Missing Out On The Action!

Yesterday Wall Street hit record high, exceeding the psychological 13,000 mark due to a number of better than expected corporate earnings and M&A activities. This happened despite concerns over the weaker economy and housing slump. US Dollar also fell to a all-time low against major currencies, suggesting Federal Reserve may be forced to cut interest rates sooner. A weaker USD is indeed good news for exporters as well. If corporate results over the coming days or weeks continue to surpass expectation, this may trigger further bullish run.

Asian stock markets have reacted well to Wall Street's record high, putting up an average 1% rise. Singapore market is the best performer for the day. Ironically, Malaysia Kuala Lumpur Stock Exchange is on "holiday", due to the installation of a new King. I am sure many investors will be disappointed by the timing of this! KLSE may go on a late momentum rise tomorrow, depending largely how Wall Street performs tonight.

I Love Credit Cards!

Do you know that credit card can be a great personal wealth management tool? I mentioned before the benefits of credit card, as long as you don't abuse it, it actually offers lots of goodies! Think about it this way, where on earth can you get an interest free "loan installment" without the hassle of submitting application form, engaging legal procedures, collateral or a guarantor to secure the credit? Credit card of course! Banks are so innovative these days that some of them are offering installment terms from 3 to 36 months interest free! This is really great especially for big ticket items that you plan to purchase (as long as is essential, of course). Imagine the amount of money saved and available for investment return. However, you need to be careful here....just because it's easily available, you should still have a plan that allows you to settle the installment on a monthly basis. Never partially settle your monthly outstanding balance! Keep these principles in mind:

- alway settle in full all monthly outstanding balance.
- have a plan to settle your spending before committing to any purchases
- keep only about 2 to 3 credit cards. Too many can be a burden in managing your spending and worst of all, it could affect your credit rating with the central bank!
- go for credit cards without annual fees. There are many free-for-life credit cards these day as a result of competition!

Not forgetting, ultimately you could also enjoy a nice rewarding gifts for yourself or family from the rewards program. Cool!

Avoid Get Rich Quick Schemes!

Recently there seem to be many more and more bogus "get-rich quick" schemes circulating around the globe, all come with the promises to deliver "instant" huge profits by parting some form of money, notably US dollar. Investors are often promised attractive daily or monthly investment returns. The people or organization you deal with seems very "professionally" run with a nice "office" and people are smartly dressed. Beware!! These are most likely investment scams! With a start-up capital as low as USD100, many people have fallen victim to such scams time and time again! Initially an investor may get a small profit, then as greed kicks in, the investor will likely invest even more money thereafter. Such bogus investment schemes will eventually disappear, causing investors to lose their hard-earned capital.

It's time to have a wake-up call and get real... Such things simply don't exist! Not unless you get a windfall from a heavy betting! Then again, how much money does a person has to pump in before get "lucky"? The cruel reality is many people simply do not have such "luck" at the first place! So instead of throwing a dice and hope for the best, learn the fundamentals of investing, be patient and stick to it. It is a successful formula which has lasted for ages and never ends!

Another Round of Market Turbulence?

Just a few hours after I posted an article on wary investors seeking immediate direction after the recent strong performance of Asian stock markets, Asian markets have finally reacted "positively" to the long awaited "correction". The event was triggered by the strong GDP numbers (11.1%) reported in China, suggesting a potential overheating economy and potential tightening of monetary policy (i.e., increase interest rates). It has been a known effort by the Chinese Government to try to curb the overheating economy but ironically the efforts have born little fruit so far. Yen fell, causing another concern in further unwinding of Yen carry trade across the globe. So, the question beckons is whether this will lead to another round of global market crash similar to the one occurred on Feb 28th? Unlikely, in my view, as the strong GDP numbers reported in China was more or less within expectation (vs consensus of 11%). Moreover, there is still massive liquidity globally awaiting to find a parking lot at global markets! Investors may actually take this event as an excuse to unwind their positions in the short term in order to reduce the risks of a risen market! Barring any other unforeseen circumstances such as further worsening of housing development in US or economic hard landing, the funds should continue to flow. In my view, the Asian stock market correction is a healthy event paving the way for its long term sustainability.

KLCI, What's Next?

True to my prediction on Monday, the Malaysia Stock Index did surpass historical high on Tuesday, reaching the high of 1334 on two occasions since. Investors are now seeking an answer as to what is going to happen next? Interestingly, the local funds and retail investors were apparently on an exit path for the past two days, obviously concerned that the market was going to take a major correction. However, that didn't happen! On both occasions the selling pressure were well absorbed, which suggests that foreign funds were not quite ready to quit. In reality, the abundance of liquidity is still ruling the course for the time being, at least. Also, taking the cue from external developments which are still fairly positive. For instance, the growth stories in emerging markets in Asia is still good, and employment data in US is better than expected.

Question is, how long are these funds going to stay? As usual global developments will play a key part. As for Malaysia, let the good news continue to flow and enjoy it while you can! As for the latest, Malaysia's inflation data is reportedly lower than expected.

Will KLCI Hit Historical High?

Many investors were anticipating a major pullback of the Malaysia stock indexes (KLCI) amidst the toppish technical charts and indicators in the last few days. Interestingly, the futures market is also trading at a major discount to the cash market (stocks), further supporting the above anticipation. However, it appears that the bulls are not prepared to let go as the index continues to charge new high for the year to-date, as it touches 1322.91 on Monday, just a stone throw from the historical high of 1332! The big question is, will the KLCI surpass the all-time historical high, which was achieved in January 1994?

Looking at the regional market performance, it reinforces the view that there are abundance of liquidity in the market, albeit cautions in certain major Asian markets such as Shanghai and Shenzhen index, which have achieved all-time high and both trading at excessive 35 times and 40 times 2007 PE (Price Earnings Ratio) respectively!

In my view, I think the market will hit the historical high. Having gone this far, the sentiment will carry the momentum towards this goal. I believe this may even happen as early as Tuesday (given Wall Street's midday rise)! Thereafter, it's anyone guess which direction the market may take. Personally, I believe there will be a major consolidation before embarking on the next upward momentum in the mid term. Investors are therefore advised to trade with caution and pay attention to external events that may undermine the global markets. The Risk Reward ratio is getting less attractive, I am afraid...

Is Credit Card Good or Bad?

I am sure some of you have heard this before....that credit card is bad for you and all it does is to encourage unnecessary spending! Afterall, it is so easy to just sign away your credit card on the dotted slips without any real money going out! For some people, they even use credit card as a debt instrument, meaning they will settle the minimum amount on the outstanding balance every month (because the rule was set by the Banks!) and pay back the outstanding card balance over "installments"! This is an extremely bad practice as you will soon realize that the real value of your money deteriorates very quickly, due to the fact that credit card companies charge very high interests per annum (eg., 18% in Malaysia) for the outstanding balance amount! In fact, this is worse off than borrowing money through personal loan or overdraft!

So, does that mean that credit card is bad and you should start discarding all your cards and pay everything in cash? Of course NOT. Credit card is good as long as a person uses it appropriately. Here are the major benefits:

1. earn reward points for free product redemption (this is the obvious! However, bear in mind that you probably have to spend 5-figure sum in order to earn a free toaster!)
2. defer your payment (and earn interest savings with your money elsewhere)
3. you don't have to bring loads of cash in the pocket and risk losing them especially if you are buying a big ticket item
4. loads of incentives offered by credit card companies such as interest-free installments, balance transfer, collateral free personal loan, etc.

Remember the Fundamentals!

Kuala Lumpur Composite Index (KLCI) has been enjoying an excellent run since the recent market crash in late February and early March, rising from a low of 1090 to yesterday's 1307 (almost 20% gain)! Those investors who were long-term-minded and decided to hold on to their investments then would likely be making handsome profits by now. Back then, it was also the right time to bottom fish as almost every single stocks were battered down. I did exactly that by buying up a number of fundamentally sound stocks, knowing that their true values will eventually recover based on fundamental values.

Recently I spoke to a number of retail investors and the sad thing they told me was that their stocks have not appreciated much despite the market having risen so much! Some of them laid the blame to the notion that the index rise was only attributable to gains in blue chips and index-linked heavyweights, which they could not afford to buy! This fallacy of thinking cannot be blamed but the truth is, it is simply a case of them not picking the right stocks! The sad fact is many investors are still holding on to their "legacy" stocks which they have bought way back in 1993 (the year of market bull run which collapsed thereafter) or speculative stocks that had degenerated into worthless piece of paper! This is indeed a common problem when an investor "falls in love" with the wrong stocks!

Investors should remember the following basic principles of investing in stocks:

1. buy stocks of companies that are fundamentally sound. Do some homework (such as reading analyst reports and doing your own research by checking up company's earnings reports and future business prospects).
   
2. Don't buy stocks based PURELY on rumours or tips!
3. Cut losses when stock price goes against prediction. Even the best investment decision can go wrong sometimes! 20% is the general rule of thumb. You are better off reinvesting the money into other more profitable options.
   
4. Rebalance your stocks portfolio every 3 to 6 months, taking into account your risk profile and prevailing economic and market conditions.
   
5. Detach your emotions from investments!
   
6. Think long term and be patient!
   

How To Get Your Portfolio In Balance?

If you haven't taken a peek at your portfolio for several years, chances are it's taken on a shape you don't even recognize! There could be various reasons why you might have ignored your portfolio balancing. Perhaps it's because you have become frustrated after seeing your portfolio not performing or you are just too busy. Whatever the reasons, not to scare you, but that's a risky situation. If one of your largest asset classes should take a sudden fall, such as the way emerging markets plunged nearly 60 percent between 1997 and 1998, or the recent global stockmarket collapse in Feb and March this year, your returns will go into a tailspin along with it! Most people tend to turn very brave or gung-ho during bull market, they may have exposed themselves beyond the set tolerable risk!

The easiest way to avoid such unexpected surprises is to rebalance it. That means selling off your best performing assets and buying more of the laggards so that the percentage of your portfolio devoted to say stocks and bonds, as well as different subclasses of stocks, such as big caps, small caps, growth stocks, defensive stocks, can be set to an appropriate position to reflect your investment risk profile and the state of the current investment climate. e.g, if you are anticipating a weaker market, it is then wiser to allocate some money from more aggressive stocks to defensive stocks (that give decent dividends) or bonds. When you are rebalancing, what you should be doing is taking gains among your overperformers and putting more money into underperformers, enabling you to profit from a bounce back. You must at the same time determine whether your underperformers will have the potential to bounce back. You should cut losses if the answer is no and move on to other potential assets.

Review your portfolio at least once a year, if not every 6 months. Remember, events can take place so quickly nowadays that you should get yourself tuned to latest business and economic development. In some mutual funds or unit trusts, it is common to find mutual fund companies that allow switching between different category of funds free of charge once or twice a year. as such, you should take advantage of this to rebalance your portfolio the smart way. However, you should not change your portfolio too often either, as switching too regularly will incur unnecessary moving or transaction costs. One way is to keep your portfolio unchanged if the scale of change is less than 5%.

Are Malaysia High-End Property Prices Rising?

Based on recent statistics, prices of high-end properties in Kuala Lumpur have definitely risen! Not too long ago, people were grousing about how "ridiculous" it was that high-end residential properties around the vicinity of Kuala Lumpur City Center (KLCC Twin Tower) being sold at RM1,000 per sq feet! Guess what....a recent "low profile" launch of another high-end residential condominium near KLCC was priced at average RM1,600 per sq feet! At say 3,000 sq feet, each unit will cost around RM4.8 million!! This project was owned by a prominent Malaysian investor, Chua Ma Yu. Apparently 92% of the buyers are local, and only 8% owned by foreigners. This is contrary to the common believes that only foreigners were buying these high-end properties! Best of all the sales were done without advertising but merely through word-of-mouth! It was also reported that units were 100% sold!

Another project (Sunway Palazzio condominium) recently launched in Sri Hartamas was priced at RM846 per sq feet. This sets a benchmark for the area. The smallest unit would sell for RM2.5 million!

In Bangsar (an expatriate favourite area), one recent project (One Menerung condominium) was priced at RM700 per sq feet, which was also a record for the area!

The bad news....Malaysia is still considered a laggard in valuation compared to the regional peers such as Bangkok and Singapore!

A Matter of Balancing Act

From my conversations with a number of investors and observations, I notice that many of them either do not practice diversification of investments or do not have a clear strategy how to do it. Some of them invest only in one class of assets, most prominently stocks, or in some cases, only in ONE STOCK! What happens when market takes a downturn or the only stock that you bought doesn't fulfill its "potential"? You simply lose your money!

NEVER PUT ALL YOUR MONEY IN ONE BASKET! A better approach will be to diversify your portfolio, ie., invest in different categories of assets, in order to leverage or manage your risk. This is what we term as Portfolio investment allocation. e.g, you can consider combination of stocks, unit trust (mutual funds), bonds, real estate investment trusts (REITs), property funds and other fixed income instruments, and assign a percentage holding in each of them. The percentage of allocation will depend on your risk profile and the current climate of investment. eg., 60% in stocks, 15% in property funds, 15% in mutual funds, 10% in bonds, etc. The advantage of this asset allocation is to reduce your risk of particular choice of investment going the wrong way. Afterall, it is imperative that any kind of investments will go through the triumphs and plunges in a different moment, given the change in economic factors, politics and environment. Economics is such a complex animal that almost every country will experience the economic booms and recessions at a certain point in time!

There are other considerations in portfolio diversifications, such as within the stockmarket itself, consider allocation of defensive stocks (eg., blue chips, high dividend yield stocks) vs aggressive and high growth stocks. In a bull market, it is wise to pick some aggressive or growth stocks in order to ride on their strengths, but include a smaller portion for defensive stocks so that you will not be caught completely flat-footed in the event of an unexpected downfall.

Is Malaysia Making A Return To The Global Investment Radar? (Part 3)

With the upcoming General Election, the Malaysia Government will also have added interest to make sure the country's economy continue to be robust, supported by good GDP growth!

There are many more positive factors that have been rolled out as we speak and it is not possible for me to cover all of them. Nevertheless, the above factors will give an excellent flavour of what the positive stimulus are. To be honest, it has been in fact been a long time since I feel so positive about the country and Government's economic policies! Having said that, I believe there are still a lot more the Government could potentially do, such as raising standard and method of education, improved execution, revamping National Economic Policy, overcoming corruptions, etc.

Barring any unforseen circumstances such as a US economic hard landing or recession, I certainly carry the view that what Malaysia has to offer is certainly the beginning of better times ahead. There are certainly ample opportunities for both local and foreign investors looking to make sound financial returns. The key is to take action NOW and not PROCRASTINATE!

Is Malaysia Making A Return To The Global Investment Radar? (Part 2)

Judging by the KLCI performance, Malaysia has certainly once again returned to the global investment radar! The index grew more than 13% in the first quarter of 2007, despite suffering a major crash in Feb and March! This has made Malaysia among the best performing market in Asia, a far cry from the not too distant days where Malaysia stocks were least favoured! A major portion of this performance is due to the inflow of foreign funds, as supported by Malaysia's increased Foreign Exchange Reserves from the end December 2006 figure (USD82.5b) to mid March 2007 (USD87.3b). In fact, foreign funds started to return to Malaysia in a big way starting from the 4th quarter of 2006, as indicated by another 13% rise in the index during the same period. So, what caused Malaysia's capital markets suddenly become so highly sought? Here are some of my views and factors contributing to the course:

1. Improved corporate earnings - upside bias on the number of corporate financial results meeting or outperforming expectations. This trend has started in 2006.
   
2. Government's stimulus for private sector growth, by reducing corporate tax from 28% to 26% within 2 years.
   
3. A series of major Mergers & Acquisitions activities such as AMMB, RHB, mega plantation merger through Synergy Drive, Malaysia Oxygen takeover, Malakoff takeover, etc. This makes the Malaysia market more vibrant and exciting, and foreigner investors favor these developments instead of sleepy old yard! Indeed SIZE matters!
4. Improved performance of major Government-linked Corporations. eg., Malaysia Airlines, Maybank, Bumiputera Commerce Bank, Tenaga, MRCB, Telekom, etc
   
5. Moderate inflation rate (between 2 to 3% for 2007)
   
6. rising trend of Malaysia currency, Ringgit, and Government's support for a stronger currency
   
7. Increasing trade liberalisations and open economy as initiated by the Government
   
8. Government's pump priming initiatives through a series of construction activities under the 9th Malaysia Plan (five-year economic plan)
   
9. Malaysia's new major development area for next frontier economic growth - Iskandar Development Region (IDR), providing abundant opportunities for both local and foreign investors
10. Government's drive and incentives to make IDR a major success. eg., 100% foreign ownership, 100% foreign capital, freedom to source 100% foreign human capital, tax exemption for key services industry, etc
11. Stimulus for property markets through abolishment of Real Capital Gains Tax (RPGT)
12. Government reforms over public service delivery improvement - improve public service efficiency and effectiveness, and create a truly business-friendly environment

To continue next post....

Best Quarterly Performance For KLCI !

Malaysia's Kuala Lumpur Stock Exchange had its best quarterly performance in seven years, rising 13.7% in the first quarter of 2007! This is a sustained performance after the fine 13.3% rise in the fourth and final quarter of 2006. The rise was achieved admidst the 100+ point market plunge during end Feb and mid March following global stockmarket crash! This in fact make Kuala Lumpur Composite Index (KLCI) among the best performer in Asia after China and Vietnam. Not bad indeed, considering it was only about six months ago, Malaysia stockmarket was still under-performing the regional markets and was in fact one of the worst performing markets in Asia! Many people have actually written Malaysia off and had painted gloomy future for the country. What caused this sudden change in momentum and market perception? Is Malaysia truly back in the hot seat and close radar for foreign investors?