Tuesday, March 23, 2010

GDP May Rise More Than 5pc

Malaysia’s Prime Minister Najib Razak said the economy may expand more than 5 per cent this year as the country recovers from last year’s recession.

“I’m on record to say I am looking at 5 per cent and beyond,” Najib told reporters in Hong Kong.

“But that’s a general kind of goal for the government.” Najib said last week Southeast Asia’s third-largest economy can expand as much as 6 per cent in 2010. The country’s central bank will release its official economic forecast in Kuala Lumpur tomorrow.

The economy may expand 5.5 per cent this year after shrinking 1.7 per cent in 2009, according to the median estimate of seven economists surveyed by Bloomberg News. The government said in October that gross domestic product would expand 2 per cent to 3 per cent in 2010.

Najib, who boosted government spending and eased investment rules last year to revive growth, is scheduled to announce a long-term plan for the economy next week. Central bank Governor Zeti Akhtar Aziz raised interest rates for the first time in almost four years on March 4, joining nations from Australia to India in withdrawing monetary stimulus as Asia leads a recovery from the global slump.

The government is also considering whether to issue a global bond after fund managers indicated such a security would be “viewed very favorably,” Najib said today. -- Bloomberg

Higher FDI This Year On Reforms
HONG KONG, March 23 — Malaysia should see increased foreign direct investment (FDI) this year after the government implements administrative reforms, Prime Minister Datuk Seri Najib Razak said.

The country’s new economic model, to be announced later this month, would include unspecified administrative reforms that should result in a “marked improvement” in FDI, Najib (picture) told an investment forum in Hong Kong today.

Malaysia has been considering proposals to end its subsidy regime and phase in a new goods and services tax as it begins dismantling a four-decade race-based economic system that has deterred foreign investment.

Najib also reiterated an earlier statement that Malaysia’s GDP growth should hit 5 per cent or more this year. The country’s economy shrank by 1.7 per cent last year.

The economic regime adopted after race riots in 1969 has given an array of economic benefits to the ethnic Malay population, which makes up 55 per cent of the total, but investors complain it has led to a patronage-ridden economy that has resulted in foreign investment increasingly moving to Indonesia and Thailand.

Najib is scheduled to unveil initial details of a new economic model to boost growth and win back foreign investment at the annual “Invest Malaysia” conference organised by Bursa Malaysia on March 30.

Earlier this month, the government backed off from an economic reform plan, including the introduction of a goods and services tax, just weeks after it halted implementation of petrol price increases aimed at cutting its subsidy bill, and electricity price rises.

In all three cases it cited the need to “engage with the public”, a message that may derail Malaysia’s bid to reverse investment outflows and tackle a budget deficit that has overshot its targets since 2007 to hit a more than 20-year high of 7.4 per cent of gross domestic product in 2009. — Reuters

Thursday, March 11, 2010

Bursa Stocks May Rise 10pc Further

Malaysia’s stock index may rise a further 10 per cent in 2010 on the “currency game” as investors buy more equities after the Malaysian ringgit gained the most in Asia this year, Manulife Asset Management (Malaysia) Sdn. said.

The FTSE Bursa Malaysia KLCI Index, which rallied 45 per cent last year, may reach as high as 1,450 by the end of 2010, said Jason Chong, chief investment officer at Manulife Asset in Kuala Lumpur. The ringgit advanced 2.7 per cent this year after gaining 1.2 per cent in 2009.

Foreign investors are “playing the currency game on the back of expectations interest rates will go higher and the ringgit will strengthen,” Chong, who helps manage 2.5 billion ringgit ($750 million) of assets at Manulife, said in an interview today. “While the rest of the region is coming down, they’re looking at Malaysia as a safe haven.”

The ringgit rallied after the central bank raised its benchmark interest rates on March 4 for the first time in almost four years, saying record-low borrowing costs were no longer warranted as the economy emerges from recession and inflation. A stronger ringgit helps boost the value of foreigners’ assets denominated in the currency, including stocks.

Banks, plantations and building material suppliers are expected to lead gains, said Chong. Prime Minister Najib Razak said last week that Southeast Asia’s third-largest economy may expand 6 per cent this year, twice the pace of the official forecast. Government data on March 5 showed Malaysian exports rose 37 per cent from a year earlier in January, the most in 11 years.

Foreign Investors
Najib has unveiled 67 billion ringgit ($20 billion) of stimulus measures and accelerated efforts to open up the economy to attract more foreign investors. The government has eased rules governing overseas investors, initial public offerings and property purchases in a bid to lure more foreign money and shore up the economy.Chong, who joined Manulife on Feb. 8, was previously chief investment officer of UOB-OSK Asset Management in Kuala Lumpur.

The market’s price-to-earnings multiple is 16.1 times current year estimates, the highest level since February 2008, according to data compiled by Bloomberg. The multiple may climb to 18 times in the short term, he said, without specifying a precise period. -- Bloomberg

Currency Gain

‘Brightening’ Outlook
A central bank survey of economists in Singapore projected 6.5 per cent growth for the city-state’s gross domestic product this year, a percentage point more than at the last poll in December. Philippine exports in January jumped 42.5 per cent, the most since 1995, according to figures published today.

“The economic picture is brightening despite all the caution flagged by the central banks and finance ministry officials around the world,” said David Cohen, a Singapore- based economist at Action Economics. “The data still continues to show a global economic recovery led by Asia. That should be positive for Asian currencies.”

The ringgit strengthened and the Kuala Lumpur Composite Index of shares was headed for a two-year high before a government report tomorrow that’s forecast to show industrial output picked up in January. Production increased 11.7 per cent from a year earlier following an 8.9 per cent gain in December, according to the median estimate of economists surveyed by Bloomberg. The central bank raised its key interest rate last week, saying an economic recovery is “firmly established.”

“The recovery story is looking good and the market is upbeat about the prospect of further rate increases,” said Tan Voon Ching, a currency trader at OSK Investment Bank Bhd. in Kuala Lumpur. “Stocks are rising, providing support for the ringgit.”

Foreign Funds
Taiwan’s dollar today reached a one-month high of NT$31.73 versus the greenback before slipping to close little changed on suspected central bank intervention. Overseas investors bought $1.4 billion more of the island’s shares than they sold this month through yesterday.

“There are foreign funds who want to invest,” said Hao- Yun Juan, a foreign-exchange trader at Kingstown Bank in Taipei. “People will not push appreciation too rapidly because the central bank will give some support for the Taiwan dollar.”

India’s rupee strengthened 0.4 per cent to 45.45 following net share purchases of $1.6 billion in the country’s first five trading days of March. Korean equities attracted $1.4 billion from abroad this month through yesterday.

The Philippine peso climbed 0.2 per cent to 45.640 per dollar and the Thai baht strengthened 0.1 per cent to 32.68. The yuan was little changed at 6.8262. -- Bloomberg

Friday, March 05, 2010

Rules That Warren Buffett Lives By

Warren Buffett is arguably the world's greatest stock investor. He's also a bit of a philosopher. He pares down his investment ideas into simple, memorable sound bites. Do you know what his homespun sayings really mean? Does his philosophy hold up in today's difficult environment? Find out below.

"Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."
Buffett personally lost about $23 billion in the financial crisis of 2008, and his company, Berkshire Hathaway, lost its revered AAA ratings. So how can he tell us to never lose money?

He's referring to the mindset of a sensible investor. Don't be frivolous. Don't gamble. Don't go into an investment with a cavalier attitude that it's OK to lose. Be informed. Do your homework. Buffett invests only in companies he thoroughly researches and understands. He doesn't go into an investment prepared to lose, and neither should you.

Buffett believes the most important quality for an investor is temperament, not intellect. A successful investor doesn't focus on being with or against the crowd.

The stock market will swing up and down. But in good times and bad, Buffett stays focused on his goals. So should we. (This esteemed investor rarely changes his long-term investing strategy no matter what the market does.

"If The Business Does Well, the Stock Eventually Follows"
The Intelligent Investor by Benjamin Graham convinced Buffett that investing in a stock equates to owning a piece of the business. So when he searches for a stock to invest in, Buffett seeks out businesses that exhibit favorable long-term prospects. Does the company have a consistent operating history? Does it have a dominant business franchise? Is the business generating high and sustainable profit margins? If the company's share price is trading below expectations for its future growth, then it's a stock Buffett may want to own.

Buffett never buys anything unless he can write down his reasons why he'll pay a specific price per share for a particular company. Do you do the same?

"It's Far Better to Buy a Wonderful Company at a Fair Price Than a Fair Company at a Wonderful Price"

Buffett is a value investor who likes to buy quality stocks at rock-bottom prices. His real goal is to build more and more operating power for Berkshire Hathaway by owning stocks that will generate solid profits and capital appreciation for years to come. When the markets reeled during the recent financial crisis, Buffett was stockpiling great long-term investments by investing billions in names like General Electric and Goldman Sachs.

To pick stocks well, investors must set down criteria for uncovering good businesses, and stick to their discipline. You might, for example, seek companies that offer a durable product or service and also have solid operating earnings and the germ for future profits. You might establish a minimum market capitalization you're willing to accept, and a maximum P/E ratio or debt level. Finding the right company at the right price -- with a margin for safety against unknown market risk -- is the ultimate goal.

Remember, the price you pay for a stock isn't the same as the value you get. Successful investors know the difference.

"Our Favorite Holding Period Is Forever"
How long should you hold a stock? Buffett says if you don't feel comfortable owning a stock for 10 years, you shouldn't own it for 10 minutes. Even during the period he called the "Financial Pearl Harbor," Buffett loyally held on to the bulk of his portfolio.

Unless a company has suffered a sea change in prospects, such as impossible labor problems or product obsolescence, a long holding period will keep an investor from acting too human. That is, being too fearful or too greedy can cause investors to sell stocks at the bottom or buy at the peak -- and destroy portfolio appreciation for the long run.

You may think the recent financial meltdown changed things, but don't be fooled: those unfussy sayings from the Oracle of Omaha still RULE!

Wednesday, March 03, 2010

Preparing For The Inevitable Bursting Bubble

Financial bubbles are a way of life now. They can upend your industry, send your portfolio into spasms and leave you with whiplash. And then, once you've recovered, the next one will hit.

Or so you might think, as a veteran of two gut-wrenching market declines and a housing bubble over the last decade.

There's plenty of reason to expect more surprises, given the number of hedge funds moving large amounts of money quickly around the world and the big banks making their own trades.

Individuals, as always, may be tempted to make their own financial bets, too. Last time, they bought overpriced homes with too much borrowed money. Next time, who knows what the bubble will be? And that's the problem, as it always is. How do you identify the next thing that will pop? Is it China? Or Greece? Or Treasury bonds? It is difficult to predict and make the right defensive (or offensive) moves at the correct moment to save or make money.

Still, if you want to better insulate yourself from bubbles -- however often they may inflate -- there are plenty of things you can do. Your debt levels matter, and you may want to consider a more flexible investment strategy. But perhaps most important, this is a mental exercise that begins and ends with an honest assessment of your long-term goals and how you handle the emotional jolts that come from the bubbles that burst along the way.

Fixed Expenses
Start with the basics. The less you have to pay toward monthly obligations, the better off you are, and that's especially true at a time of economic disruption. You certainly wouldn't want any bills increasing, so now's a good time to refinance to a fixed-rate mortgage.

Whittle down student loan and credit card debt, too, and pay cash for your car if possible. "Flexibility is priceless in a time of panic," said Lucas Hail, a financial planner with Foster & Motley in Cincinnati.

Then take a hard look at how much you should rely on promises from the government. Social Security and Medicare may not fit the traditional definition of bubbles, but that hasn't stopped Rick Brooks from advising his financial planning clients to expect less from both programs.

"Something that is not sustainable will not continue. It just can't," he said of Medicare.

Mr. Brooks, the vice president for investment management with Blankinship & Foster in Solana Beach, Calif., said anyone under 50 should assume that Medicare will look nothing like it does now and examine private health insurance premiums for guidance as to what may need to be spent on health care in retirement. Meanwhile, the firm advises current retirees to assume a 20 percent cut in Social Security benefits at some point.

Bedda D'Angelo, president of Fiduciary Solutions in Durham, N.C., has an equally stark outlook on long-term employment risk. If there are two adults in the household, your goal should probably be to have two incomes instead of one. "I do believe that unemployment is inevitable," she said, adding that people who think they are going to retire at 65 should save for retirement as if they will be forced out of the work force in their mid-50s.

Portfolio Tactics
Perhaps you did what you thought you were supposed to during the last decade. You got religion and stopped trading stocks. Then, you split your assets among various low-cost mutual funds and added money regularly. And the results weren't quite what you hoped.

Tempted to make big bets on emerging markets or short Treasury bills? You've landed in the middle of the debate between those who favor a more passive asset allocation and those who prefer something called tactical allocation.

The first camp sets up a practical mix of investments, according to a target level of risk, and then readjusts back to that mix every year or so.

They frown on the hubris of the tactical practitioners. To make a tactical approach work, they note, you need to know what the right signals will be to buy and sell everything from stocks to gold, during every future market cycle. Then, these tacticians need to have the discipline to act each and every time. This is extraordinarily hard.

The tacticians, however, believe they have no choice. "What consumers need to know is that no matter how comforting it is to believe a formulaic approach or prepackaged investment product will allow them to put their financial future on autopilot, our current and future financial environment will require advice, diligence, education and responsiveness, which takes into account strategic consideration of geopolitical and economic relationships," as Ryan Darwish, a financial planner in Eugene, Ore., put it to me this week.

Mr. Darwish scoffed at the notion of mere bubbles and said he thought that more fundamental and far-reaching shifts were under way, like the transfer of economic power from the United States to China and other nations.

A growing number of financial planners are embracing a middle, more measured approach: If diversification across stocks, bonds and other asset classes has proved to be a good thing in most investing environments, why not diversification around investment approaches?

"I am not a financial genius, but the geniuses are even worse off because they're anchored on one philosophy," said David O'Brien, a financial planner in Midlothian, Va. So he and a growing number of his peers have added some strategies to their baseline portfolios aimed at losing less during bubbles while still gaining in better times. "We're not trying to shoot for the moon," he added.

These tactics can include managed futures, absolute return funds, merger arbitrage and other approaches that will get their own column someday.

The embrace of all this even led one investment professional I spoke with this week to express the ultimate sacrilege: It really is different this time.

Thomas C. Meyer of Meyer Capital Group in Marlton, N.J., noted that many of these alternative strategies were not even available in mutual-fund form three to four years ago. So that's different. He's now putting 30 percent of his clients' equity portfolios into such investments.

The big change, however, is that the baby boomer money is getting older. People are further along in their careers than they were during the market crash in 1987, and they can't rely on pensions as so many more near retirees could in the 1980s (while shrugging off stock market volatility). And the boomers don't have as much time to make up lost ground, especially if they're already retired.

"Losing less means a lot right now," Mr. Meyer said. "So we want to suck volatility out where we can."

Matter of the Mind
But can you live with less volatility -- and the permanent end of occasional portfoliowide returns in the teens or higher? Markets run on greed and fear; bubbles expand and deflate thanks to outsize versions of each. One of the few things you can predict about bubbles is that they will test your conviction on where you sit along the fear-greed continuum.

And once they pop, you'll know a bit more about how your mind works than you did before.

This last downturn was severe enough that about 10 percent of Steven A. Weydert's clients realized that they had overestimated their own risk tolerance. "Ideally, with an asset allocation, you never want to look back and say you're sorry," said Mr. Weydert of Bowyer, Weydert Wealth Planning Partners in Park Ridge, Ill.

So rather than trying to predict the number and type of bubbles, it may make more sense to look inward when trying to predict the future. Bob Goldman, a financial planner in Sausalito, Calif., said that clients often looked at him blankly when he asked them what it was they imagined for themselves in the future. Sometimes, they need to go home and figure out what sort of life it is that they're saving for -- and how much (or little) it might cost.

"People come in and talk about how we all know that inflation is going to explode next year," Mr. Goldman said. "Well, we don't all know that. We don't know anything. But we can know something about our own lives, and there is a person we can talk to about that. A person in the mirror."