strengthens my stand on education first before recommending any solutions to solve a person’s needs.

A brief desciption of Eldershield
It is a severe disablity assistance scheme to help individuals cope with the financial demands of a disability.

• Singaporeans and PRs age 40 with medisave accounts will be automatically included in the scheme unless
• they opt out of it
• The plan pays out when one is unable to perform 3 out of the 6 activities of daily living > feeding, dressing, mobility, transferring, toileting and washing
• A fixed monthly benefit is payable up to a fixed number of years

Premiums can be paid using medisave or cash (can be deducted from medisave accounts of spouse, children, grandchildren or parents)

Eldershield Features

1. Lifetime cover
2. Guaranteed renewable
3. Worldwide coverage/
4. Tax-free cash payout (use it anyway you like)
5. 90-day deferment period
6. Waiver of premiums

Eldershield Reform 2007
This took place in September 2007.  Key revisions are:

• Benefit inceased from $300 to $400 per month
• Maximum benefit payout duration extended from 60 months to 72 months
• Introduction of Eldershield Supplements (available from Aviva, NTUC Income & GE)

Eldershield Supplement 2007
This was introduced because a $300/$400 benefit per month is not going to be sufficient for medical care and related expenses.  The Eldershield supplement covers a higher monthly benefit; the range is from $800 to $2,000.  A maximum of $600 can be used from medisave account to pay for the supplement premium. Any balance above $600 will be paid with cash.

Competitive Analysis - The Straits Times, 10 November 2007  

“…rehabilitation benefit … Only Aviva offers it as part of its plan. This is useful as a person who is severely disabled now could get better later given medical advances”

“But its 10 years’ coverage is a limitation, the experts said. They prefer Income and Aviva’s lifetime coverage.”

“Another factor in Aviva’s favour is that it gives rehabiliation benefit at premiums which are not much more…”

“… an example of a 40 year old man who wants to get $1,000 a month for life if he becomes disabled … An Aviva basic plan and supplement costs $695 a year until premiums no longer have to be paid at age 67 or $501 a year.”

“An Income set of plans cost $860 a year till age 65. A GE set costs $549 per year, but coverage lasts for only 10 years.”

Some Facts
You may think you can defer getting the Supplement till when you’re older say in your 50’s. Think again. The chances of severe disabilities increase sharply as we age. Based on the experience of advanced countries, men and women have a 35% and 45% chance of being disabled in their lifetime respectively (source: MOH). Illnesses, accidents and frailty are all common reason for temporary or long term disability.

Since the lanch of Eldershield in 2002, in a 4 short year span, there were 2,366 claims paid out by Eldershield and 7,183 by the IDAPE scheme (those who do not qualify for Eldershield and age 70 and above). (source: MOH Eldershield Experience Study 2002-2007)

Given a SIngaporean’s lifestyle and high living standards, the ability for one to stop work to look after a disabled family member over the long term is probably very low.

When you’re healthy, get the best that money can buy to cover you.  

Conclusion
Aviva Mycare is currently the most competitive Eldershield Supplement program in the market. 

• It is very affordable
• It has the most comprehensive benefits

Another good news - you are using the interest from your medisave to pay for the supplement.  Your medisave principle stays intact. 

If you wish to learn more about Eldershield and how you can increase the monthly benefit, give me a call at 9873 1075 or drop me an email.

We all need emotional intelligence to keep rationale till the markets pick up again. It’s easier said than done. And this is precisely where we as independent advisors come in - our role is to help you stay focused and see the bigger picture of achieving your goals.  A dog is a man’s best friend.  When it comes to investing, time is your best friend.  It is the patient investors that will savour their reward at the end of the rainbow.

To hold on or to give in to panic-selling?

(LOS ANGELES)  ‘Never sell into a panic’ is a standard piece of advice on Wall Street.
Since August, it has been fine advice to ignore.

On Monday we had yet another panic in the market, with no obvious trigger other than the continuing erosion of confidence in virtually everything - the US economy, the global economy, the financial system, the political leadership, the market itself, etc.

The Standard & Poor’s 500 index slumped 34.27 points, or 4.7 per cent, to 700.82, its lowest close since October 1996.

Was it a mistake to sell on Monday? Let’s review recent market history:

• The first major panic of the current financial-system meltdown was the selling wave that took the S&P 500 down 23 per cent from Sept 30 to Oct 10. The close Oct 10 was 899.22. If you would have sold at that level, you would have saved yourself from a further 22 per cent loss through Monday.

• The second major panic, from Oct 20 to Oct 27, took the S&P index down 13.8 per cent, to 848.92. Selling at that point would have saved you from a further 17.4 per cent drop.

• The third major panic saw the S&P lose 25.2 per cent from Nov 4 to Nov 20, when it ended at 752.44. Bad time to sell? Those who held tight are down an additional 6.9 per cent.

CNBC’s Jim Cramer was bashed by some Wall Street pros for telling listeners on Oct 6 to sell any stock holdings they couldn’t afford to hold for at least five years.

The S&P 500 closed at 1,056.89 on Oct 6. Investors who took Mr Cramer’s advice that day have been saved from a further 34 per cent loss of capital.

On Oct 17, billionaire investor Warren Buffett wrote an op-ed piece for The New York Times encouraging people to buy high-quality stocks. He cited his cardinal rule of investing, which was to ‘be greedy when others are fearful’. Since then, the S&P index is down 25.5 per cent.

Isn’t the market dirt-cheap by now? The problem is, it’s pointless to talk about fundamentals such as corporate earnings. As S&P chief investment strategist Sam Stovall concedes: ‘Earnings don’t matter,’ because no one will believe any earnings estimates as long as the economy continues to slide. In the absence of fundamentals, Mr Stovall says: ‘All we can really go on is the technicals’ - chart-watching - to try to guess where the market might bottom.

He says he believes the market decline should stop somewhere between 625 and 675 on the S&P 500. If the index goes to 625, that would be an additional 10.8 per cent drop from Monday’s number.

Bill Strazzullo, a partner at Bell Curve Trading in Freehold, New Jersey, says investors might have to ponder ‘the unthinkable’ - the S&P back to around 500, which was near the jumping-off point for the spectacular market surge that began in 1995 and continued through 1999.

‘You have to ask yourself, what is the real risk here?’ Mr Strazzullo says. ‘The thing we are least concerned about is the market running away on the upside.’ In other words, even if the decline stops, he says, he can’t identify a single catalyst that could spark a wild new bull market any time soon. ‘On the other hand,’ Mr Strazzullo says, ‘I am worried about another 25 per cent to 30 per cent move down’ if panic feeds on itself, as it did last fall.

Mr Cramer had it right in October, even if all he did was tell people something they already should have known: The stock market is no place for money you will need in the next five years.

That’s as true with the S&P at 700 as it was at 1,056. — LAT

Elizabeth Towne

There are two main stages to owning a winning fund portfolio: 

Portfolio Construction

1. What are the 3 attributes of a winning portfolio?
2. Unit Trusts - Why are they recommended, and for whom?
3. Why is it important to have a diversified portfolio?
4. Should the investor hold cash?  How much?
5. How to determine the risk / return of the portfolio & correlation of funds – what are the information needed and how to get it, how often to access?
6. What are the keys / strategy / suitable approaches to a well-planned unit trust investment portfolio?  What is the role of speculation?
7. What actually determines the individual’s asset allocation? What are the factors that lead you to suggest the percentages?

Portfolio Management 

1. Why is it important to manage a portfolio of unit trusts (when they are already managed funds)?  
2. What’s the role of speculation in managing a unit trust portfolio?

Rebalancing: 

• What would determine if one needs to rebalance the portfolio? Is there a rule-of-thumb for this?
• How often should one value the portfolios?
• What are the things that one needs to do in rebalancing the portfolio?
• Is it auto or still manual filing? What is the process / charges of different fund mgmt houses?
• What is the best way to add fresh monies? How should fresh monies be allocated - current portfolio? 
• How does one change the asset allocation as the time horizon changes? – the medium term time frame would eventually become a short term time frame.

PORTFOLIO CONSTRUCTION

1. What are the 3 attributes of a winning portfolio?

• Liquidity for easy, quick and low cost purchase and sale of all or part of the portfolio without losing a lot to ‘bid-ask spread’
• Adequate diversification : for safety, lower volatility
• High quality / valuation for great potential returns

 2. Unit Trusts - Why are they recommended, and for whom?

• Unlimited upside potential, unlike bonds
• High transparency (information about relevant internal activities are available)
• Relatively low cost as compared to, say, hedge funds
• Safer than hedge funds and pure individual common stocks as well
• Very liquid
• Well diversified: Unit trusts spread the risks involved in investing because they invest in a variety of financial instruments, including stocks, bonds, properties, commodities, currencies and cash.
• Professionally managed: Unit trusts are managed by professional fund managers. Their job is to monitor one’s investments and make necessary investment decisions based on research ad analysis in order to generate good returns.
• Convenient / You can invest globally: Unit trusts are invested all over the world and in various business sectors. This way, one has a lot more opportunities. Think Latin America might boom? Interested in commodity stocks? Unit trusts pick out the best companies in these sectors for an investor 
• You need only a small amount of investment to start with: Initial investments usually start from $1000. An investor can also begin a Regular Savings Plan (RSP) where he sets aside a fixed amount to invest at regular intervals. With unit trusts, a small sum buys one a well-diversified portfolio.
• Buying and redeeming is simple: Most unit trusts in Singapore allow daily buying and selling of units. As long as one’s orders are received by the day’s cut-off time, one can be assured that one’s purchases or redemption will be transacted at that day’s prevailing price.
• It is relatively safe: If one has a low tolerance for risk, one can choose a fixed income unit trust that can give one stable returns. Generally, over the medium to long term, it will likely perform better than one’s fixed deposits.

Unit trusts are not for people who: 

• have large amounts of money to be able to diversify adequately and conveniently
• have great amounts of time, knowledge, skills and experience, intuition, aptitude 
• have access to high quality, in-depth information and timely sound advice to function as professional portfolio managers and asset analysts to be able to select the right investment opportunities.

3. Why is it important to have a diversified portfolio?

Pros of diversification:

• Safety in numbers: You don’t place all your eggs in one basket.
• Survivor benefit (if invested in a particular industry): Especially relevant in the financial industry of 2008, where some of the industries giants collapsed, leaving the survivors with the spoils i.e. a bigger market share.  After all, the finance industry as a whole is essential to growing economies world-wide, and where size does matter.
• Lower volatility:  Matters when you need the money i.e. need to sell
• Lower risk of total loss

Cons of Diversification:

• Loss of the huge potential profit from winners
• Over-diversification may lead to lower overall portfolio quality
• Over diversification may indicate low confidence in investment decisions
   

Final word - Benefits of Adequate Diversification

For most investors, an adequate number of parts to diversify their portfolio is ten. These parts must represent different assets which have low correlation with one another.  Low correlation means that prices and intrinsic values / economic prospects are not closely linked or in proportion to each other. 

Diversifying investments across all asset classes is to spread risk across a range of uncorrelated asset classes.

Spread the risk: Diversifying across all asset classes allows you to benefit from each year’s best performing asset class.

Smooth your returns: Investment markets tend to operate in cycles. Broader exposure will enable strong returns from one asset class to offset performance of another.

Avoid the timing error: It is impossible to time the market. Therefore, maintaining a good mix of asset classes can ensure that one gains from the performance of each year’s best performing asset class.

 4. Should the investor hold cash?  How much?

Yes, the investor could hold cash. 1 to 2 year’s expenses as a thumb rule. For large / sophisticated investors, between 5 to 20 percent of the portfolio can be in cash to have liquidity for taking advantage of market opportunities / mispricing.

5. How to determine the risk / return of the portfolio & correlation of funds – what are the information needed and how to get it, how often to access?

One way to risk / return of a portfolio is to look at the beta and sharpe ratios of the underlying funds, and then using back testing (evaluating historic data) on how those funds performed i.e. returns over a 5 to 10 year period as part of a portfolio.  This information can be found at in fund fact sheets as well as on the Bloomberg system and websites like Fundsupermart.

One of the best ways to determine correlation of the funds i.e. how much in synchronization they move with each other - is simply to compare 10-year price charts.

The above information should be studied at the time of portfolio construction, and then about every quarter.

Remember though: Past performance is insufficient to predict future returns / risk.  It is important to understand the fundamentals of the underlying companies / sectors / economy to accurately gauge their prospects.

6. What are the keys / suitable approaches to a well-planned unit trust investment portfolio?

There’s no guarantee in investments but we can put the odds in our favour:    

Consider the Risk profile, investment time horizon, and foreseeable financial needs of the investor.  If the investor needs insurance for protection, implement it first, so that the investment account is not jeopardized when undesirable calamities like accidents or illnesses hit.  These can derail the entire retirement nest-egg.   
The investor must have ability to access (view information and invest in) a broad enough universe of funds.

Create a sound framework to make decisions (reduce role of the gut feel, emotions, and speculation)

Be Contrarian:  Be fearful when others are greedy, and buy more when people are selling!

Follow that framework:

Selection criteria / filters

• transparency
• benchmark composition
• fund top holdings v/s benchmark
• valuation of the benchmark (very important to gauge future price appreciation)
• performance against benchmark over 5 years or more
• expense ratio
• internal controls / regulatory oversight (example: CPF approved)

Core (major economies and sectors) & supplementary (emerging countries / industries) portfolio approach

Optimal diversification with 5-10 funds, depending on investment amount

Sticking with funds that invest in industries that have proven to be consistent performers.  Thematic funds are fairly new and have no track record. Hence, we would keep exposure to a minimum.  And the danger of chasing a hot sector is highly discouraged (e.g. technology bubble in 2000, today’s hot sector becomes tomorrow’s laggard).

7. What actually determines the individual’s asset allocation? What are the factors that lead you to suggest the percentages?

Factors that decide a person’s asset allocation percentages:

• Risk profile
• Current age and the number of years before one retires
• Investment time horizon (when money is needed)

The younger a person is and the more years he has before retirement, the more comfortable he should be with growth oriented (and more volatile) investments. The key to minimizing the probability that a person will lose money is to hold the unit trust investment for the longer term.

We do not advice investing in unit trusts unless a person plans to hold them for at least 5 years. The preferred time frame is a decade or longer.

Example:
Moderately aggressive investor with a 20 yr time horizon: 75%-80% equities and 25%-20% bonds. 
Balanced investor with a 10 yr time horizon: 60% equities and 40% bonds.

MANAGEMENT OF A UNIT TRUST PORTFOLIO

1. Why is it important to manage a portfolio of unit trusts (when they are already managed funds)?

Reasons to manage a portfolio of professionally managed funds:

• Unit trusts should be viewed as an individual investment.
• To implement diversification, we select several funds to form the entire portfolio. 
• These individual parts, because they are disparate from one another, need to be managed.  Management of a portfolio of unit trusts include:
• what to buy i.e. comparing and selecting the right investment from thousands of other choices
• how much to buy i.e. what percentage of the portfolio should it hold
• what and how much to sell 

2. Portfolio rebalancing:

What would determine if one needs to rebalance the portfolio? Is there a rule-of-thumb for this?

Yes. There is a rule of thumb for rebalancing.

Rebalancing should be an automatic process:  It should not depend on market value, opinions, trends or sentiment as that would defeat the purpose of rebalancing. Rebalancing should be carried out every 6 months, as suggested by Benjamin Graham (author of ‘The Intelligent Investor’), teacher of Warren Buffett.

Rebalancing is key in the management of a unit trust portfolio:  It is the action of bringing a portfolio of investments that has deviated away from one’s target asset allocation back into line. Under-weighted securities can be purchased with newly saved money; alternatively, over-weighted securities can be sold to purchase under-weighted securities.

Rebalancing controls risk:  With time, a portfolio’s current asset allocation can move away from an investor’s original target asset allocation. If left un-adjusted, the portfolio could either become too risky, or too conservative. The goal of rebalancing is to move the current asset allocation back in line to the originally planned asset allocation.

The dangers of imbalanced portfolios

1. Favoring the winners over ‘less-optimal’ performing funds

Since it is impossible to keep allocations in line with exact targets for any significant period of time, it makes sense that some investments would rise to the top. Furthermore, since the imbalances tend to favor the investments that have done the best over time, it is appealing to let one’s winners ride and hope that they will continue to outperform, letting one benefit more because of one’s overweighted position.

2. Risk tolerance goes unchecked 

The downside of not keeping one’s portfolio in balance, however, is that one new portfolio may no longer reflect one tolerance for risk. In the above example, a 60/40 asset allocation between stocks and bonds would generally be considered to be moderately risky, but a 74/26 allocation is quite a bit more aggressive. While one should generally expect to earn a higher return from the 74/26 allocation, the risk of suffering a substantial loss in portfolio value is also correspondingly higher.

3. Potential losses greater than expected

Given that historical returns have favored stocks over bonds over significant periods of time, leaving one’s portfolio imbalanced is almost certain to leave one with a higher percentage of stocks than one originally intended. The sharpness of any subsequent losses that occur can leave one surprised and annoyed that one did not take steps to fix the problem when one had the chance.

How often should one value the portfolios?
Every 6 months.

What are the things that one need to do in rebalancing the portfolio?  
Sell those that have gone/stayed up and buy those that are still down.

Is it auto or still manual filing? What is the process / charges of different fund mgmt houses?

Rebalancing is an automated process. This is possible only with certain investment platforms where the tedious process of calculating units to be sold and bought is automated.

If the account is a ‘wrap’ account, there is an annual fee usually based on a percentage of the portfolio, but no subsequent charges for switching funds even across fund houses as long as they are represented on the platform.

3. What is the best way to add fresh monies? 

One of the best ways is to implement Dollar Cost Averaging - the simple, powerful but underutilized strategy.  

Dollar cost averaging (DCA) is the discipline of investing the same amount of money at regular intervals. As a long term strategy, dollar cost averaging can help you ride on the benefits of compounding interest to potentially build a sizeable sum.

No one can really time the market. Investors are tempted to buy when market conditions are favourable – when the prices are strong.  Similarly, when the prices fall, nervous investors sell in an attempt to cut their losses. Deciding when to enter and invest is one of the most difficult and stressful decision a person can make.

With DCA, one can safely avoid ‘fear’ and ‘greed’ and hence, is removed from timing the market.

DCA ensures that your money purchases more units when prices are low and fewer when prices are high.

Long term benefits of Dollar Cost Averaging

• Cultivates investment discipline in one
• Minimizes risks associated with huge sum investments
• Eases one into the market (help relieve one’s concerns about uncertain markets)
• Helps one equalize gains and losses
• Ensures an overall lower unit price and more units through the years

Even more so, DCA is an ideal way to invest in the current market condition.

4. How does one change the asset allocation as the time horizon changes? – the medium term time frame would eventually become a short term time frame.

As a rule of thumb, with decreasing time horizon, the portfolio must have lower exposure of volatile investments - even those with high potential returns.  Volatile investments include common stock, and fund investing in them.  The portfolio must have greater proportions of ’safe & steady’ investments such as investment grade bonds, and low-cost funds investing in these bonds.

People I spoke to have little or no expectations at all. Some are cautious, and a fair number are leaning towards the bearish side.

So, what does 2009 hold for us? According to Wong Siu Jau, General Manager of iFAST Financial, he has high expectations for 2009. And these are his reasons:

• We have placed a lot of the bad news behind us in 2008: There was so much bad news that we became ‘immune’ to further bad news (e.g. Bernard Madoff $50 billion scam, thousands of layoffs in the US and everywhere else too, earnings of thousands of companies have been revised downwards, US car companies facing bankruptcies)

• Old problems remain but a lot of the pessimism has already been priced into the terrible performance of 2008

• Problems are now known and global interventions by central banks and governments are put in place to remedy the situation

• We are starting 2009 from an incredibly low base and things couldn’t get any much worse than what happened in 2008 (and if more bank related failures happen, it would hardly top the likes of Lehman Brothers, failures or near failures of AIG, Fannie Mae and Freddie Mac that required record government bailouts)

• Just about every type of investable asset class is cheap right now (except for US Treasuries & some triple-A rated government securities)

• Because everyone is so fearful, good companies and various stock markets are trading at rock bottom valuations

• Huge opportunities in investment grade and high yield bonds as well as equity funds (China & Singapore are showing huge bargains now; commodities are also looking attractive, Asian financials and European counterparts will bounce back)

• Despite the fact that markets were battered down very badly end October 2008, equity markets started to show positive returns from 27 October to 19 December 2008 ; volalitility has tapered off in the month of December

Last but not least, Siu Jau’s forecast is that a fair number of stock markets could rally 20% to 40% in the year 2009 alone. Markets are forward looking. 2008 has already passed. Analysts have also reported positive outlook for the global markets.

Here are 2 reports:

Business Times Executive Money
Published January 14, 2009

Nomura sees 25% rise in global stocks

(NEW YORK) Global stocks will gain 25 per cent this year as government measures revive the economy and investors move from cash into equities, according to Nomura Holdings Inc. ‘The scale of the planned stimulus ought to be large enough to short-circuit the feedback between asset markets and the real economy,’ global equity strategist Ian Scott wrote in a note to clients dated Jan 9.

Investors should be ‘overweight’ in financial stocks and so-called cyclical industries, which are more sensitive to economic swings, Mr Scott wrote. He recommended an ‘overweight’ position in emerging-market stocks, saying they will lead gains worldwide.

Earnings will decline 21 per cent globally this year and investors face ‘dilution’ as more capital raising takes place to shore up companies’ balance sheets, according to the note. The Standard & Poor’s 500 Index will rise to 1,110 by the end of the year, a gain of 24 per cent from the Jan 9 close, Mr Scott said.

The recovery from last year’s record drop for the MSCI World Index will be led by cyclical and financial sectors and clients should position themselves ‘underweight’ in so-called defensive industries, according to Nomura. The latter are companies that tend to be less sensitive to an economic decline. ‘If, as we suspect, the market recovery continues, then the underperformance of the defensives ought to be the main feature,’ Mr Scott wrote in the note.

SCI World slumped 42 per cent last year as US$1 trillion of losses at financial firms pushed the US, Europe and Japan into the first simultaneous recessions since World War II. Analysts estimate earnings in 2009 will slip 1.2 per cent in Europe’s Dow Jones Stoxx 600 Index, while profits in the S&P 500 may fall 2.1 percent, Bloomberg data show.

Citigroup Inc strategists forecast corporate earnings are about a quarter through an estimated 50 per cent tumble from their peak, according to its 2009 global outlook report dated Jan 7. Profits will drop sharply, reflecting the ‘collapse’ in demand from the fourth quarter of last year, they said.

In emerging markets, stocks will surge 35 per cent this year as the result of stimulus measures overshadows the slowdown in goods sold outside China, according to Nomura. ‘We have retained an upbeat outlook on China’s economic growth of 8 per cent during 2009 as monetary easing and fiscal pump priming ought to offset the effects of an export slowdown,’ Nomura’s chief Asia and emerging markets strategist Sean Darby wrote in a separate note dated Jan 3. China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, the World Bank predicted.

Jonathan Garner, head of Morgan Stanley’s emerging-markets strategy team, predicted the MSCI gauge will rally to 810, while Andrew Garthwaite, Credit Suisse Group AG’s global equity strategist, expects a rise to 630.

Clients should be ‘underweight’ in Japanese shares, while remaining ‘overweight’ in Asian equities, Nomura’s Mr Scott said. He maintained a ‘neutral’ stance on European stocks.
– Bloomberg

_____________

Some light is finally shining from amongst the dark clouds!  Business Times reported positive news about the direction of Asian stocks.  Low valuations make attractive buys. But as always, do exercise caution with your investments.  We still want to have adequate diversification in our portfolios.

Business Times - 07 Jan 2009

Asian stocks may soar 43% this year
Valuations becoming more attractive, sentiment positive: DBS report

By GENEVIEVE CUA

ASIAN equity could be in for a substantial 43 per cent bounce over the next 12 months, thanks to attractive valuations, says DBS regional equity strategist Joanne Goh in a report.

Separately, State Street Global Markets’ Investor Confidence Index for December shows that while confidence among North American investors fell sharply from November, institutional investors in Asia bucked the trend. For the latter, confidence rose from 82.2 to 86.1.

European investors were slightly less pessimistic than North American investors, but their confidence still fell to 67.4 from 72.5 in November. The index measures investor confidence quantitatively by analyzing actual buying and selling patterns of institutional investors.

In a report, DBS Group Research’s Ms Goh says that the firm’s valuation model suggests a positive 12-month forward returns of close to 43 per cent for Asian stocks. This, along with oversold markets, should support Asia markets in the near term.

‘Asian markets could take a breather from a freefall as valuations become more attractive . . . The rally should be driven by positive sentiment arising from optimism that aggressive public spending and interest rate cuts would alleviate recession woes.’

Based on DBS’s analysis, markets were sold down to 2002 levels, which suggests forced selling, believed to be deleveraging by global financial institutions.

Still, uncertainty remains over the deteriorating labour markets and ‘uneven’ effects of the fiscal stimulus. Ms Goh says that markets could re-test the lows seen in October 2008 due to uncertainty related to the impact of deleveraging of the US financial sector. ‘. . . We recommend investors to exercise caution in this brief market rally upon the narrowing of valuation gaps,’ she says.

Fund flows may also not resume in force. ‘Asia markets will need to offer more attractive growth and valuations than the rest of the world in order to attract fund flows into the region.’

China and India, she says, have the the highest GDP growth forecasts for 2009 among 46 countries and rank ahead of the US in earnings growth. ‘Asia valuations, however cheap by its own historical standards and cheaper than the US, are still more expensive than the 8.6 times median of 46 countries.’

She has an overweight recommendation for Singapore, China and Hong Kong on a short-term rebound as well as the flexibility of the countries to handle the economic crisis with policy responses. She has an underweight call on Malaysia, India, Indonesia, Taiwan and Thailand.

Meanwhile, Citi Investment Research says that US$580 million of redemptions from Asian funds in the last two weeks of 2008 took total net outflows for the year to US$19.6 billion, citing EPFR Global data. The outflows suggest that one-fifth of the new money invested in Asian funds in 2006 was redeemed.

Of the US$580 million of outflows, 46 per cent was due to China fund redemptions. Outflows also resumed out of global emerging market and international equity funds. Total net redemptions from the latter two categories came to US$1.1 billion in the last week of December, compared to net inflows of US$4.1 billion in the previous week.

EPFR has reported that cash holdings of Asian funds were lowered by 73 basis points on a month-on-month basis to 3.8 per cent in November. Citi believes that this is ‘far too low’ compared to 6 per cent in the 2001 downturn. Asian funds remain overweight Singapore and Hong Kong/China.

___________________

Yes, there are investment opportunities in 2009 and adequate diversification will be key to the growth and success of your investment portfolio.

2009 will be a year of surprises but they will be positive one!

Nomura sees 25% rise in global stocks

(NEW YORK) Global stocks will gain 25 per cent this year as government measures revive the economy and investors move from cash into equities, according to Nomura Holdings Inc. ‘The scale of the planned stimulus ought to be large enough to short-circuit the feedback between asset markets and the real economy,’ global equity strategist Ian Scott wrote in a note to clients dated Jan 9.

Investors should be ‘overweight’ in financial stocks and so-called cyclical industries, which are more sensitive to economic swings, Mr Scott wrote. He recommended an ‘overweight’ position in emerging-market stocks, saying they will lead gains worldwide.

Earnings will decline 21 per cent globally this year and investors face ‘dilution’ as more capital raising takes place to shore up companies’ balance sheets, according to the note. The Standard & Poor’s 500 Index will rise to 1,110 by the end of the year, a gain of 24 per cent from the Jan 9 close, Mr Scott said.

The recovery from last year’s record drop for the MSCI World Index will be led by cyclical and financial sectors and clients should position themselves ‘underweight’ in so-called defensive industries, according to Nomura. The latter are companies that tend to be less sensitive to an economic decline. ‘If, as we suspect, the market recovery continues, then the underperformance of the defensives ought to be the main feature,’ Mr Scott wrote in the note.

SCI World slumped 42 per cent last year as US$1 trillion of losses at financial firms pushed the US, Europe and Japan into the first simultaneous recessions since World War II. Analysts estimate earnings in 2009 will slip 1.2 per cent in Europe’s Dow Jones Stoxx 600 Index, while profits in the S&P 500 may fall 2.1 percent, Bloomberg data show.

Citigroup Inc strategists forecast corporate earnings are about a quarter through an estimated 50 per cent tumble from their peak, according to its 2009 global outlook report dated Jan 7. Profits will drop sharply, reflecting the ‘collapse’ in demand from the fourth quarter of last year, they said.

In emerging markets, stocks will surge 35 per cent this year as the result of stimulus measures overshadows the slowdown in goods sold outside China, according to Nomura. ‘We have retained an upbeat outlook on China’s economic growth of 8 per cent during 2009 as monetary easing and fiscal pump priming ought to offset the effects of an export slowdown,’ Nomura’s chief Asia and emerging markets strategist Sean Darby wrote in a separate note dated Jan 3. China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, the World Bank predicted.

Jonathan Garner, head of Morgan Stanley’s emerging-markets strategy team, predicted the MSCI gauge will rally to 810, while Andrew Garthwaite, Credit Suisse Group AG’s global equity strategist, expects a rise to 630.

Clients should be ‘underweight’ in Japanese shares, while remaining ‘overweight’ in Asian equities, Nomura’s Mr Scott said. He maintained a ‘neutral’ stance on European stocks. — Bloomberg

“Change the changeable, accept the unchangeable, and remove yourself from the unacceptable.” Denis Waitley

Some light is finally shining from amongst the dark clouds!

Business Times reported positive news about the direction of Asian stocks.  Low valuations make attractive buys. But as always, do exercise caution with your investments.  We still want to have adequate diversification in our portfolios.

Business Times - 07 Jan 2009

Asian stocks may soar 43% this year
Valuations becoming more attractive, sentiment positive: DBS report

By GENEVIEVE CUA

ASIAN equity could be in for a substantial 43 per cent bounce over the next 12 months, thanks to attractive valuations, says DBS regional equity strategist Joanne Goh in a report.

Separately, State Street Global Markets’ Investor Confidence Index for December shows that while confidence among North American investors fell sharply from November, institutional investors in Asia bucked the trend. For the latter, confidence rose from 82.2 to 86.1.

European investors were slightly less pessimistic than North American investors, but their confidence still fell to 67.4 from 72.5 in November.

The index measures investor confidence quantitatively by analysing actual buying and selling patterns of institutional investors.

In a report, DBS Group Research’s Ms Goh says that the firm’s valuation model suggests a positive 12-month forward returns of close to 43 per cent for Asian stocks. This, along with oversold markets, should support Asia markets in the near term.

‘Asian markets could take a breather from a freefall as valuations become more attractive . . . The rally should be driven by positive sentiment arising from optimism that aggressive public spending and interest rate cuts would alleviate recession woes.’

Based on DBS’s analysis, markets were sold down to 2002 levels, which suggests forced selling, believed to be deleveraging by global financial institutions.

Still, uncertainty remains over the deteriorating labour markets and ‘uneven’ effects of the fiscal stimulus. Ms Goh says that markets could re-test the lows seen in October 2008 due to uncertainty related to the impact of deleveraging of the US financial sector. ‘. . . We recommend investors to exercise caution in this brief market rally upon the narrowing of valuation gaps,’ she says.

Fund flows may also not resume in force. ‘Asia markets will need to offer more attractive growth and valuations than the rest of the world in order to attract fund flows into the region.’

China and India, she says, have the the highest GDP growth forecasts for 2009 among 46 countries and rank ahead of the US in earnings growth. ‘Asia valuations, however cheap by its own historical standards and cheaper than the US, are still more expensive than the 8.6 times median of 46 countries.’

She has an overweight recommendation for Singapore, China and Hong Kong on a short-term rebound as well as the flexibility of the countries to handle the economic crisis with policy responses. She has an underweight call on Malaysia, India, Indonesia, Taiwan and Thailand.

Meanwhile, Citi Investment Research says that US$580 million of redemptions from Asian funds in the last two weeks of 2008 took total net outflows for the year to US$19.6 billion, citing EPFR Global data. The outflows suggest that one-fifth of the new money invested in Asian funds in 2006 was redeemed.

Of the US$580 million of outflows, 46 per cent was due to China fund redemptions. Outflows also resumed out of global emerging market and international equity funds. Total net redemptions from the latter two categories came to US$1.1 billion in the last week of December, compared to net inflows of US$4.1 billion in the previous week.

EPFR has reported that cash holdings of Asian funds were lowered by 73 basis points on a month-on-month basis to 3.8 per cent in November. Citi believes that this is ‘far too low’ compared to 6 per cent in the 2001 downturn. Asian funds remain overweight Singapore and Hong Kong/China.

Here’s his take on wellness in the new year:

“Even if resolutions are not kept in the course of the year, the importance given to wellness reflects a positive change. Every small step you make towards holistic living will improve your physical, mental, emotional and spiritual health.

So does this year’s New Year resolution involve any of these holistic goals?

*      A better work-life balance
*      Exercise more and regularly
*      Spend additional time with family and not just friends
*      Resolve to quit smoking and drinking
*      Have a healthy wholesome diet to tame the bulge
*      Spend more time travelling to different parts of the world
*      Have regular massages
*      Allot more time for rest and leisure
*      Build a life outside the office
*      Practice yoga, the perfect antidote in this stressed-out world
*      Kick unhealthy habits by taking up a healthy hobby
*      Learn something new this year
*      Spend more time in volunteer activities. It is here you can see the larger picture
- the purpose of your life and meaning to your life
*      De-clutter your house and desktop
*      Spend some time in silence daily. Ir picture - the purpose of your life
and meaning to your life
*      And finally, constantly remind yourself that you deserve to be happy!