Just invested another $10,000 (9 July 2009)

I was away at our Kuala Lumpur Fundsupermart office on a day trip yesterday. All the traveling plus meetings prevented me from writing an entry yesterday. I was also too busy to add to my portfolio yesterday, so I shall do so today. I invested an additional $10,000 today in the following funds.

Aberdeen Pacific Equity - $4,000
Aberdeen Indonesia Equity -$4,000
INF RF Emerging Markets Debt HC Eur - $2000

I will update my portfolio when the transactions are completed and priced. I continue to add to Asia equities (Aberdeen Pacific Equity is one of my core long term holdings), and in particular Indonesia. So far, Indonesia hasn’t been affected as badly by the current global crisis. It has a large population and a big domestic market, just like China. I have also been encouraged about the elections. We haven’t heard much from the current Indonesian elections but that is precisely why its good.

It looks like it will be a peaceful one, just like India’s, and the winners will get to do their job until the next round. This is great for Indonesia. While elections generally will not cause a stock market to move up or down by itself, a political deadlock situation where the loser party refuses to accept the results of a fair election and takes to the streets is generally bad, especially if it cannot be resolved.

If governments are not allowed to perform their role, businesses suffer. Furthermore, if political deadlock becomes so bad that people are taking to the streets, then it’s a further minus because it will generally be bad for business since people are unlikely to be that interested in shopping, working, etc if they are more interested in demonstrating in the streets.

That’s why I am adding to Indonesia right now. It could turn out to be the dark horse market this year. People think it’s a muslim country, they remember rioting in the streets from just a few years back, and its not a very important stock market in Asia anyway. But the Indonesia today is actually very peaceful and whether race or religion wise, everyone there is currently co-existing happily. More importantly, because of its large domestic market and population, Indonesia is in a position to use domestic consumption growth as a growth pillar and stimulus measures can be effective as well.

I also added to my emerging market bond fund. I can’t stress how important diversification is. It gives me the confidence to buy and stay invested in my equity funds because I know that I have something in bonds to lower the risk. Right now, I just don’t like global bonds that much. Interest rates are too low. Thus, when I buy bond funds, I go into either high yield bonds or emerging market bonds. These have a much higher yield of 8% or more. This means that even if interest rates don’t change from their present levels, they would give an 8% return.

Furthermore, bond holders are in a better position to recover their money. If a company goes into liquidation, all its assets get sold off and bond holders are one of the first parties in line to receive whatever is left from the sale. By the time we get to the stock holders, they are usually left with nothing. And if we are talking about emerging market bonds, then its even better because we are talking about government issued debt from emerging market countries. It is unlikely for a country to run out of money and be unable to pay off its debts. Cases of defaults on such a national level are quite rare and in most cases, the debts will be restructured.

That’s all from me for today. In short, I am using the current dip in markets to add more into my portfolio. I continued to add to my core Asia holding which is Aberdeen Pacific Equity fund, and I added to Indonesia which I continue to like, plus emerging market debt as diversification.