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What happened to Malaysia market?

The last two months was a roller coster ride of volatility for Malaysia and global markets. Malaysia’s own political problems were overshadowed by the global financial crisis which had been unraveling for some time, but the proverbial straw that broke the camel’s back was the bankruptcy of the US investment bank, Lehman Brothers and AIG’s call to the US treasury to borrow US$85billion to address their cash deficit. AIG was subsequently bailed out, Lehman was left to fail, and Central Banks worldwide made a concerted effort to strengthen their financial systems, which included nationalizing banks if required.

Despite the global financial crises unraveling, Malaysia was relatively defensive (and still is), before succumbing to massive foreign selling in October, breaching the psychological 1000 points for the KLCI. Malaysia is definitely on a stronger footing compare to 1997-98 Asian Financial crisis, with strong foreign reserves to cover 8-9 months of net imports and a banking system that was fairly insulated form the subprime problems of the US. However, Malaysia was not spare by the global sell-down, falling 25.6% since end of August 2008. The government announcement of injecting Rm5billion to Valuecap (with funds borrowed from EPF) to buy up “undervalued” stock list on Bursa could not stem the selling, which was overwhelmed by foreign funds experiencing redemption.

Easing oil price and the impact

Although there was some relief from inflationary pressures with crude oil prices coming off, the speed at which it declined was a concern, falling form the high USD147/barrel in July 2008 to recent low of USD62.73/barrel (-57.3%). In tandem with the crude oil prices falling sharply, commodities globally took a beating, including crude palm oil (CPO) which fell form RM3000/ton in July to recent lows of RM1420/ton (-53%). Sharp declines in prices for both commodities is negative for Malaysia, as we are still net exporters of oil, and our exports were held up by the stronger commodity prices. In addition, the strong oil prices resulted in oil related income being a bigger portion of the Government’s revenue (estimated 30-40%) compared to previous years where it was just 15%. This boost in income helped the government increase fiscal spending, which may be at risk going forward. Rising rural income due to the strong CPO prices, plantation stocks on Bursa fell sharply. IOI Corporation fell 54.8% since 29th August 2008, KLK fell 40%, Sime Darby fell 13.2%. Given the heavy weight of the plantation sector on KLCI, it was inevitable that the KLCI had to fall in tandem.

What can we expect going forward?

Malaysia’s 2009 GDP may be at risk, given the lower CPO and crude oil prices, and the slowing global economy. Previous government’s forecast of 5.4% for 2009 is probably not achievable. The Ministry of Finance is due to release their latest assessment of economic outlook to the parliament on 4th Nov 2008, including revised economic numbers, where GDP is expected to be revised to about 4-4.5% for 2009. The Minister of Finance has also acknowledged that the government’s ability to pump prime will be constrained by the already high budget deficit and hence projects will be re-prioritized to focus on those with higher multiplier effects.

Results reporting season in November will see a slew of forecast downgrades by analysts. Depending on how successful global central banks are at containing the financial crisis, and the impact on global economic growth, we may see more earnings downgrades early next year. The strong US dollar against ringgit has been negative for exporting companies (such as plantation players and E&E companies), or companies that are net importers like auto players, and companies with high USD or Japanese yen denominated debt.

Malaysia politics, although sidelined for now, may see some stability once the UMNO General Assembly is over (which is currently still slate until March 2009). Hence, despite all negative newsflow of late and high market volatility, this provides us the perfect opportunity to accummulate quality stocks at very attractive levels. However, given Malaysia’s relative defensiveness against their peers, it is likely that Malaysia will underperform on any bounce up regionally.

Potential is always there … continue read the excerpt from AsianInvestor.

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Asia mutual funds to recover by 2010: Cerulli

By Jame DiBiasio |  22 October 2008

Mutual fund AUM in Asia will drop by 20% this year, but Korea and India will lead a quick rebound, according to consultancy Cerulli Associates.

Consultancy Cerulli Associates predicts mutual-fund assets under management in Asia ex-Japan to revisit their 2007 peak by 2010, and remain on track to hit $1.6 trillion by 2012.

AUM in the industry peaked at $1.13 trillion at the end of 2007, thanks to strong stock market performance, the increasing shift from savings into investments, and the expansion of wealth management services.

The picture hasn’t been so rosy since. China, the biggest contributor to growth through 2007 (when AUM grew 86% over 2006 levels), has seen total fund AUM contract by 34% in the first half of 2008; a reduction sure to be worse in the second half.

But Cerulli argues most of these losses are due to market valuations, rather than redemptions. Net redemptions have been few, in stark contrast to markets in Europe, where investors have fled from mutual funds, particularly equity products.

Cerulli says, over the next five years, the funds industry will return to high growth rates, although not the 33% compound annual growth rates (CAGR) experienced between 2003 and 2007. Rather, CAGR will be 7% for the 2007-2012 period. The markets of Korea and India should lead the charge, with growth rates of 13% and 9% respectively, thanks to the proliferation of bank-led regular savings plans into funds.

Those growth rates may lack the fireworks of the mid-2000s, but are respectable, and reflect the ability of foreign bank distributors – which have experienced downturns before – to recover more quickly than local ones, which are still novices in wealth management.

Why is Cerulli optimistic? The consultancy notes that year-to-date net flows to Asian mutual funds are still positive, at $105 billion, versus an outflow from European funds of $90 billion. Moreover, a CAGR of 7% is decent but hardly rose-tinted, compared to the extremely strong growth experienced in the mid-2000s. Cerulli also notes that this 7% is expected to amortise over a five-year period – and most of that growth won’t emerge until late 2009 or early 2010.

Cerulli expects revenues should also remain healthy, growing at 9.2% over the next five years, outstripping AUM growth rates by 2%.

As of June 2008, Asia ex-Japan mutual fund AUM stood at $991 billion (comprising Hong Kong, Singapore, Taiwan, South Korea, China and India), and Cerulli predicts it will end the year around $915 billion. As much as 80% of these assets are onshore funds, invested locally. Domestic banks and securities companies make up 49.6% and 18.7% of fund distribution, respectively. Cerulli also suspects insurance could become the fastest-growing distribution segment, albeit from a low base, in the coming years.

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QOTD: “For time and the world do not stand still. Change is the law of life. And those who look only to the past or the present are certain to miss the future.”
- John F. Kennedy, 35 President of the United States

Never Worry About Money Again
You must aim to reach the point where you have enough money so that you never have to worry about money again. The good news is that financial independence is easier to achieve today than it has ever been before. We live in the richest country at the richest time in all of human history. We are surrounded by more wealth and affluence than ever before. Your job is to get your fair share.

Financial Success Is Not An Accident
The Law of Cause and Effect applies to money as much as to any other subject. This law says that financial success is an effect. As such, it proceeds from certain, specific causes. When you identify these causes and implement them in your own life and activities, you will get the same effects that hundreds of thousands, and even millions of others have gotten. You can achieve whatever level of affluence you really want if you will just do what others have done before you to achieve the same results. And if you don’t, you won’t. It is as simple as that.

Your Beliefs Determine Your Success
There is perhaps no other area where universal laws are more in evidence than in the acquiring and keeping of money. In America today, there are several million men and women who have started with nothing, or deeply in debt, and achieved financial independence. Their attitudes and behaviors have been studied in great depth. We now know the keys to wealth creation better than ever before. And what we know is that your most cherished beliefs on the subject of money will be the primary determinants of how much you acquire and how much you keep over the course of your working lifetime.

Your Primary Aim in Life
Your primary aim in life should be the achievement of your own happiness. However, happiness is something that exists naturally in the absence of fears, doubts and negative emotions. One of the factors that most deprives you of happiness is worry about money. And, by the way, when we talk about money worries, we’re not referring to your having too much. The problem is virtually always that people feel that they have too little money and their lives are suffering as a result.

Build a Financial Fortress
Perhaps the greatest single fear, the one that causes you more distress and unhappiness than anything else, is the fear of failure. In the area of money, you experience this as the fear of poverty and the fear of loss. Since one of the deepest needs of human nature is security, any threat to your security, real or imaginary, can cause you tremendous stress.

You can only free yourself from the fears of poverty and failure by achieving a specific level of financial worth and then by building a fortress around it so that you are safe and impregnable. This achievement of financial independence is a key responsibility of adult life. No one else will do it for you.

Date: 23 November 2008

Time: 830am – 1130am

Location: Shah Alam

BOOK YOUR SEAT NOW! LIMITED SEAT! Click here.

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Former British Prime Minister, Harold Wilson once remarked, “A week is a long time in politics”. The same could certainly be said about the financial markets. Last week, the Dow Jones Industrial Average plunged 18.2% for its worst weekever, the UK’s FTSE 100 index closed below 4,000 for the first time in five years, Japan’s Nikkei 225 plunged 24% for the biggest weekly decline in its more than 50 year history, and Australia’s S&P/ASX 200 slumped 16%, the biggest rout since 1992.

Yesterday (Tuesday), stock-markets around the world rose sharply. US stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.

The S&P 500 Index rebounded from its worst week in 75 years with an 11.6% advance, its steepest since 1939, and the Dow Jones climbed 11%, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since 1933.

The FTSE 100 index has risen by almost 12% in just two days following Gordon Brown’s emergency bank nationalisation scheme. It rallied again on Tuesday closing up 3.2% at 4,394.

Japan’s Nikkei 225 jumped 14.2%, its biggest gain on record and lead the surge by Asian stocks. The MSCI Asia Pacific Index rose 9.5%, its biggest advance since 1998. Clearly the unprecedented global effort by governments and central banks to avert the world financial crisis is starting to impact.

Taking a step back, two scenarios are before us; it’s the end, and we are about to fall into something similar to The Great Depression, or this current market represents the best buying opportunity for around 100 years.

When markets are at record highs, some investors are anxious to get into the “next big opportunity”, with no regard as to where that opportunity is on the economic cycle. Alternatively when we are faced with the best opportunity for capital growth, there is a reservation.

Efforts by governments and central banks to avert the banking collapse are beginning to be felt by the markets, with liquidity restored and the immediate danger past. However, a recession still looms and volatility will continue, there will be increased unemployment, and house repossessions. The US and Britain’s high exposure to debt means that consumers are ill-prepared for an economic slowdown. Many people will feel the pain, but the vast majority will not.

Are we moving into a depression such as 1929? Whilst we have been facing a crisis, it is much smaller in terms of output and unemployment. In the decade 1931-1941 US unemployment was 25%.

The world has the most enormous propensity to recover from many disasters, man made and natural. 9/11 2001 was prophesied to be a turning point to a major economic depression, it was not. By 5 October 2001, markets fully recovered.

1995 – the Kobe earthquake in Japan on 17 January, killed over 6,400 people and destroyed a large portion of the city, with 100,000 made homeless, but recovery was rapid.

1998 – August, the Russian financial crisis lead the rouble to lose two thirds of its value of less than a month earlier against the US dollar, and at the height of the crisis inflation reached 84%. By November the market was back to previous levels.

1990 – First Gulf War, six months later the market had made a full recovery.

1987 – Black Monday 19 October, at the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. By May 1989, the market was back to where it had been.

Source: http://www.intelligentinvestments.biz

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QOTD: “I really do think that any deep crisis is an opportunity to make your life extraordinary in some way” - Martha Beck, Author

By Adam Khoo In Money

Some of you may already know that I travel around the region pretty frequently, having to visit and conduct seminars at my offices in Malaysia , Indonesia , Thailand and Suzhou ( China ). I am in the airport almost every other week so I get to bump into many people who have attended my seminars or have read my books.

Recently, someone came up to me on a plane to KL and looked rather shocked. He asked, ‘How come a millionaire like you is travelling economy?’ My reply was, ‘That’s why I am a millionaire.’ He still looked pretty confused. This again confirms that greatest lie ever told about wealth (which I wrote about in my latest book ‘Secrets of Self Made Millionaires‘). Many people have been brainwashed to think that millionaires have to wear Gucci, Hugo Boss, Rolex, and sit on first class in air travel. This is why so many people never become rich because the moment that earn more money, they think that it is only natural that they spend more, putting them back to square one.

The truth is that most self-made millionaires are frugal and only spend on what is necessary and of value. That is why they are able to accumulate and multiply their wealth so much faster. Over the last 7 years, I have saved about 80% of my income while today I save only about 60% (because I have my wife, mother in law, 2 maids, 2 kids, etc. to support). Still, it is way above most people who save 10% of their income (if they are lucky). I refuse to buy a first class ticket or to buy a $300 shirt because I think that it is a complete waste of money. However, I happily pay $1,300 to send my 2-year old daughter to Julia Gabriel Speech and Drama without thinking twice.

When I joined the YEO (Young Entrepreneur’s Organization) a few years back (YEO is an exclusive club open to those who are under 40 and make over $1m a year in their own business) I discovered that those who were self-made thought like me. Many of them with net worths well over $5m, travelled economy class and some even drove Toyota ‘s and Nissans (not Audis, Mercs, BMWs).

I noticed that it was only those who never had to work hard to build their own wealth (there were also a few ministers’ and tycoons’ sons in the club) who spent like there was no tomorrow. Somehow, when you did not have to build everything from scratch, you do not really value money. This is precisely the reason why a family’s wealth (no matter how much) rarely lasts past the third generation. Thank God my rich dad (oh no! I sound like Kiyosaki) foresaw this terrible possibility and refused to give me a cent to start my business.

Then some people ask me, ‘What is the point in making so much money if you don’t enjoy it?’ The thing is that I don’t really find happiness in buying branded clothes, jewellery or sitting first class. Even if buying something makes me happy it is only for a while, it does not last. Material happiness never lasts, it just give you a quick fix. After a while you feel lousy again and have to buy the next thing which you think will make you happy. I always think that if you need material things to make you happy, then you live a pretty sad and unfulfilled life.

Instead, what make ME happy is when I see my children laughing and playing and learning so fast. What makes me happy is when I see by companies and trainers reaching more and more people every year in so many more countries. What makes me really happy is when I read all the emails about how my books and seminars have touched and inspired someone’s life. What makes me really happy is reading all your wonderful posts about how this BLOG is inspiring you. This happiness makes me feel really good for a long time, much much more than what a Rolex would do for me.

I think the point I want to put across is that happiness must come from doing your life’s work (be in teaching, building homes, designing, trading, winning tournaments etc.) and the money that comes is only a by-product. If you hate what you are doing and rely on the money you earn to make you happy by buying stuff, then I think that you are living a life of meaningless.

Source: Standard Chartered Bank 2008

1. Will Troubled Assets Relief Program (TARP) stabilize the financial markets?

The bailout plan is necessary but not a sufficient condition for market stability. The package appears to have been intended as a circuit breaker to the vicious downward spirals in falling credit securities prices, shrinking balance sheets and falling stock prices. It also appears to have been intended to curb the surging cost of funds on money markets. And over time, by taking troubled assets off the balance sheets of financial institutions, it should enable and orderly restructuring of the US banking sector. But the package will not necessirily stop the declines in US house prices. it will not save shareholders of troubled financial institutions from further erosion of share prices as equity is written off as a result of decling credit securities prices. And will not prevent banks, hurting from diminished balance sheets, from deleveraging further – cutting back lending and on the process further hurting the US economy. Indeed, hopes for an ‘olderly recession’ may have already been damaged by recent events. We cannot rule out the possibility of a prolonged recession in the US.

2. What about emerging markets? Why are stocks there being sold off so aggressively?

Emerging market equities and currencies are sensitive to global risk appetites. And while economic fundamentals in Asia are generally stronger that in the United States, we can only expect relative resilience and not ‘de-coupling’. That is, growth will slow in Asia in response to what is happening in the United States. Indeed, some of the more open Asian economies could suffer technical recessions. And, of course, there is instant financial contagion in reponse to spikes in global risk aversion.

3. Should we just sell since there is so much fear in the markets?

That is an individual decision, depending on the investor’s circumtances – such as when they bought, their liquidity requirements, their ability to hold on those investments, and whether they have hedges in their portfolios. But generally we think it is too late to be selling. We have been pessimistic on the outlook for equities since the start of the year and concede that the outlook remains highly uncertain. But given the size of the losses that have already been suffered by all markets from the cycle peaks, risk-reward considerations do not support selling at this late stage of the decline.

Unfortunately, retail investors have had unhappy history of piling into markets close to their peaks and bailing out of markets near their bottom. And once investors cut losses close to the bottoms, investor psychology suggests they are unlikely to ever get back into investing in equities to build long-term wealth.

4. But why should we continue to be in mutual funds or long equities positions in this environment?

As we said earlier, these are individual decisions, subject to individual investors’ circumtances. But historically, equities have outperformed other asset classes over a long term investment time frame. And for most markets, the number of positive years versus negative years for equities runs roughly in the ratio of 2 to 1. But that is over the long-term. Typically, what happens in equities markets is that fund outflows tend to be at their peak when markets are close to their bottoms. And trying to time the bottom of markets is an impossible task, even for professionals.

Historically, the biggets gains in stock markets tend to come in short and sharp bursts rather than in an even manner. And market timers who happen to be out of the markets during their short, sharp spikes will suffer greatly diminished returns over the longer term. At worst, traders who jump in and out of markets could find themselves whipsawed – ending up selling before rebounds and buying back before corrections.

5. Is this the bottom for equities markets and should investors bargain hunt?

The simple answer is we do not know. We fear there is more volatility and even losses ahead. But we also know that markets are in an advanced stage of decline. Bargain hunters should 1) know what they are buying – if they are buying banking stocks, they need to properly understand the banks exposures to the credit markets 2) have the ability to hold in the face of possible further downside 3) have a long investment horizon 4) cost average rather than put large bets at any one time 5) hedge their long equities positions through the traditional risk aversion plays – eg: US Treasuries, gold and safe haven currencies.

6. Are they any bright spots on the global economic and market landscape?

Yes. As a result of the panic on financial markets yesterday and today, we would hope that central banks around the world will become more proactive in dealing with the crisis by making more liquidity available and cutting rates to boost sagging economies. Also, note there is still a lot of liquidity sitting on the sidelines – particularly in Asia. Note that Asian international reserves total approcimately $4.3 trillion. And there is an estimated $2 trillion sitting in soveriegn wealth funds throughout the world, a large part of which is Asia.

Also note that, whilst waiting for the Paulson plan to be reconsidered by Congress, the Federal Reserve has already made available a massive amount of liquidity. Accoding to Bloomberg this morning, the Fed has said it would flood banks with cash, pumping an additional $630 bilion into the global financial system. The Term Auction Facility, the Fed’s emergency loan program for commercial banks, will be expended by $300 billion to $450 billion. And the Fed had increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide, showing further coordination with counterparts including European Central Bank, the Bank of England and the Bank of Japan.

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Quote of the day (QOTD): Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy. (Dale Carnagie)

RM720

minimum monthly pension for pensioners who have served at least 25 years

RM400

tax rebate for those with taxable income of RM35,000 and below

<RM2,400

tax exemption for petrol or travel allowance between home and workplace

RM35 billion allocated to enhance public transport

Quote of the day (QOTD): “Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible” by St Francis of Assisi

7.7% – increase from May

10% – change in food and non-alcoholic beverages for June 08 vs June 07

6.7% – increase in index for non-food

4% – increase in transport

1.4% – increase in housing, water, electricity, gas and other fuel

0.6% – decrease in clothing and footwear

0.7% – decrease in communication

Source: Personal Money Sept 2008

Quote of the day (QOTD): “A man with ability and the desire to accomplish something can do anything”

Express tips on managing your credit cards:

1 ) Acquire your plastic money with definite purpose.

2 ) Do not buy sales talk and promotion or small gifts.

3 ) Limit the number of credit cards you own for better management (one or two is okay).

4 ) Opt for free for life or annual fee waiver.

5 ) Spend for your needs (petrol, payment of bills) not splurge on shopping spree.

6 ) Should you have more than three cards, consider termination of unused cards and you may be charged annual fees because of NOT using it.

7 ) Always pay in full to avoid accumulated interest causing you unnecessary expenses.

8 ) Verify your monthly statement to review your expenses.

9 ) Be responsible for your expenses.

10) Use your plastic money just like your cash money.

11) Spend within your budget.

12) Do not own any if you cannot control your spending.

13) Be sure to redeem your gifts from points collected. (Bonus anyway