The Big Year End Rebalancing (29 Dec 2010)

As I promised, I have rebalanced my own personal portfolio just today, and now there will be a big piece on it. Rebalancing is actually a pretty personal thing, because everyone’s portfolio will look different. But the basic concept is to take profit from the funds which have done well, and invest into the funds which are underweight.

But first, just a few tips on rebalancing. Don’t look at your previous portfolio first. First, take a blank piece of paper, and imagine that you were starting out afresh! If you had no historical baggage, regrets, etc holding you back at all. Say you simply had X sum of money to invest into a brand new portfolio, how would you do it?

With that in mind, I jointed down some of the allocations I wanted to have in this 2011 portfolio of mine. It worked out to this:

Let’s focus just on the cash portion, which made up the bulk of my investments. These totaled $395,500. The kind of asset allocation I was looking to have in 2011 looked like this:

Type	%	Amount ($)
Bonds	10%	$40,000
Core Equities	65%	$256,000
Alternatives	5%	$22,000
Supplementary	20%	$77,5000
Total (cash)	100%	$395,500

I wanted to take profit from equities, but I remained overweight equities relative to bonds. Thus, instead I turned to the alternative investment space to park some of my profits.

My Bonds Portion Allocation would look like this:

Type	%	Amount ($)
Global Emerging Market Bonds	28%	$11,200
US High Yield Bonds	36%	$14,400
Asian High Yield Bonds	36%	$14,400
Subtotal	100%	$40,000

My Regional Equities Portion would look like this

Type	%	Amount ($)
US	10%	$25,600
US Small caps	10%	$25,600
Europe	10%	$25,600
Europe emerging	10%	$25,600
Latin America	8%	$20,480
Asia	30%	$76,800
Asia small cap	15%	$38,400
Japan	7%	$17,920
Subtotal	100%	$256,000

As can be seen. I remain overweight on Asia, though I have now moved US and Europe back to a more reasonable weightage within this portfolio. And Emerging Markets play a big part in my core equity portfolio as well (made up of Asia, Latin America and Emerging Europe).

My Supplementary equity portion would look like this:

Type	%	Amount ($)
Tech	20%	$15,500
Singapore	20%	$15,500
China	15%	$11,625
South Korea	15%	$11,625
Russia	10%	$7,750
Taiwan	20%	$15,50
Subtotal	100%	$77,500

As this part showed, my favorites remain Technology and Taiwan. Singapore gets 20% because of pure home bias. Russia is my hedge against high oil prices, which are a risk to Asian equities. China is simply too big and important to ignore, though the fact that its valuations now are really attractive is a big plus point as well.

Now that I have envisioned what it should look like. Then it’s a matter of adjusting my portfolio to look like this 2011 envisioned portfolio. So, I line my existing portfolio alongside the new one, and I see what I have to adjust. Small adjustments, I leave out since a $500 or $1,000 adjustment to a $400,000 cash portfolio won’t make much of a difference, and I see how I can make the adjustments with the minimum amount of switching possible.

Having said that, it still required a fair bit of adjusting. So, I will cover what I adjusted, along with why I did it.

Actual Actions taken on my portfolio.

CPF portion of portfolio – left untouched.

Comments: This part was easy. As mentioned above. There are a limited choice of funds within this space, and I generally don’t make much adjustments even in the long term. So I left this part untouched.

Bond Portion of portfolio

1) Switched 3611 units or $5200 from United GEMs bond fund into Fidelity US High Yield Bond.
2) Switched 2083 units or $3000 from United GEMs bond fund into Fidelity Asian High Yield USD Bond Fund.

Comments: I did not add to my bond portion, though I planned to take profit from my equity portion. Instead, I shifted money from global emerging market bonds to my two high yield bond funds. I think currency played havoc on some bond fund returns in 2010, but I expected it to be slightly less volatile in 2011. In any case, the Euro remains a large question mark, hence I am still avoiding Europe bonds in 2011. High yield and emerging market bonds, though riskier, still remain the best bets within the bond universe because their yields are higher, which would buffer them against inflationary pressures increasing interest rates in 2011.

Alternatives Portion of portfolio

3) Switched 5099.78 units, or $23,000 from Aberdeen Pacific Equity into Man AHL Trend

Comments: This marks the first time I am going into alternatives. I remain bullish on equities, but rebalancing meant I should take profit. But I was reluctant to add more into bonds. So, I looked into Alternatives investments space to park my equity profits. The Man AHL Trend fund was one with a very low correlation to equities, and would cushion any unforeseen shocks to equities market well. I took profit from my Asian equity fund (Aberdeen Pacific Equity), as it had done very well this year, and even though I remained bullish on Asia, I was simply far too overweight in it.

Supplementary Portion of portfolio

4) Switched all of Aberdeen Indonesia Fund into Fidelity Taiwan (about $9,881)
5) Switched all of HGIF India Fund into Fidelity Taiwan (about $5,864)
6) Switched 2,468 units (or $10,614 ) of Aberdeen Singapore Equity into Legg Mason Royce US Small Caps Fund
7) Switched 7092 units (or $6,600) from Lionglobal Korea to Parvest Europe Alpha EUR
8) Switched 7092 units (or $6,600) from Lionglobal Korea to BNPP1 Opportunities USA
9) Switched 2193 units (or $3,200) from Henderson Global Technology to BNPPL1 eq Emerging Europe.
Left Russia and China funds untouched.

Comments: After looking at the adjustments required. I realized that I would be doing two things. First, I would be cutting down the funds I had in my supplementary portfolio (I had too many), and I would be channeling profits here into my regional equity portfolio. As a result. I sold off my Indonesia and India fund completely. These had done very well, but the valuations for these two countries were now higher than I was comfortable with. That Indonesia had been one of the top two best performing markets two years in a row made it unlikely it would fare so well in the third. Both were switched into Taiwan, which is our favorite market for 2011.

I took profit from Singapore, and placed it into US. I also realized I had added too much to Korea during the year 2010, and though I still liked the market, I had to trim it, and so I did, shifting parts of it to Europe and US. Similarly, I had fallen too much in love with Tech, and though I am still very bullish on it, I trimmed it and shifted part of it to Emerging Europe.

Core Regional equity portion of portfolio

10) Switched 9170.81 units (or $14,765) from Aberdeen Asia Smaller Coys into Legg Mason Royce US Small Caps Fund.

Once all the other actions were taken. There was little left to be done in my regional equity portion. Effectively, I had taken a chunk of profit from Asia and put it into the Man AHL Trend Fund. I had also put back profits from my supplementary portfolio into this portion. The main focus on this part, was to increase the weightage in Europe, in US, and to trim down on Asia. All my prior actions had already done most of this. So, all that remained to do, was to shift part of my Asia smaller caps into US small caps. The US small cap fund from Legg Mason is a new addition to my regional equity portfolio. While I recognized that I was far too underweight on US, I wanted a heavy tilt towards small caps because I feel that 2010 will see small caps do well as they play catch up to the large caps. Thus, I added to this fund.

With that, I am now rebalanced and well positioned for 2011. Have a happy new year everyone. Here’s to a great year for funds in 2011!

A Merry Christmas to All (24 Dec 2010)

It's Christmas time! When we do come back after Christmas, we will have our view on the new year 2011 and our favorite picks next week.

My own personal plans which included buying a car and moving house for next year is looking nervous because of the very sharp rise in COE prices. Being an investment professional makes buying a car even harder for me because I know how much of a depreciating asset a car is (at least $10,000 a year in expenses if not more depending on the car you buy), and the same amount invested over time each year will yield substantial gains. As such, I view the monthly increase in car COE prices with substantial dismay.

The increase in car COE prices does mean one thing though. Many Singaporeans are feeling richer now, and hence they are willing to pay increasing prices for car COEs. It also signifies a strong amount of confidence in the growth prospects of the Singapore economy, and strong job outlook.

I think when I finally do buy a car when I move house next year, it will likely be a used car … if I buy one at all. A brand new car does have a strong emotional pull to it (as with anything you buy that comes brand new). But would I pay so much more just so that I can get that emotional rush from getting a new car? Perhaps one of the new year resolutions for 2011 for me would be to control my emotional impulses on things like buying a car. If I can control my fear during a market crash, and greed during a bull run, then surely I should be able to control this!

Oh well, there’s still quite some time before I move house. And in the meantime, I wish all FSM investors a very merry Christmas!

Concerns Subsiding, Enjoy the Christmas Week (17 Dec 2010)

Christmas week is just ahead. We are almost coming to the end of the year. I know I have talked of rebalancing, but there is time enough for that. After Christmas, there is exactly one week before we officially end the year, and that will be when I rebalance my portfolio. Will we have a Christmas rally? Its possible, and I certainly hope so, since volume is light, and it takes little to bring markets up. The Christmas cheer, putting everyone in a good mood will help too. The Singapore market has been kind of stagnant this month so far, but other markets like South Korea, Taiwan, and Russia have charged ahead.

In any case, it is shaping out to be a pretty good year for equities. While markets did not charge through the roof the way they did in 2009, the overall trend was still up. Even the US market is now starting to buck up. So, when I take stock in the week after Christmas, I may be surprised at the returns of my US equity fund.

As things quiet down towards the end of the year, I believe a lot of the concerns that have plagued this year will also subside. We don’t hear any talk about the Korean tension anymore. The red shirts in Thailand? Nobody is talking about that anymore, and Thailand is one of the two best performing markets this year. US double dip recession? We still hear every now and then from either experts, analysts, or economists expressing concerns about the state of the US economy, but earnings continue to surprise on the upside, and the US economy continues to grow.

How about China tightening? They are still tightening, but they have been putting in property curbs, raising bank reserve ratios for the entire year. If the China economy was supposed to have a hard landing, we should be seeing it by now. It simply hasn’t happened, and now it appears that while China tightening will continue, they won’t just keep on raising interest rates blindly until the economy stutters.

Europe will continue to experience volatility every time the next European country faces a spike in interest rates when it tries to go to the market to lend money, but I think the situation is mostly factored into the market by now. We have been seeing this European crisis flare up again and again since May this year, and its starting to look like a rerun of a bad serial. It will get old after a while.

Ultimately, diversification is the key. Diversify into equity funds, bond funds, and even alternative investment funds so that you won’t be totally caught out even if stock markets stumble. I have been getting my research team to look into the alternative investment space, and we should be having a research article up on that soon. For now though, enjoy the upcoming Christmas week. After that, I promise that we will have a 2011 outlook, plus I will rebalance my own portfolio in the last week of the year.

How the Best Performers at the Start of the Year fare? (3 Dec 2010)

On 12th January, at the start of this year, I had a blog entry where I looked at the markets that was quickest out of the gate at the start of the year. At that time, it had only been one week into the new year 2010, but ranking up the funds in terms of category then then, Turkey equity funds was at the top, followed by Gold, Resources, Materials, Indonesia, and Energy. It has been 11 months now, and with only one month left to go, baring a huge shakeup in December, there shouldn’t be too much change in the rankings of fund categories. The list is not exhaustive in terms of categories, but this should be the majority of the ones of interest to investors. Let’s see how they stand towards the end of the year as compared to the start.

Fund Category	YTD Performance as at 8th Jan 2010 (%)	YTD Performance as at 1st Dec 2010 (%)	Ranking of performance YTD
Turkey	7.39	23.64	4
Gold	6.14	19.03	6
Resources	5.9	19.71	5
Materials	4.17	3.03	17
Indonesia	3.97	35.07	2
Energy	3.82	-6.39	23
Latin America	3.41	4.83	12
Global Agribusiness	3.37	4.23	14
Global finance	3.29	-7.78	19
Eastern Europe	3.29	0.44	25
Malaysia	3.16	23.68	3
Singapore small cap	2.72	16.08	7
Brazil	2.7	-3.36	22
Emerging Europe	2.28	0.44	20
India	2.2	11.61	8
Korea	2.13	3.72	16
BRIC	1.73	-0.59	21
Asia ex Jap	1.59	9.04	10
Middle East/Africa	1.57	8.31	11
Europe inc UK	1.52	-8.06	26
Greater China	0.92	3.93	15
Tech	0.8	1.85	18
Singapore	0.75	9.86	9
Thailand	0.48	42.36	1
Healthcare	0.43	-6.46	24
Property	-0.25	4.63	13

Performances are based on bid to bid prices and in SGD dollar terms, with dividends reinvested

From the table, Turkey equity funds, gold and resources equity funds have not disappointed, ranking 4th, 6th, and 5th as at 1st December in terms of bid to bid performances year to date. The same goes for Indonesia equity funds, which are currently the second best performer in terms of category. However, there are risks to going by this “fastest out of the starting block” strategy as well. Materials and energy funds ended up near the bottom of the table at 17th and 23rd respectively.

There were also some categories, which started out at the bottom of the table, which then surged up during the year. Thailand and Singapore equity funds are two such categories of funds. Both were really slow at the start of the year, but Thailand equity funds ended up the best performing category of funds so far year to date, and Singapore equity funds also ended up 9th, which is in the top ten.

On a regional basis, Asia is doing well so far near the end of the year, with category returns year to date of 9.04%. Given that many of our Fundsupermart investors are overweight in Asia, that is good news. Many should be up for this year, helped by their Asian equity funds. Europe has been hit badly, due to the European financial crisis, and understandably, many of the worst performing categories are situated in Europe.

As we come to the end of the year, don’t forget to rebalance your portfolio. I remain bullish on equities, and will be overweighting equities over bonds for next year. However, it doesn’t mean I don’t have to rebalance. It is likely that even with that factored in, my portfolio by now at near the end of the year is too overweight into equities and I will have to shift some out of equities.

Climbing a Wall of Worry (25 Nov 2010)

Investors have been through a rocky 2 weeks. Ireland seemed on the verge of bankruptcy and needed to be bailed out by the IMF and the EU. But just when that appeared to be sorted out, the government was in danger of falling. Fresh elections could be held as early as in two months time. China was busy putting in new measures to curb the flood of hot money unleashed that was flooding in after America’s quantitative easing, and control inflation, and to top it off, North Korea took this time to fire artillery at South Korea, causing some property damage and casualties.

If not for the fact that I intend to rebalance my portfolio soon because the end of the year if coming up, I would happily have put in more money into equities now. All 3 concerns happening now can be considered politically driven, and one thing I have observed about most political events, their effect on the stock markets are usually quite short term. Let’s go through each of these.

First of all, Ireland. It was just this year that the Euro financial crisis hit and many European funds are still down this year in SGD terms. But there was already a huge reserve set aside to address this issue. Ireland is just one of the financially weaker that now needs to tap into this reserve. Markets got worries because the danger of the government falling meant that a new government might not accept the bailout, and if that happened, would it fracture the Euro.

However, this is a very remote possibility. No matter how much the Irish people might rail against the harsh budget cuts and belt tightening that comes with the bailout package, they have no other alternative lender. No one else is going to lend them that much money, and its not like they can hold a big asset fire sale to raise the amount either. They could do without the loan of course, but it would literally mean cutting themselves off from all international funding, and without foreign currency, they wouldn’t be able to buy any foreign goods and services. Unless they literally want to cut themselves off from the rest of the world, it is hardly an option.

So, they can take it out on their current government, bring in a new one, but even the new government would come in, take a look at the grim picture facing them and then will still end up accepting the bailout package, with all of its conditions in the end. Europe is very interesting right now. There is enough bad news that there must be some bargains there. Its just that this is going to be a long drawn out issue, and every time the next European country faces problems in the bond markets and is forced to accept a bailout, we will have these concerns surface all over again. So, investing into Europe now is going to require a lot of patience. There won’t be any quick gains, but for those who are willing to wait (and I think 3 years is going to be a minimum for Europe), then the current valuations are very cheap for Europe.

North Korea’s shelling of South Korea is another so called political event. It is almost certainly motivated politically. If a country really wanted to invade, it is not going to just shell an island. It will do far more than that. The danger is more that South Korea gets pushed beyond a certain point, such that it feels that it must take military action in the face of aggression. Has it reached that point yet? Probably not.

China’s tightening measures against the flood of money unleashed by America’s quantitative easing is the one that has the most direct economic and market impact in the longer term. Today, China has replaced the US as many of Asia’s biggest export market. China’s continued strong economic growth is one of the key drivers within Asia. If too much tightening causes China’s economy to falter, Asia would definitely feel the repercussions.

However, again from the China government’s perspective, they don’t want to see the China economy crash anymore than the rest of us. They are in the process moving two to three hundred million people from the rural areas to the cities. That is a huge number of jobs, housing, infrastructure and more that they need to create for these people. They can’t afford to have their economy crash and have millions of people jobless on the streets. And it is not like they don’t welcome foreign investment, since it was foreign investment that has resulted in such strong growth in the costal cities. However, if too much hot money flows in, inflation and over speculation in selected sectors will create problems too.

So, I personally feel that they will try all sorts of means and ways to curb too much inflow of hot money, inflation and speculation, but they will try not to touch interest rates too much. This is because raising interest rates is a very crude tool to guide economic policy, and they want to see China’s economy continue to grow strongly as well.

Thus, I am not so worried about what is currently happening. I think this year has been a big year of worry. Rarely has there been so many different things cropping up all within one year for investors to worry over, yet despite everything that has happened, most markets are on track to end the year with gains. It’s a classic case of climbing this wall of worry. There is lots of worry about, but the market will take two steps forward for every step back, and hence, over one or two years, will still move upwards. In this type of situation, the key is to remain calm, and be patient. These worries will eventually recede and when they do, we will see a significant rise in markets then.

In the meantime, the end of the year is coming up soon, so don’t forget to rebalance your portfolio! I will be doing this as well in the coming weeks.

Ireland Concerns make Germany Interesting (16 Nov 2010)

We are currently in correction mode. After the rise in markets triggered by the Fed’s QE2, China raised some of its bank reserve requirements. The move raised fears that China might be increasing interest rates, causing profit taking in markets. China’s consumer price index rose 4.4% year on year in October. It is thought that China may be willing to accept slightly lower growth to prevent too much hot money from flowing into China and this would trigger a slowdown in demand. As a result, commodities also retreated in prices. Oil was down as well (thankfully).

My view is that further tightening from Asian governments is to be expected. Asian governments know that hot money, while driving up stock markets and other assets like property, can also cause problems, precisely because they are hot money. And with Asian economies all growing strongly, there is really a concern to keep asset bubbles from developing, and to keep inflation in check.

In the medium term though, money will continue to make its way into Asia. Be it via massive funds raised in Europe and the US aimed at investing into Asia, or via corporations all looking to get a slice of the action in Asia by setting up in Asia, or direct investments from individuals and governments alike. Even currency is in Asia’s favour at the moment. The US stock market is positive year to date in US dollar terms. Convert that to SGD dollar terms and you are now looking at a loss. To investors based in the US or Europe, putting some money into Asia is almost like a no brainer. Even money invested into Asian bonds or emerging market bonds are giving them double-digit returns once converted back to Euros or USD this year.

Will this trend continue? I think it will, at least in the foreseeable future. What might cause a pull back would be if Asia suddenly chokes. But what would make Asia choke at this point? The concerns over inflation and hot money are well documented, and after the 1997/98 Asian financial crisis, all Asian governments are much more prudent now. And since they also know that allowing too rapid an appreciation in their currencies would wreck their exports, most Asian countries are all trying to keep their currencies at least at a reasonable trading level with the USD. If US thinks they can somehow deflate their currency out of their current troubles, it’s a rather unrealistic dream. Asian countries will be eventually seeing their currencies appreciate against the USD and the Euro though, whether they like it or not. Market forces are too strong in that direction.

The big inflows into Asia notwithstanding, by virtue of Asia’s increasing economic power, its countries’ currencies should appreciate. Look at Europe’s ongoing problems. Ireland has been hit in the bond market over fears that its finances were deteriorating. The interest rates on its debt has been climbing in recent weeks, with reports saying it was now as high as 8%. Investors worry that it would have to go to the EU and IMF for a bailout, though so far, the Ireland government has denied that it would do so. Fears that this would again trigger another round of crisis on the Euro currency was also one of the reasons for the current selloff. However, Ireland remains a relatively small portion of the Eurozone, so impact is still relatively limited at this point, especially since its ongoing debt problems is well known by now.

Europe is an interesting case. Especially Germany. Yes, the Euro may continue to come under pressure. They have a long road ahead of them to sort out their various problems with Greece, and other countries (the spotlight just turned back to Ireland). However, this doesn’t mean there aren’t good companies in Europe, or Germany for that matter. For example, Germany’s carmakers like BMW, Mercedes are probably doing even better in light of the lower Euro since their overseas earnings from overseas car markets are likely to see a boost due to the Euro’s fall. And a Gucci, or an LV bag isn’t going to priced any cheaper just because the Euro fell. So, I am looking to add to a Germany equity fund if these worries about Ireland cause the Euro or Europe markets to take another fall.

So, in summary, Asia’s uptrend will continue, though we can expect profit taking every now and then. At the same time, the hot money flowing in, while continuing to push up asset prices here, will not stay forever, and will add to the volatility in the region. Don’t neglect to consider other regions or countries outside of Asia. Opportunities may present themselves, even in regions which one might find difficult to consider touching right now! Don’t forget that some of the best bargains are to be had when everyone is selling.

The Fed has Turned on The Tap (8 Nov 2010)

The US Federal Reserve has turned on the taps, announcing last week that it would buy 600 billion USD worth of bonds supposedly to support the weak US economy. Personally, I think the US economy is doing fine. As our recent research report titled “US: On Track To Record-High Economic Output in 2011” shows, advance estimates show that 3Q economic growth was an annualized 2%. With the US economy expecting to grow between 2.5% to 3% in 2010 and another 2.4% in 2011, the economic output of US is now expecting to hit record levels by next year.

The main reason why there is so much hand wringing in the US, to the extent that the Fed has now turned on the taps again, is because of the unemployment rate, which is still at 9.6%. Otherwise, corporate America is actually doing great, and its companies are going to be seeing overall earnings at an all time high next year.

Nevertheless, the buying of bonds by the Federal Reserve, termed “Quantitative Easing” has unleashed a new flood of liquidity which has found its way into the market. Thus, commodity prices, emerging market bonds, emerging market equities have all seen a boost since last week’s announcement. Not all of this is simply liquidity flowing from the US into emerging markets. Emerging markets, including in particular Asia, has many other factors making it a good buy right now, including reasonable valuations, very strong earnings growth, and the entire region is basically shifting to a higher gear economically with China leading the way.

But things like strong corporate earnings, valuations and mega trends take time to happen, and some of it gradually takes place over a period of time. Asia did not suddenly wake up today and decided to become an economic powerhouse, nor did its companies suddenly overnight start to make lots of money. Now however, the Federal Reserve’s announcement has acted as the trigger, the catalyst that has unleashed the flood gates. Previously, even investors here in Asia were cautious, despite the many signs that Asia as a whole, was growing at a red hot pace.

Now, with last week’s announcement, the excess flood of money will also serve to bring about a relooking at where markets stand today, and based on fundamentals, there is much to like about Asia. This doesn’t mean just close your eyes and buy any Asian unit trust, or commodities fund, or resources fund blindly. Investors still need to be disciplined, and maintain a diversified portfolio and approach to investing. In the short term though, the flood of liquidity is going to continue to drive equity markets and commodity markets up, and after that, the strong fundamentals at least in Asian economies will help drive it Asian markets even further.

Ultimately though, will QE2 work? I don’t think so. Not in the sense that this round of QE is going to magically restore the US economy, in particular bring back jobs. But it will certainly result in a surge of liquidity that just happens to be the trigger that I believe will continue to propel Asian markets into this next phase of bull run we are seeing. In the medium term, it will also weaken the US dollar and cause commodity prices to move up even more.

Oil prices have now surged to over 88 USD per barrel as of 5 November, as a result of the Fed’s announcement and the surge of liquidity arising from it. Inflation and asset bubbles are a source of concern in Asia, and rising oil prices will heighten such concerns. It will remain to be seen if Asian governments take further steps to keep inflation in check. Also, higher oil prices will result in higher costs for Asia, which imports a lot of oil. If the US dollar continues to weaken, oil prices are likely to continue to trend higher. Certain pockets of assets, be it property, etc may also be subject to increased speculation arising from the excess liquidity, and if an asset bubble develops, then in time, it will eventually burst. Thankfully, we are not quite there yet, and based on many Asian government’s actions recently, we are trying to control the amount of hot money sloshing into Asia, so with luck, perhaps asset bubbles can be contained, or even avoided.

In the end, as with all markets, what goes up must come down. So, keep an eye out on overall stock valuations. These are the biggest indicators. We are not quite there yet, but when stocks in general all start to sell for 20 times or higher PE ratios, when all caution is being thrown aside and when everyone is queuing to jump into them, then its time to get a lot more cautious. The good news is that we are not at that stage yet, since most Asian markets are still off their all time highs. So in the meantime, enjoy the ride!

Added 2k More to Portfolio (29 Oct 2010)

Asian markets went into some profit taking this week, but that is exactly the kind of short term pull back I was waiting for to put in my monthly investments. So, I took the opportunity to add in $2,000 into my portfolio yesterday. These were all placed into Aberdeen Asia Smaller Caps.

I continue to think there is more upside potential in Asia, but the surge recently also means that some markets are more attractive while other markets are now closer to fair valuation. South Korea, and Asia small caps remain very attractive to me. Especially on a valuation basis, these look cheap. On the other hand, Thailand, which has run up so much this year, is starting to look fairly valued, and if the run continues, will start to look expensive.

Singapore equities is a weird case. I have great confidence in our country’s ability to grow, and our diversifying of our economy has made the case even stronger. Certain economies like South Korea and Taiwan are still overly reliant on manufacturing and electronics. They are dependant on the Tech cycle going in their favour. (Fortunately for them, I think Tech will continue to do well over the next two years). But China is catching up really fast, and China is going to move into every single sector it can, so the competition from China will only get more fierce. Singapore though, has diversified well. We are now into biomedical, and with the two Integrated Resorts, we are now even slated to have a gaming industry that will rival Las Vegas within two years. Not bad considering we just started it this year.

But having mentioned all that, the Singapore market earnings growth, at  is actually lower compared to many other Asian countries, and our valuations are higher as well. So, while the growth remains there, and I am confident it can continue, Singapore is not as good a bargain as other Asian countries. Other countries also have more upside compared to Singapore. Singapore’s forecast earnings growth for 2010 and 2011 is 9.8% and 9.7% respectively. This compared to just about every other country’s earnings growth which are in the double digits. Singapore’s forward PE for 2011 is now 14.2X. This is now no means expensive, but when compared to many of the other market’s valuations like South Korea, at 9.7X, Taiwan at 12.2X, and even Hong Kong at 12.9X, then you can see why our research has decided to downgrade Singapore slightly recently. Will it still reach 4000 points by 2012? Yes, I believe it will, but other Asian markets may do even better than that.

When I assess own portfolio, I note that my Aberdeen Singapore equity fund only forms 6.67% of my portfolio. This is of course in addition to the Singapore holdings that my other Asian equity funds will hold. Am I too heavily weighted in Singapore? I don’t think so. Most Singaporeans have a fair amount of investments in Singapore. I believe its called Home Country bias. So, I won’t cut any of my Singapore equity fund holdings as of now, despite the nice profits it is currently making.

Remember in the earlier part of the year when I called for patience as markets went sideways? The market often moves sideways for a while, even correcting a little before moving up again, even when it is on a general uptrend. When we see the market doing this, we either pick up some bargains while it dips, or be patient and wait. 2 years is not such a long time. I believe that as early as next year, we will see a lot of the current concerns clear, and the overall outlook get much brighter. Of course by then, markets are gong to be higher too. So, I will pick up bargains every now and then while I can.

I am still trying to save up for some big expenses like renovation, a car, next year too. Hard to do that when I am tempted to put as much as I can into equity funds right now. In any case, next week (1st week of November), I am taking a vacation with my wife in Bali. All work and no play is ultimately not healthy. So, I am taking a much needed break. We are even leaving the kids at home! So, until the week after, signing off for now!

More on Currency (22 Oct 2010)

More on this whole currency war issue. I still don’t understand the strong desire by the US to devalue its currency, and force the China Renminbi’s rise. While some quarters in the US think this is going to magically create hundreds of thousands of jobs, my view is very different. I think it won’t. And in fact, the devaluing of the USD will only hasten US’s economic decline relative to China, and relative to Asia as well. Just look at the United Kingdom. The British pound was at its strongest when UK ruled the commonwealth and over half the world. Today, the pound is a shadow of its former glory, and the same can be said for the importance of UK in the world.

In today’s inter connected world, no man is an island, and that goes for nations as well. If US thinks that it can somehow only export stuff, and stop importing stuff because it devalues its currency, it is badly mistaken. People buy your stuff if they want them, price is only one of the factors that come into it. The German pound ( and the Euro) was very strong right up to the Euro financial crisis, but that didn’t stop German car makers from competing right at the very top with Japanese and Korean car makers even as US car markers continued to lose market share. Look in Singapore, where cars from all countries are being sold. (We have no national car company of our own). The Mercedes and BMWs are the most popular cars right after Toyota. Even Hyundai and Kia cars are now becoming more popular as well, and its not just because the Korean won is cheap, its also because Hyundai and Kia now make good cars.

Ultimately, because of the flow of goods and services all over the world, countries which are gaining in economic power will still see it happen regardless of what happens to their currency. The average Chinese worker in China is still going to be cheaper than the average worker in the US even if the USD gets devalued another 20% against the Renminbi. And the US imports a ton of stuff too. So, if it gets its wish, then it is going to see the things it imports get a lot more expensive. Not everything can possibly be made in US, and some things will see demand regardless. The end result is that they will see US standard of living fall simply because the purchasing power of the US dollar becomes that much lower as the USD devalues. We are already seeing commodity prices resume their rise with the weakening of the USD. How much less commodities can the US possibly consume?

Another thing US perhaps did not consider is a reverse brain drain. US has benefited in the last few decades from a lot of talented scientists, professionals going to US to work and live there. The strength of strong purchasing power of the USD also had a part to play in this. It made it so attractive to live in the US that people were willing to leave behind family, friends, etc to travel thousands of miles to a foreign land to make their living. If this trend of the USD devaluing continues, there will be a reverse brain drain, and this will include skilled and talented Americans as well. In the end, if we look into history, I have rarely seen a situation where a country that finds its currency devaluing significantly over the years actually finds itself better off because of it.

On another note, this has been a flat week, but this doesn’t change my bullish view on equities. It is very common for stock markets to go through such smaller cycles even within the midst of a medium term uptrend. I would see any potential correction or dips in markets at this point in time as opportunities to buy. As always though, be careful not to get too greedy, so if you find that rising stock markets have caused your equity holdings to rise above what you are comfortable with, then take profit now and then so that you have the confidence to stay in the market in spite of its volatile cycles.

The next Bull Run is here, and Currency Wars (15 Oct 2010)

The STI index looks likely to finish today at over 3,200 points. Given that the Singapore market ended last year at 2,897 points, we are now 10% higher than what we started the year with and we are not quite at the end of the year yet. These last two and a half months before the year ends might actually see the Singapore market, and Asian markets move even higher, so despite everything which has happened to derail markets this year, I am confident that we should see some decent gains from markets this year.

The earnings season in the US has just started, but when it is over, I do expect good news from most of the companies. Spending is starting to come back in the US, and if anything, the weak US dollar has made its exports look even more attractively priced. So, US based companies with a global business will be seeing higher earnings just from the conversion back to the USD even if their business and sales haven’t improved at all, and with Asia continuing to grow strongly, I would be surprised if that is the case.

Even back in the US, the high unemployment rate means that companies in the US have been reluctant to hire, and why it has made the unemployment numbers look bad, and prompted the US central bank to consider further stimulus, what this means also is that the companies are keeping themselves very lean, and when sales improve, their earnings numbers will look very good indeed. This is why shockingly, when we look at overall earnings, we see that overall earnings will surpass 2007 record highs by next year. So, despite everyone worrying so much about the US economy, US corporations actually have a lot to smile about right now.

I believe the current strong earnings trend by many companies, including those in Asia, and the low valuations will see us enter the next bull run phase. It looks like it has already started already. October has been a very strong month so far. I suggest checking out your holdings if you haven’t in a long time. You might be surprised how much they have moved up. My 2 kids had their holdings shoot up strongly, and the same goes for mine own as well. My holdings were at $343,397 back in April this year, six month on, they are now currently at $419,587. According to our database, 62.4% out of all of the total number of Fundsupermart accounts are all in the black too, and I fully expect this percentage to rise over the next two years.

Just a bit on currency wars though. It has only been in the last 3 weeks that this term has now suddenly started to appear in the media all over the place. Basically, the western nations, especially the US, are firmly on a road towards weakening their currency, and they are not happy with nations like China because China, by keeping its Renminbi pegged within a trading band to the USD, is seen as profiting at the expense of the US. US firmly believes that the renminbi is undervalued by a significant amount and along with other western nations, are pressuring China to allow the Renminbi to appreciate. China’s resistance to this, and the failure of the recent IMF talks to get all the major nations to agree to a sort of “global” direction towards the currencies has led many to now worry that the major nations are now all about to engage in a “currency” war where each major nation will compete with each other to see who can devalue their currency faster than the other.

My view on all this? A lot of it is political posturing. Countries have little control over what other nations wish to do with their own currency. I am not even sure why US is quite so upset about given the fact that the USD has already been falling quite hard the last few weeks. So, their exports are already cheaper for most countries. Even against the renminbi, the USD has weakened, because it is no longer a hard peg, there is some room, within limits for the renminbi to trade.

I will write more on this in my coming blog entry. But my quick take on it is that there will be a few things that might happen as a result of concerns on currency wars. The USD will continue to fall, though I don’t expect a freefall. Commodities will continue to see their prices go up, because just about every major commodity including oil, and gold is all priced in USD. And equities will also see an uptrend from this as well. Because what a company produces will always have a value to it. So, a car produced by a car maker is always going to be worth something. So, regardless of how a country’s currency move, its companies will still retain their value over time. Google isn’t going to worth any less as a good company just because the USD weakens. So, buying into equities (companies) will be a good choice too when there is a lot of uncertainty over currencies. So, look out for more on currency wars and such in my next blog entry and have a good week!

My kids’ portfolio outperformed their Dad’s (8 Oct 2010)

My kids’ accounts are doing pretty well right now. Both are now well in the black when they were in the red last year. Funny, how a strategy of not looking at an account at all also helps investment decisions. In fact, I am not sure if I should be ashamed or not, but their portfolios are doing better than my own! They are up 13% over 3 months, and 24.3% over 1 year. My own portfolio, which I manage more actively, is up 11.5% over 3 months, and 17.8% over 1 year.

To be fair though, I must defend that my own portfolio has bond funds, while theirs is 100% into equity funds, and all of it into just two funds, one Asia equity, the other, Singapore equity. But, the good thing about managing a portfolio where your kids couldn’t care less how you manage it, is that I adopted a much more passive strategy. No active management, just add on some money into the same two funds maybe once or twice a year (usually around Chinese New Year Time or their birthdays).

This means that despite all the volatility this year, they didn’t try and time the market in any way, they didn’t go in or out, and they didn’t have any hot picks or such. (Unless Asia is considered a hot pick). Maybe because it was meant to be truly long-term investment, their Dad (me), also resisted trying to do any of the kind of fancy portfolio allocation, market timing, favorite research picks either. But because it was meant to be a really long-term investment, I could afford to go 100% into equities, confident that any market cycle correction would even itself out.

To be fair also, it would have been hard to pick the best-performing market and funds each quarter. Let’s take a look at the 3rd quarter which has passed. It was an excellent quarter for most markets in general. The five best performing markets (all in Singapore dollar terms) within this quarter (based on the 22 markets we track) were as follows:

Thailand          +23.2%
Indonesia        +15.0%
Australia          +14.5%
Brazil               +13.8%
Korea              +11.8%.

So, if you had a single country fund investing into any one of these markets, you would be very happy. Investors placing money into Japan on the other hand, would have been sad, despite the strength in the Japanese yen. The Japan market, based on the Nikkei 225 index, was the only negative market in 3Q, down 0.1%, in Singapore dollar terms.

Ultimately though, have a diversified portfolio, have a good investment strategy, and be disciplined. Even though we have had everything from a Euro financial crisis, China tightening, to the shadow of a US double dip recession (which didn’t) scaring investors, most markets are in fact up for the year. Earnings will carry us into the next phase, but don’t get too greedy. I am bullish and wish I had more money to invest into markets, but despite that, I will still strive to maintain a balance between my bond funds and my equity funds. So, if as we predict, equity funds go into a big bull run, then at some stage, I will still be disciplined and take some profit out from my equity funds, and place them into my bond funds. (And I will probably end up underperforming my two kids’ portfolios over the next two years!)

Dilemma! Need to Set Aside Money for Next Year! (1 Oct 2010)

I am currently in a bit of a dilemma now. Next year, I am moving house, and I need to set aside money for some renovation, and sigh, I think I will probably have to finally buy a car too. So, I need to set aside money for these things next year, but yet at this point in time, I really would love to put in that money into investments instead!

This is because we are in special sweet spot in the market currently. Earnings are really high, interest rates are low, and yet, because of some concerns, many markets, including Asia, are trading at cheap valuations! I have almost $370,000 invested into equity funds and only $42,505 into bond funds, but I would love to add even more to my equities. But doing so would bring my equity exposure even higher, so I must discipline (force) myself not to do this.

Also, I can’t (or at least I shouldn’t!) put so much money into investments because I need to start setting aside money for the renovation and car purchase next year. Putting them into investments, especially equity funds, is risky simply because the time horizon is very short. I could be taking out this sum of money within one year. And when you have a time horizon of just one year, lots of things can happen to temporarily delay or even derail their value.

Take for instance if we were to go back to October last year. Now, at that point in time, equities were cheap too, and earnings were also steadily moving up. In fact, I was also confident about markets exactly one year ago. But a couple of things happened, and while they did not exactly cause a market crash, they did cause a lot of volatility. We had concerns about central bank exit policies at the start of the year, China and other Asian countries since then started to clamp down on the property market, and in May, we had a European financial crisis.

Actually if valuations were lofty then, all these together would have certainly crashed the market. But instead, Asian markets retreated maybe 8 to 10%, then came charging back. This actually lends me even greater confidence that we are currently at a sweet spot in markets. If all these things plus fear of a double dip recession couldn’t bring about a market crash, it’s because fundamentally, things are improving, earnings are rising, and valuations are cheap! Hence, the downside is simply not high compared to the potential upside.

But back to topic, the problem is if an investor with only a one year or less horizon went into equities in October last year, he would be sitting on relatively small gains at best, and if he was forced to exit in May or June, he might even have been sitting on losses. Yet, the outlook for markets has never been better. I feel that all the event and concerns of this year has just only postponed the next phase of the bull run, and if anything, gave investors more time to accumulate and invest into equity markets.

But here’s where the dilemma comes. No matter how bullish I am about markets, a one year horizon is simply too short. Just as the one year since last October has proved, even when the market outlook looks good, certain events could cause a temporary fall or push back the anticipated uptrend. Being forced to sell out and then seeing the market run up after that is going to be really frustrating.

But this is money which I know I will be spending. I can’t exactly say “Let’s move into our new home, and because the market didn’t quite turn out how I expected, we aren’t going to do any renovation!” I suppose a car purchase can be postponed, since we haven’t had a car all this while, but renovation is going to be a non-negotiable expense item.

So, I need to be a lot more careful with this money which I am setting aside for my renovation and car purchase next year. Putting it into equity funds, no matter how bullish and confident I am, would appear to be the irresponsible thing to do. Certain things will cause a lot of anguish. In the unlikely (but still possible) event of a loss, being forced to sell out or top up even more money will feel very tough. But worse than that would be if I had to disappoint my family and tell them I need to postpone say renovations or a car purchase because of market conditions.

Instead, given that I already have substantial positions in the market, it’s just more prudent to set aside the money, but choose not to invest it into equity funds. I may make less (I am quite confident markets will go up and that will happen), but at least I will have the peace of mind, and when the time comes next year, the money will be there for the renovation and the car. Yes, my anticipated profits might be less, but let’s not get too greedy here. There will be other opportunities, and by then, if what I anticipate comes to pass, then I will already be sitting on hefty profits.

It’s the right and prudent thing to do … but wow, it is hard to force myself not to buy equity funds now!

Another Surge in Markets Will Start Soon (24 Sep 2010)

I am currently very bullish about stock markets. If we look at two things, it would seem to be telling us very opposite things. Investors looking at daily news, and economic updates from the US will be forgiven for thinking another recession is just around the corner. A ton of concerns in the US about double dip recession, and while the latest economic numbers are not exactly horrible (they are still showing some growth in the US economy), they do show that it is taking a breather, and hitting a soft patch. On the other side, investors who are looking at broad earnings for Asia markets, and even the US companies in the US market would be hard pressed not to feel excited. These are either at record levels this year, or if not, will be at all time highs within 2 years already.

The last time we saw such strong earnings at record high levels was back in 2007, when markets were hitting all time highs. Valuations then were more expensive. Today, we are in a situation where not only are earnings going to all time high levels, but valuations are outright cheap! This is precisely because investors are cautious. The cloudy economic outlook from the US, and other concerns have kept market sentiment very cautious, and valuations reflect the low confidence level of investors.

Yet, we must remember that market sentiment and investor confidence can and do change very quickly. Within a few months, the US economy doesn’t fall off cliff, people stop talking about double dip recessions, earnings continue to improve, and as various concerns die away, we can easily see sentiment shift to become bullish, especially when investors realise just how well companies in general are doing. That kind of re-rating plus earnings at a record level could easily mean a substantial surge in stock markets.

I remain very bullish on Asia equities, I see Asian markets having a potential upside of up to 37% over the next two years. Within Asia, 6 markets, including Taiwan, South Korea, China, India, Malaysia and Indonesia will already see record earnings levels this year in 2010 already. And I remain convinced that the Technology Theme will play out over the next two years as well and hence, South Korea, Taiwan, and Tech related funds will benefit from this. Finally, if blue chips are already showing such kind of results, the small caps look even more amazing. Investors still prefer the safety of blue chips at this point in time, and within small to mid caps, we are seeing not only record earnings, but PE levels which are ridiculously low, at single digit levels in various cases. This is why, I just shifted another $10,000 from the Aberdeen Pacific Equity fund to the Aberdeen Asia Smaller Cap fund (and it is already my second latest holding after Aberdeen Pacific Equity fund). The Asia story is exciting, and within it, when risk aversion subsides, and investors turn bullish in a big way, the small caps will really fly.

The importance of spending less than you earn (8 Sep 2010)

I just added another $6,000 into the following funds.

Cash fund - $500
Parvest Europe Alpha - $1,500
Fidelity Asian High Yield - $1,000
Lionglobal South Korea - $1,000
Aberdeen Asian Smaller Companies - $2,000

This time round, the additions are more from a broad based approach. Hence, I added to a bond fund as well as equities funds. I continue to believe strongly that equities will outperform bonds over the next two years, and there will not be any significant fall in markets over the next 6 months to 1 year. And the portfolio is positioned to reflect this. I continue to favor markets like South Korea as I believe that Tech is well positioned to boom, yet has continued to be overlooked even at this point in time.

More importantly though, every time I start to accumulate cash beyond a certain amount in my bank account, then I tend to invest some of it. This means that generally, I am saving some money each month, and that I spend less than I earn. This is a very important habit to form. Because no matter how much you earn, if you spend even more than that each month, then you are moving backwards in terms of wealth accumulation. And even if you earn relatively little, if you are still able to save and invest some of it, then you are moving forward.

Many pop stars, movie stars and sportsmen fail to understand this concept, and even though they earned millions, they spent millions more, and it may be surprising but a fair number of these end up with little or no wealth despite the big bucks they earned in their heyday.

It takes discipline to spend less than you earn, but once you have gotten into the habit, then it becomes second nature. Singapore is actually a great place to save and invest money because income taxes are low, and more importantly, there is no capital gains tax for gains from stocks and unit trusts! This is very significant because it allows money invested to build up even faster. So, get into the habit of saving, and regularly investing and your wealth will build up naturally over time. The best thing about this is that everyone can do it. You don’t have to inherit some large amount of money, or build up a dot com company to sell off, or gamble at the casino, you just need to spend less than you save!

Nobody will talk about double dip after 6 months (3 Sep 2010)

All the talk recently over double dip recessions have scared investors out of the markets. Volume on SGX remains low reflecting the extreme caution amongst investors at this point in time. However, the irony I feel is that in 6 months time, it is very likely that nobody will be talking about a double dip recession anymore. The focus will shift to other things, and this will become just one of the many “scares” throughout this very jittery and uncertain year. But why am I so confident that a double dip recession is so unlikely?

If we go back into US history over the last 50 over years, the only double dip recession in the US since the end of World War 2 was 30 years ago in the 1980s and it happened when there was a second oil shock. That means that since 1950, over a period of 60 years, the US has had just one, one double dip recession. If we go back further, another known double dip happened in 1948, in the aftermath of world war two, and the great depression wasn’t a double dip recession, but instead, simply a prolonged 4 years of economic pain from 1930 to 1933.

Mathematically, these are very good odds that a double dip recession won’t happen because these seem to come very rarely. More importantly, we should look critically at what would cause a further drop instead of just thinking “what if there is a double dip recession?”

Firstly, the manufacturing sector. Now, this has actually been the sector that has helped to pull the US out of recession in the past, and this sector is not showing any serious weakness at this stage. The ISM manufacturing index has been steady growth with the index at over 55 for the last couple of months, and the latest for August, showed a very healthy 56.3, up from 55.5 in July. This as despite so many economists being so sure it would drop to 53 or below because, well, it was fashionable at this point in time to worry about a double dip recession.

Secondly, demand for oil and oil price. Now, this is directly dependent on demand and supply, unless we believe there is a huge amount of speculators playing the energy market and skewing it. If we are headed towards a double dip recession in US, leading to a double dip recession in the world, then price of oil should be plummeting back to 50 USD or lower since demand should be dropping like a rock. It hasn’t happened. Oil has been bouncing around 70 to 80USD per barrel since the start of the year. This shows that be it from people driving cars, companies using energy, but overall demand for oil is holding steady. The price of oil does not indicate a double dip recession.

Thirdly, yet another crash from the financial sector. This is the favorite whipping boy since Lehman Brothers because first US and then Europe had its financial crisis, originating from the finance sector. But again, we must understand, this is also the sector that has been subject the mother of all bailouts by central banks and governments plus starting in 2010 this year, has been subject to the most intent scrutiny by regulators amongst all sectors. They are getting the book and more being thrown at them with regulators going over with a fine comb any potential wrong doing, misconduct, or otherwise. Globally, regulators have been coming down hard on the financial sector, and this is in Asia as well. With this kind of backdrop of massive bailouts and intense regulatory plus self scrutiny, it is highly unlikely that the next crash will come from the financial sector. Look at the Asian financial crisis. It hit so many Asian banks back then, caused a huge amount of self policing and scrutiny from Asian governments, but till today, more than 12 years later, Asian banks are one of the most conservative with the strongest balance sheets globally and does anyone expect a crisis from them? I certainly don’t. Currently, with all the bailouts and such, the US banking industry is more highly capitalized at this point in time than compared to the past 20 years.

Fourthly, from the property market. The Europe and US property market could hardly get any worse at this point. Coming off a big crash in property prices and demand since 2008, the current base is already so low that property could hardly be the next trigger to a double dip. Property cycles are long, and it is possible that US property prices go nowhere over the next few years, but that in itself will not cause a crash or a double dip recession.

Ultimately, things have to get much worse for a double dip to occur, and within the current context, it is highly unlikely. The biggest suspects which caused a recession and crash in the past like the financial sector, property and oil prices are either already at such low bases in the US that they could hardly get worse, or like oil prices, have not been showing any indication that there will be a double recession. What has also been happening is that people have been focusing on the high unemployment rate in the US which continues to persist.

While this heralds continued pain to the US citizens, we have to look at this from the corporate perspective as well. This is happening because US corporates have “fired” a lot of staff and not hired them back. Companies have focused a lot on their bottom lines and this is also why despite the current environment, US companies are actually reporting good earnings growth. Based on consensus estimates, earnings of US companies are likely to grow 22.5% in 2010, 15% in 2011 and 13.9% in 2012. US companies are also cautious at this point in time, so they are not aggressively hiring, nor and they aggressively expanding (or lending money to expand). A lot of the crashes in the past happened when greed caused overlending, and overexpansion (Tech bubble, anyone?). This kind of scenario is just not going to happen at this point in time to US companies.

What this means is that over the next 6 months to 1 year, companies will continue to report double digit earnings, even while economic data and unemployment data remains flat in the US. But with nothing foreseeable that would cause the next big crash there, US won’t zoom into recovery, but neither will it lapse into another double dip recession. And investors will then eventually start to shift towards focusing on  the company fundamental numbers. So, I predict that while it is the current in thing to talk about and worry about US double dip recession, few will be talking about it anymore after 6 months.

Invested $2,000 more into a China fund (27 Aug 2010)

Its been a long while since I added to my China fund holdings. But I was not as keen on valuations previously so my holdings in China was a long term one based on the sheer potential of the Chinese economy. Year to date, the China A share market has been one of the worst performers within Asia, down more than 20% and although the H share market has fared better, sentiment there has also been affected to a certain degree.

Valuations for China companies are now very attractive, and all this even while the China economy continues to grow healthily. China is growing at the pace that developed countries like US, Japan can only dream about, but concerns about China’s tightening on bank lending and the curbs on its property market has caused a lot of wind to go out of its stock markets.

Yet, such things make me even more confident that it is alright to add to my China holdings right now. Who ever heard about precautionary measures taken before a huge crash or economic meltdown? US thought its banks and financial companies were the strongest in the world before the Lehman Brothers crisis. And it was doing nothing to prevent subprime mortgages from spiraling out of control. The fact that now in China, you need 50% up front cash just to buy a second property means that it is unlikely that China will face the kind of property crash that US experienced.

And when we finally go back to what is fundamentally happening, it is that China is already gradually becoming more important than US to this region’s prosperity, if it isn/’t already. The South Korean market has been resilient despite all that talk in US about a double dip because nowadays, more than 25% of its exports are to China, while exports to US make up just 11%. Singapore property prices has been pushed up because there are rich investors from China coming over to snap up property here (they are the biggest buyers at Sentosa cove). Where does the rich US investor feature within the Singapore property market? They aren’t mentioned because they are lag so far behind the Malaysians, Indonesians and Mainland Chinese buyers that they are a non-factor.

I don’t believe US will go into a double dip recession, and slowing growth in US doesn’t dim my outlook on Asian markets. It is only if China takes a fall, then will I really worry about Asia. At this point in time though, given the precautionary measures that the Chinese government is already taking, I think the Chinese government can walk the fine line between curbing the worst excesses in its financial and property sector without killing off too much growth in the process.

China and India remains a long term investment and will always have a place in my portfolio. In particular, the speed at which China is moving up the economic ladder cannot be denied. It is already the second largest economy behind US. In Asia, it has surpassed US as the most important market for most countries already. The Chinese A share market has taken a fall but the country’s economy itself is stronger than ever. Thus, I think having some holdings that will participate in China’s growth should be the strategy for most portfolios with some kind of equity holdings. China is simply too big and important to us over the next 2 to 3 decades to be held as part of a supplementary portfolio. Instead, China should be part of the core portfolio. The growth and importance of China is a huge mega trend that is going to remain in place for years and years. This doesn’t mean buy China whenever you want to invest something. For me, China is a long term core holding, and at current valuations, I think it is cheap enough to warrant further investment.

(I have updated my portfolio. The new purchase won’t be reflected though because it is not in the holdings yet.)

Bought $2,000 more into a China fund (27 Aug 2010)

Its been a long while since I added to my China fund holdings. But I was not as keen on valuations previously so my holdings in China was a long term one based on the sheer potential of the Chinese economy. Year to date, the China A share market has been one of the worst performers within Asia, down more than 20% and although the H share market has fared better, sentiment there has also been affected to a certain degree.

Valuations for China companies are now very attractive, and all this even while the China economy continues to grow healthily. China is growing at the pace that developed countries like US, Japan can only dream about, but concerns about China’s tightening on bank lending and the curbs on its property market has caused a lot of wind to go out of its stock markets.

Yet, such things make me even more confident that it is alright to add to my China holdings right now. Who ever heard about precautionary measures taken before a huge crash or economic meltdown? US thought its banks and financial companies were the strongest in the world before the Lehman Brothers crisis. And it was doing nothing to prevent subprime mortgages from spiraling out of control. The fact that now in China, you need 50% up front cash just to buy a second property means that it is unlikely that China will face the kind of property crash that US experienced.

And when we finally go back to what is fundamentally happening, it is that China is already gradually becoming more important than US to this region’s prosperity, if it isn/’t already. The South Korean market has been resilient despite all that talk in US about a double dip because nowadays, more than 25% of its exports are to China, while exports to US make up just 11%. Singapore property prices has been pushed up because there are rich investors from China coming over to snap up property here (they are the biggest buyers at Sentosa cove). Where does the rich US investor feature within the Singapore property market? They aren’t mentioned because they are lag so far behind the Malaysians, Indonesians and Mainland Chinese buyers that they are a non-factor.

I don’t believe US will go into a double dip recession, and slowing growth in US doesn’t dim my outlook on Asian markets. It is only if China takes a fall, then will I really worry about Asia. At this point in time though, given the precautionary measures that the Chinese government is already taking, I think the Chinese government can walk the fine line between curbing the worst excesses in its financial and property sector without killing off too much growth in the process.

China and India remains a long term investment and will always have a place in my portfolio. In particular, the speed at which China is moving up the economic ladder cannot be denied. It is already the second largest economy behind US. In Asia, it has surpassed US as the most important market for most countries already. The Chinese A share market has taken a fall but the country’s economy itself is stronger than ever. Thus, I think having some holdings that will participate in China’s growth should be the strategy for most portfolios with some kind of equity holdings. China is simply too big and important to us over the next 2 to 3 decades to be held as part of a supplementary portfolio. Instead, China should be part of the core portfolio. The growth and importance of China is a huge mega trend that is going to remain in place for years and years. This doesn’t mean buy China whenever you want to invest something. For me, China is a long term core holding, and at current valuations, I think it is cheap enough to warrant further investment.

(I have updated my portfolio. The new purchase won’t be reflected though because it is not in the holdings yet.)

Work Life Balance (20 Aug 2010)

Some of you will know this. A Singapore businessman gambled and lost S$26 million at Genting Resort World within 3 days. S$26 million is a huge amount of money which most of us cannot image ever having, not to mention losing it over 3 days. But even this pales beside Mr Terrance Watanabe, who managed to lose 127 million USD during a year long gambling binge in Las Vegas.

I sometimes wonder though if part of this is due to a person being overly focused on work and failing to achieve some proper work life balance. We don’t know who the 50+ years old businessman is, but he really must have been drawn deeply into the thrill of gambling to end up losing so much. The same can be said for Mr Watanabe. He built up a family business into a massive empire over the course of two decades, and did not even get married. He then sold the company in 2000, likely for a massive sum of money. The gambling spree during which he lost over 100 million was in 2007.

I don’t know Mr Watanabe personally, but it seems likely that he focused on his family business and work to the exclusion of everything else in his earlier years, not even getting married, and thus after selling off the business, he had too much time on his hands and did not quite know what to do with himself. Thus, when he stepped into the glittery world of a casino, he was drawn in. He was said to have alcoholic problems as well during that time.

I think this shows that it is important to achieve a good work life balance. In Asia here, we tend to be very workaholic. According to an employment management company, Hudson, Singapore has the highest percentage of respondents in a survey who indicated that they were working more than before.72% of 685 of the respondents in that survey said they worked at least 50 hours a week.

When you put in too many hours into work, burn out, health related problems and other problems may surface. And this also makes the allure of doing crazy things, like gambling your hard earned fortune on the roll of a dice stronger perhaps because it gives people a thrill which they would otherwise have not felt in their busy lives.

People who had been very busy with work for decades, who suddenly put everything down may find that they have lost all meaning or focus in their life. Some, like Mr Watanabe would find themselves drawn to and addicted to activities like gambling and alcoholism which would be self destructive in the long run. Others just fade away. My father mentioned that some of his friends, died within a few years after retirement. They had been too focused on work previously that they simply couldn’t handle the boredom of retirement.

So, while I know I usually talk about investing and stock markets, I do believe it is good to achieve a good work life balance. Even if we are busy, we should take the time to develop some interests outside of work, or simply spend some time with our family. I don’t think people are going to remember what kind of a worker I was at my funeral, but my two kids will certainly remember what kind of father I was, and whether I was there in their lives when it mattered.