January 2009 ~ Moneytalk

Saturday, January 31

How to buy SGS ?

Posted by Kay at Saturday, January 31, 2009 11 comments

This post is part of a series of posts that discuss about the SGS in detail. To access the other posts in this series, click here.

How should one go about in buying SGS treasury bills or bonds ? For this post, I will cover on how one can buy SGS treasury bills and bonds through banks in the primary market.

There are two avenues which you can purchase SGS treasury bills and bonds. You can either buy it on the primary market or the secondary market. The primary market is where the sale of the SGS treasury bills and bonds is made by the Singapore Government to the SGS primary dealers through auctions while the secondary market is the trading of the SGS treasury bills in a market after the SGS treasury bills and bonds have been sold by the government.

I have attached a list of the SGS primary dealers below and if you wish to buy it on the primary market, you can approach the banks in the list.

Before you approach any of the banks to purchase SGS treasury bills and bonds, you will have to decide on which treasury bill or bond that you wish to purchase and the date of issue for the SGS treasury bill or bond that you are interested in. Currently, 3-months treasury bills are being issued weekly while the 1-year treasury bill, 2-year, 5-year, 7-year, 10-year and 15-year are being issued according to the issuance calendar. To access the issuance calendar, click here for the 1-year treasury bills and bonds and here for the 3-month treasury bills. Alternatively, you can click here to access the main page of the SGS website and on its main page, there will be updates on the latest issue of treasury bills and bonds under the 'latest highlights'.

After you have decided on which SGS treasury bills or bonds to buy, take note of the issue or ISIN code and the issue date. Do remember that you must submit your application 3 days before the issue date of the SGS treasury bill or bond that you wish to purchase. The minimum sum of investment is $1,000 and you must be at least 21 years old.

Once this is done, you can approach the banks under the SGS primary dealers list. When you enter into the bank, you can approach any of the staff saying you wish to purchase SGS treasury bills or bonds. After that, you will need to fill in two forms. One form is for opening a SGS trading account with the bank and the other form is to buy the treasury bill or bond that you wish to bid for since SGS treasury billls and bonds are being sold in the form of an auction. You can either opt for the competitive bid i.e. choose the price which you wish to make the purchase or the non-competitive bid which will guarantee you a successful purchase of the treasury bill or bond. My recommendation is that you choose the non-competitive bid since the difference in yield between the competitive bid and the non-competitive bid is rather small and on top of that, you run a risk of being unsuccessful in you application. If your application is successful, funds will be deducted from your designated account on the issue date. Subsequently, if you wish to purchase SGS treasury bills and bonds, all you have to do is to fill up the bidding form and submit it again.

I have read in some forums that there were some difficulties in purchasing SGS treasury bills and bonds from banks due to the fact that some of the staff are not well-trained in this investment product. This can be due to the fact that banks do not earn anything from processing your application since there is no commission involved. In fact, banks have no incentives to recommend SGS treasury bills and bonds since they can might as well use the money you placed in fixed deposits to buy SGS treasury bills and bonds and profit from the difference in interest as the interest in SGS treasury bills and bonds is higher than fixed deposits. Thus if you face any difficultes in making your purchase, you can either request to see a more senior staff or simply go to the other branches of the bank.

In my next post, I will cover on how to buy SGS treasury bills and bonds in the secondary market.

Thursday, January 29

STI Technical Analysis Jan 29

Wednesday, January 28

Reits seek cut in payout to as low as 50%

Posted by Kay at Wednesday, January 28, 2009 2 comments

Reits seek cut in payout to as low as 50%

They are also calling for a tax holiday for distributable income that is not paid out

Some real estate investment trust (Reit) managers have urged the government to reduce the minimum payout ratio to Reit unitholders to as low as 50 per cent, from 90 per cent now, while still allowing the trusts to enjoy tax concessions.

And they have even proposed a tax holiday on distributable income that they do not pay out.

The suggestions are aimed at helping Reits conserve cash to get them through today's tight credit market conditions, BT understands.

Reits have to pay out at least 90 per cent of their distributable income to unitholders to enjoy tax transparency on the amount that they pay out. For example, if a Reit makes $100 million of distributable income in a year and pays out $90 million to unitholders, it does not pay corporate tax of 18 per cent at the Reit/vehicle level on the $90 million.

However, it has to pay tax on the $10 million that it withholds. If a Reit distributes all $100 million, then it does not pay any tax on its income for the year.

Instead, Reit unitholders are liable to be taxed on the distributions that they receive, depending on their profile. This ranges from zero tax for individual investors regardless of nationality, to 10 per cent for foreign corporate/institutional investors and 18 per cent for local corporate investors.

Reit managers have been giving a variety of feedback to the Monetary Authority of Singapore. One request is to reduce the minimum payout ratio from 90 per cent of distributable income to anything from 50 to 75 per cent, BT believes.

The Reits also want MAS to continue according them tax transparency, that is, to keep exempting them from paying corporate tax on the portion of income that they pay unitholders, even at a lower payout ratio. Some are even urging MAS to go a step further and grant Reits a tax holiday on the income that they withhold from distribution.

Market watchers say that this would lead to a substantial loss of tax revenue. To address this concern, some Reit managers have suggested that the tax holiday on income that is not distributed could be limited to, say, two years to help Reits ride out the current tough environment. Agreeing, an analyst suggested that Reits could be required to pay back taxes after the two-year period expires. By then, hopefully, things will be better.

MAS is understood to have sought the views of a gamut of parties - including Reit managers, bankers, lawyers and even unitholders - on the topic.

Among the issues is fairness in tax treatment in relation to other listed and non-listed entities. 'Why should Reits continue to enjoy exemption of corporate tax at the vehicle level if their distribution payout ratios fall, when many other listed companies also distribute a chunk of their profits to shareholders but still have to pay corporate taxes?' asked an industry observer.

Some Reit unitholders may not be happy with a lower distribution payout ratio, as it will create more uncertainty about returns. This could be a bugbear, especially for corporate investors such as funds and insurance companies that have obligations to achieve target returns for their own investors and policy holders.

The counter-argument is that, in times like these, the survival of Reits must be paramount. As OCBC Investment Research said this week: 'While this may create income uncertainty for investors, we think the first priority is to ensure Reit survival and dividend sustainability. We note that a minimal cut from 90 per cent to say, a 75 per cent payout ratio requirement, is not a silver bullet for Singapore Reits with significant liquidity issues. But Reit managers may like to have as much flexibility and (cash) ammunition as they can get in the current environment.'

Article taken from Business Times on 22nd January 2009

Monday, January 26

Red packet and Economy

Posted by Kay at Monday, January 26, 2009 No comments

One thing that is associated with the Lunar Chinese New Year will definitely be red packets or ang pows. The amount of red packet that we will collect during this festive season is a unique indicator of how the economy has affected the man on the street. Red packets are usually given by married couples who usually have some sort of earning power, be it as an employee or an employer. Since the Chinese New Year is very close to the period which the variable bonus and the annual wage supplement will be given i.e. end of last year, the amount of red packet that one has collected can indicate the severity of this recession since they will likely be using part of their bonus for the expenses incurred during this period. If the amount of bonus for those who are giving red packets is very little or for the worst case scenario, those who are giving red packets are retrenched , you can expect that the average rate for each red packet is likely to be very low.

I still remember previously, whenever the economy is in the doldrums, my collection of red packets can drop as much as 50% as compared to the times where the economy is booming. I guess this year will be another year which my collection is likely to drop drastically. However, the festive season is not over yet so I do hope that I can still collect quite a bit during this period.

STI ETF 1st dividends for 2009

Posted by Kay at Monday, January 26, 2009 4 comments

STI ETF is distributing the first dividend payout for the year 2009 and has gone 'XD'. It will be giving out a total of $0.05 per share and thus for every lot you are holding, you will be getting $0.05 * 1000 = $50. You should receive the dividend on the 6th of February.

Assuming that the second dividend payout for 2009 will also be $0.05 per share, the total dividend payout for 2009 will be $100. Using the latest closing price for the STI ETF which is at $1.73, the current dividend yield is around $0.10 / $1.73 * 100 = 5.78% and this is a rather decent amount. However, the dividend payout has dropped as compared to 2008 as the STI ETF distributed a total of $0.12 per share for the year 2008. The drop is understandable due to the fall in earnings by companies and the decision of some companies to lower their dividend to preserve more cash in their balance sheet for the challenging market conditions ahead.

Meanwhile, my advice will be to hang on and rough it out through the current poor economic outlook with your holdings of the STI ETF or any other fundamentally strong stocks. Wait for the market to recover and you should be sitting on some capital gains along with the dividends which you have collected throughout the wait.

Monday, January 19

Hiatus

Govt may tap reserves

Posted by Kay at Monday, January 19, 2009 No comments

Jan 19, 2009
Govt may tap reserves
Move may be necessary to fund aggressive relief measures in downturn
By Jeremy Au Yong, Political Correspondent

ONE of the country's sacred cows could be slaughtered during the Budget this Thursday as the Government mulls over a move to dip into Singapore's rainy-day savings: the national reserves.

The leaders are now considering the unprecedented step of drawing from the reserves to fund the aggressive pain-relief measures needed in this downturn, Senior Minister Goh Chok Tong disclosed yesterday.

'The issue which the Prime Minister and the Minister of Finance are now thinking over, is whether we should go to the President and ask him for approval to use the reserves for extraordinary measures,' he told reporters after giving out $100 hongbao and goodies to the poor in his Marine Parade constituency.

But he also cautioned: 'It's a difficult decision because once you do that, you may open the reserves for future demands, which may not justify the use of reserves.'

On Friday, Prime Minister Lee Hsien Loong had said the Budget will run into a deficit this year and if necessary the Government will dip into the reserves.

He told reporters: 'The Government's job is not to do everything which is asked for but to see which are the items which will be most effective and then how do I raise the money to fund all the things which I need to do, either from the Budget revenues this year or from the reserves.'

Last year, the Government had modified the rules to allow it to spend a larger chunk of investment returns from the reserves.

In 1999, in the aftermath of the Asian financial crisis, the Government had shied away from dipping into reserves, even in the face of a $5 billion Budget deficit. Mr Goh was the prime minister then.

Yesterday, however, he pointed out that a 'muscular response' in the upcoming Budget is needed as these are exceptional times - and the key issue is to save jobs.

'There must be exceptional measures for exceptional times,' he said.

He gave a sampling of the dire economic news coming in, noting the sharp dive in export figures last month. Singapore's exports plunged 21 per cent in December, the biggest fall in almost seven years. At PSA, 30 per cent of the cranes are sitting idle.

'The weather is so bad, and we've always said the reserves are for a rainy day. If this is not a rainy day, I don't know what is a rainy day,' he said.

Asked how much money the Government may take out of the reserves, he said the amount did not matter. What was important was that the measures justified the use of reserves.

The Government has a hefty war chest to turn to. The reserves include assets managed by the Government of Singapore Investment Corporation (GIC), as well as those owned by the Monetary Authority of Singapore (MAS) and Temasek Holdings.

As of September last year (08), the MAS' foreign exchange reserves were valued at about $240 billion. GIC's portfolio is valued at well over US$100 billion (S$148 billion). Temasek Holdings' portfolio is worth $185 billion but its assets are not covered by the constitutional amendment on net investment returns.

MPs contacted gave mixed responses to unlocking the reserves.

Dr Muhammad Faishal Ibrahim (Marine Parade GRC) and Mr Liang Eng Hwa (Holland-Bukit Timah GRC) said they were in favour if the money was well spent. Mr Liang said using the money to build up the economy and workforce is akin to investing in a different asset.

Mrs Josephine Teo (Bishan-Toa Payoh GRC) however said she would rather wait first to see how bad the crisis gets.

'The conservative part of me says we really do not know how long this crisis is going to last. Will we risk running out of ammunition when we most need it?'

Financial analysts contacted backed any move to open up the war chest. That, they said, would spur a more aggressive Budget.

Said Dr Chua Hak Bin, Citigroup's head of Singapore equity research: 'We were concerned that the Budget was not going to be aggressive enough because of the constraint of having a balanced Budget.'

Nanyang Technological University economist Tan Khee Giap said that factoring in expenditure at the beginning was better than introducing off-Budget measures later. 'We should budget for the worst and hope for the best,' he said.

Saturday, January 17

SGS: An alternative to fixed deposits

Posted by Kay at Saturday, January 17, 2009 15 comments

This post is part of a series of posts that discuss about SGS in detail. To access the other posts in this series, click here.

As compared to SGS treasury bills and bonds, fixed deposits is the more widely known product that is known to carry very little or no risk. This is because most of us are aware that the Singapore Goverment currently guarantees the money that you deposit at the bank up to a certain amount. However, not many people know about SGS. SGS has some distinct advantages which makes it a superior form of investment over fixed deposits in its class that is suitable for conservative investors.

1. Superior returns

SGS treasury bills and bonds are likely to offer a better rate of returns as compared to fixed deposits. I have attached a chart of the historical yield of SGS bonds with an average year to maturity of 2 years.

Chart taken from fundsupermart

If you take a closer look at the chart, you will realize that the yield for the SGS with an average year to maturity of 2 years.is rather attractive as compared to fixed deposits. Furthermore, the lowest yield for the SGS, which is slightly less than 1% is comparable than the yield offered by fixed deposits, which is generally below 1%. There were also instances where the yield of the SGS with an average year to maturity of 2 years is even greater than 3% and at its highest point, the yield has gone up to more than 4% before. This shows that generally, SGS treasury bills and bonds offer a better yield than fixed deposits.

2. No locked-in period

As compared to fixed deposits which has a locked-in period, SGS treasury bills and bonds have no locked-in period. You can always choose to sell your SGS treasury bills and bonds in the secondary market before maturity. However, since the price of SGS such as the treasury bills or bonds can fluctuate, there is a chance that you will make a small loss if the price that you sell your treasury bills or bonds is lower than your purchase price. If your selling price is higher than your purchase price, that will bring me to my new point.

3. Potential Gains

Since one is able to sell SGS treasury bills and bonds on the secondary market, if the selling price of your treasury bills or bonds is higher than your purchase price, you will be able to have some capital gains. However, the price of the SGS treasury bills and bonds are usually not so volatile, thus any capital gain is likely to be rather small.

As we can see, SGS treasury bills and bonds have a few distinct advantages over fixed deposits and one should seriously consider them over fixed deposits. In my next post, I will be covering on how one can go about in buying SGS treasury bills and bonds.

Thursday, January 15

What is SGS ?

Posted by Kay at Thursday, January 15, 2009 No comments

This post is part of a series of posts that discuss about the SGS in detail. To access the other posts in this series, click here.

So what is SGS ? SGS stands for Singapore Government Securities and they are marketable debt instruments issued by the Singapore Government. The link for the official website of the SGS can be found here. In other words, the government actually borrows money from you and will promise to return you your capital with some amount of interest after a agreed period of time.

What is so special about SGS as a form of investment ? The special feature about SGS is that it is a virtually risk-free investment. This is because they are backed by the full faith and credit of the Singapore Government. The Singapore Government has consistently run budget surpluses consistently over the years thus it has the ability to pay back debts. Furthermore, SGS are given the highest debt rating by various international rating agencies such as Moody's, Standard and Poor's and Fitch. As compared to fixed deposits, SGS generally gives a higher interest. Furthermore, fixed deposits have a locked-in period whereas you can always sell your SGS for cash on the market after buying them.

SGS are generally dividend into two categories. They are Treasury Bills which are more commonly known in short as T-bills, and Bonds.

Treasury Bills are short-term debts that have a maturity period of one year or less. It is being sold or bought at a discount to their face value which is $100. At the end of the maturity period, the Singapore Government will pay back the face value thus the interest is simply the difference between the purchase price and the face value.

For example, a Treasury Bill is being sold at $99.04 for a face value of $100 which the government will pay back to you at the end of the maturity period thus it is being sold at a discount to the face value. If you bought it at $99.04, at the end of the maturity period, you will receive back $100 and your profit will simply be $100 - $99.04 = $0.96. Thus your yield will be $0.96 / $100 * 100 = 0.96%. As such, the discount is actually the interest of the Treasury Bill.

Currently, the Singapore Government currently issues 3-month and 1 year Treasury Bill although 1 year Treasury Bill has been issued before and the minimum purchase amount is $1000. The 3-month Treasury Bill is being issued every week while the 1 year Treasury Bill is being issued twice a year.

Bonds are longer term debts that have a maturity period of more than one year. During the holding period of the bonds, the Singapore Government will give out the interest which is also known as coupon, twice annually with the payment dates six months apart from each other until the end of the maturity period. This is one of the main difference between Treasury Bills and Bonds. For Treasury Bills, the interest is given in the form of a discount to the face value of the Treasury Bills whereas for Bonds, the interest is given out in the form of coupons.

For example, you bought $1000 worth of a SGS Bond that has a yield which is also known as a coupon rate of 4% on a face value of $100 and it will mature on 1st March 2015. Every year, the total interest you will receive will be 4% * $1000 = $40. Since the coupons is being given out twice a year, you will receive $20 for each coupon payment which are six months apart until 1st March 2015.

If you wish to view a more detailed explanation on the SGS, you can download the guide by MAS here. In my next post, I will be doing a comparison between SGS and fixed deposits.

UOL Group makes bid for UIC

Posted by Kay at Thursday, January 15, 2009 No comments

Reuters - Wednesday, January 14

SINGAPORE, Jan 14 - UOL Group , a property firm controlled by United Overseas Bank Chairman Wee Cho Yaw, on Wednesday offered to buy United Industrial Corp in a deal that values UIC around S$1.6 billion .

UOL, which currently controls 30.2 percent of UIC, will pay S$1.20 for every UIC share it does not own, according to a filing on the Singapore Exchange.

That represents a premium of 9.1 percent over UIC's last traded price of S$1.10 a share. The shares were suspended earlier Wednesday.

David Lum, an analyst at Daiwa Institute of Research, said it appeared UIC's major shareholders believed the company to be significantly undervalued.

"Do I see that happening in other companies? Yes. If you know the intrinsic value of your assets, which has been grossly undervalued in the market, you could acquire those assets," he said.

Shares in UIC, which is part-owned by the Wee family, have fallen from a 12-month high of S$3.17 in June last year.

UOL owns various properties in Singapore, Malaysia, China, Australia and Myanmar as well as the firm that manages the Pan Pacific hotel chain. Its current market capitalisation is around S$1.75 billion.

"As the principal activities of the UOL Group and the UIC Group are substantially the same, UOL is of the view that the offer represents an opportunity to better align the strategic objectives" of the two firms, UIC said in the filing.

UIC's main asset is its 72.4 percent stake in another listed company called Singapore Land , which owns various office and retail properties including Singapore's Marina Square shopping mall.

According to UOL, it will be required to make an offer for SingLand at S$3.57 a share if or when its offer for UIC becomes unconditional. SingLand shares were last traded at S$3.42 apiece.

UOL is being advised in its takeover bid by United Overseas Bank, DBS and ANZ. (Reporting by Kevin Lim and Saeed Azhar; Editing by Lincoln Feast)

Wednesday, January 14

What is CAGR ?

Posted by Kay at Wednesday, January 14, 2009 2 comments

CAGR in short, stands for Compounded Average Growth Rate. It stands for the average returns needed per annum to be able achieve the current amount of profits or losses from the original capital.

For example, you have invested $10,000 into an investment product for the past 3 years. For the past 3 years, the year to year returns were 10%, -6% and 15% respectively. Thus your initial capital would have grown to a level of $11,891 as given by the workings below.

Initial capital : $10,000

1st year return : $10,000 * 10% = $1,000

Final capital for 1st year : $10,000 + $1,000 = +$11,000

2nd year return : $11,000 * -6% = -$660

Final capital for 2nd year : $11,000 - $660 = $10,340

3rd year return : $10,340 * 15% = +$1,551

Final capital for 3rd year : $10,340 + $1,551 = $11,891

So what is the average returns for the past 3 years ? The formula is given below,

Thus for the previous examples, if we subsitute in the numbers, the formula will look like,

If we crunch the numbers and multiply by 100 to get the answer in terms of percentage, the answer will be 5.94%. To double-check the answer, we can do it by the long method again.

Initial capital : $10,000

1st year return : $10,000 * 5.94% = $594

Final capital for 1st year : $10,000 + $594 = +$10,594

2nd year return : $10,594 * 5.94% = $630

Final capital for 2nd year : $10,594 + $630 = $11,224

3rd year return : $11,224 * 5.94% = +$667

Final capital for 3rd year : $11,224 + $667 = $11,891

This means that on average, the initial capital of $10,000 grew at an average of 5.94% to achieve a final capital of $11,891. CAGR is often seen in the returns of stocks and funds where the returns is often given as CAGR as it is the average returns of the stocks and funds over a period of time.

Tuesday, January 13

DBS helping with home loans

Posted by Kay at Tuesday, January 13, 2009 No comments

A friend indeed
January 13, 2009 Tuesday, 10:31 AM
Goh Eng Yeow on DBS' move to help home-owners with their instalments.

LAST Monday, I wrote a Cai Jin column raising the possibility of banks bringing back interest-payment only loans for home borrowers who may have problems servicing their mortgages, as the economic gloom deepens.

In the column, I had recalled how DBS Bank came to the rescue of the rescue of cash-strapped Singaporeans by offering them a loan package which allowed them to pay only interest for the first three years.

To many people, the home is their most important asset – the nest where they spend their lives in matrimonial bliss and raised their families. It is not surprising to find the enormous sacrifice they are willing to make, in order to keep their home.

After so many years, I can still recall my parents saving a dollar here and a dollar there to ensure that they had sufficient money to pay off their monthly HDB instalments.

When it came to my turn to own a flat, I found myself doing the same thing. I did my sums to make sure that I had sufficient cash and CPF to pay the monthly housing instalment.

For much of last year, Singapore had been fortunate to escape the full fury of the global financial crisis that had inflicted heavy wounds on bigger economies such as the United States and Britain.

But since late last year, the business climate has turned noticeably chillier and the prospects of more job losses is mounting.

For the middle class, as writer Seah Chiang Nee described in an article last week, the biggest challenge is how to ride out the storm.

Unlike unemployed Indonesians or Thais who can leave for the countryside and live off the land, a jobless Singaporean, who has little or no financial safety net, has no hinterland to escape to.

It is against this grim backdrop of people tightening their belts and wondering where they can get the extra cash to put into their pockets that I got a call from DBS Bank late last week.

They would like to discuss the points raised in my Cai Jin column.

I met Mr Jeremy Soo, the head of consumer banking and Mr Koh Kar Siong, the head of secured lending from the bank yesterday.

Mr Koh assured me that the last thing DBS wants to do is to repossess the flats of home-owners who defaulted on their payments.

What is the point of taking the flat and trying to sell it? It would only dampen the property market further, he said.

The bank would like to help cash-short home-owners to vary the terms of their loan agreement to tide over this difficult period.

And the bank has a battery of options to help borrowers – interest-payment-only scheme for six to 18 months, extending the tenure of the loans for younger borrowers and etc.

The point is to communicate the bank’s desire to help its customers.

I suppose that this is a message which financially-strapped home-owners would like to hear. But no one will get to hear it, unless the bank specifically comes out to say so.

Many cash-strapped borrowers are probably in the dark as to what to do. Should they wait for the last drop of CPF money to dry up before they confess to their cashflow problems ? By then, it may be too late.

On its part, the bank will also have a trying time.

Because of the manner in which our monthly instalments are automatically deducted from our CPF and bank accounts, it has almost no contact with the borrower. There is no way it can tell if any home loan is in danger of defaulting, until the payments stop coming.

Imagine the shock it would have, if it suddenly gets a large number of defaults on monthly instalments, simply out of ignorance ?

I hope that other banks will take the cue from the DBS and encourage cash-strapped customers to open up as well. Don’t wait till the loan turns sour, before acting.

As I have noted many times, we will swim or sink in this financial crisis together.

What a bank can do is to make sure that the umbrella is extended to keep the borrower safe and dry, as the financial storm lashes our shores.

It will give a fresh meaning to the old saying: A friend in need is a friend indeed.

I think it's a pretty good move if DBS were to do this. After all, no one knows how long will this recession last. Given the spate of retrenchment these days, it will be tough for one to service their loans if they are jobless now. To add to that, it will be even harder to find a job nowadays. On the other hand, if a bank is willing to offer this scheme i.e. paying the interest of the loan only for a period of time, surely the HDB is able to introduce this scheme too ? After all, it is supposed to provide affordable housing all the public.

Sunday, January 11

New Ezlink card

Posted by Kay at Sunday, January 11, 2009 2 comments

Do remember to change your ezlink card before the 30th September of 2009. I have attached pictures of the new card and a brochure on it. Currently, the replacement for the old card is free. The changes to the travel deposit is rather confusing actually but if you think about it, actually it is the same.

For the old card, the travel deposit of $3 is not reflected in the card balance even though you actually have paid the amount. For example, if you spend $20 for the old card, $5 will be accounted as the cost of the card, $3 will go into the security deposit which is not reflected in the card balance, thus your card will have $12 in the card balance.

If you spend $20 for the new card, $5 will be accounted as the cost of the card and your card will have $15 in the card balance. Now the main difference is that of this $15, you can only spend $12 since $3 is the security balance or the minimum balance required to travel so actually it is still the same as the old card. It is only a matter of whether they wish to include the deposit in the card balance.

Other than that, the new card can store up to a maximum of $500 and it is supposedly that this new card can be used for other transcations such as a ERP transcations with a new generation In-Vehicle unit (IV), payments for parking in car parks which supports this card and payment in shops alithough the old card is already used for such purposes.

Saturday, January 10

Defining risk

Posted by Kay at Saturday, January 10, 2009 No comments

The definition of risk is an important concept since it plays an important role in deciding on the way which we do our investment. As taken from investopedia, risk is defined as the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. In the business academia, risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment or in other words, risk is also the volatility of the investment.

The above definitions explains why stocks are riskier than bonds and bonds are even more riskier than fixed deposits. For example, stock A has a volatility that has a price range from $4 to $8. It has a higher risk as there is always a chance that one could have bought the stock at at the peak of the range i.e. $8 and if the stock does not rebound, one could suffer losses. Furthermore, there is always the possibility that the company could collapse, leaving the stock of the company worthless. As such, bonds are less riskier as the price of bonds are much less volatile and in the event of the collapse of the company, the funds that are liquidated from the sale of the company will be paid to the bondholders before stockholders. Comparatively, fixed deposits offers capital protection but the returns is likely to be poor. Thus, fixed deposits are said to be the safest form of investment among the three.

What is not being said is that you will also be taking on a huge risk if you put your money in safe investments such as fixed deposits. This is because the returns offered by such form of investment is likely to be very poor and the return is unlikely to beat inflation in the long run. Effectively, you will be losing money since the buying power of your cash will be eroded over time. I have attached a chart of the historical inflation rate of Singapore below.

My definition of risk is rather different from the conventional definition. To me, risk is when one buys something without knowing and understanding throughly on what he is buying. If you think about it, it is a rather simple statement but one which has a lot of implications. I am rather surprised that when people buy electrical appliances such as a TV or a washing machine, they will often read about the specifications and do some thinking about whether that appliance is a worthy buy. However when it comes to investing their money, many of us often turn to friends or acquaintances to decide on what to invest in and often, even though they have may good intentions, they may not be the best people to consult on matters regarding investment.

I can't stress enough about knowing and fully understanding the investment that you are putting your money in. For example, stocks are considered to be risky in the conventional sense because it is volatile. However, what happens if you can buy it at the lower range of the volatility such as the current bear market now ? If you can buy it near the lower range, you are actually carrying less risk because the downside is rather limited already. What happens if you found a fundamentally strong and monopolistic company available whose stock is available at a very low price ? Will you still think that it is risky to buy this company given that this company is able to generate profits year after year due to the nature of its business ? I can just go on and on with the list of examples.

Thus it is of utmost importance to understand what you are investing in. If you are investing in stocks of companies, you should look through the annual report and financials of the company before deciding. If you are investing in an investment product, you should read through the prospectus thoroughly. Only then, you will be able to reduce the risk that you are carrying when you are investing.

Thursday, January 8

STI Technical Analysis 07 Jan

Wednesday, January 7

Case study of OCBC preference shares

Posted by Kay at Wednesday, January 07, 2009 16 comments

This article is a continuation of an earlier article that talks about preference shares. To access the other article, click here.

As an example of some of things you should consider when you wish to invest in preference shares, I will be giving a summary of one of the preference shares that OCBC has issued in July 2008 and that is the OCBC Class B 5.1% Non-Convertible Non-Cumulative Preference Shares.

This preference share is currently trading in SGX under the symbol, OCBC Bk NCPS 5.1% 100. The trading symbol itself can reveal a lot of details. OCBC Bk simply stands for OCBC Bank while NCPS stands for non-cumulative and non-convertible preference shares. As mentioned in my earlier article on preference shares, non-cumulative means the dividends that were not declared and not paid in the previous financial year will not be accumulated to the next financial year while non-convertible means there is no option for the preference shareholders to convert their preference shares to ordinary shares. The 100 at the end of the trading symbol means that the lot size is 100 shares i.e. 1 lot is equal to 100 shares as compared to the usual lot size of 1 lot is equal to 1000 shares.

I have attached the brochure for the preference shares and a snapshot of the summary of the details for this preference shares.

The following are some of the issues that you should consider.

1. Perpetuity
One of the main issue for preference shares is that it will never mature unless the issuer which in this case, OCBC Bank decides to redeem it back. Notice that it is stated very clearly that OCBC Bank may, at its option, redeem in whole but not in part the preference shares on 29 July 2013 or on each dividend date after 29 July 2013. As compared to bonds, the issuer has the obligation to redeem it back. So what happens if you wish to cash your preference shares out after holding it for quite a long time ? Either you can wait for OCBC Bank to redeem it back or try to sell it on SGX but that brings me to my second issue,

2. Liquidity
Due to the small quantity of preference shares that are issued generally, preference shares usually have poor liquidity and that pose a problem. Firstly, there may not be buyers who wish to buy your preference shares if you need to sell it and even if there are buyers, their buying price may not be that favorable i.e. the spread which is the difference between the buying and selling price can be rather far apart. That will definitely put you at a disadvantage.

3. Dividends
Do take a closer look on how much dividends they are issuing and whether it will remain the same. For the OCBC Bk NCPS 5.1% 100, it is clearly stated that the dividend is 5.1%. However, another preference share that was also issued by OCBC Bank in August 2008 i.e. OCBCCap 5.1% NCPS 100 has a different dividend policy. The dividend policy is such that on or before 20 September 2018, the dividend is 5.1%. However, after this date, the dividend is pegged to the 3-Month Singapore Swap Offer Rate plus 2.5% and that to me is a big difference. That would mean that the amount of dividends will fluctuate subsequently.

To conclude, do take note of the above issues that I mentioned if you wish to invest in preference shares. The best thing one can do is to read the prospectus thoroughly and understand what you are investing in.

Tuesday, January 6

STI Technical Analysis 05 Jan

Posted by Kay at Tuesday, January 06, 2009 2 comments

It's been a long time since I posted for the STI Technical Analysis. This was because in my previous post, I mentioned that the STI will be resuming its uptrend or will at least be consolidating and for the past 3 weeks, it has been doing that. Furthermore, volume was very light due to the festive season i.e. Christmas and New Year Day thus it's pretty pointless for me to do an analysis.

Yesterday, STI closed near its high with a heavy volume that was close to 2 billion and that is significant. My opinion is that STI will continue on its uptrend if it can get past the resistance level of around 1933.

The last three Ox years were not good for the stock market

Posted by Kay at Tuesday, January 06, 2009 No comments

SINGAPORE, Jan 3 — Perhaps it is just a coincidence. Then again, it may have something to do with the ox being a domesticated bull that has lost its vigour.

Whatever the case, the bulls tended to stay away from the stock markets whenever the very year dedicated to their kind appeared once every 12 years. It happened in 1973, 1985 and 1997. And now, with economies around the world still grappling with the fallout from the annus horribilis that was 2008, the coming Year of the Ox may prove to be as depressing for the stock markets as the last three Ox years.

Here’s a quick look at the mayhem that visited stock markets the last three occasions the Ox showed up.

Back in 1973 — the year when the Stock Exchange of Singapore (SES) was established — equity markets worldwide crashed following the collapse of the Bretton Woods system over the previous two years.

Losses were exacerbated after the Organisation of Petroleum Exporting Countries imposed an oil embargo in October 1973 in response to the American decision to supply the Israeli military during the Yom Kippur War. As oil prices surged, stock prices continued to slide and it wasn’t until a year later in late 1974, before they began to mount a recovery.

Twelve years later, the Year of the Ox in 1985 saw trading on the SES suspended for three days in an unprecedented move — in the words of exchange chairman Ong Tjin An — “to cool off the market and for the public to digest news” that Pan-Electric Industries had fallen into receivership. The S$230-million (RM830 million) Singapore-based conglomerate had collapsed because a complex web of forward contracts involving its shares could not be unwound.

The Pan-El debacle hurt Singapore’s reputation as a financial centre and also led to prominent Malaysian politician Tan Koon Swan being jailed here for abetting criminal breach of trust.

When the Pan-El crisis hit, the Straits Times Index (STI) was already deep in a downward spiral of a bear market that dated back more than two years to May 1983.

In July 1997, Thailand — saddled by a heavy burden of foreign debt — dropped the baht’s peg against the US dollar, triggering a financial crisis that carved a wide swathe of destruction in regional markets.

Thailand, Indonesia and South Korea were worst hit, with Indonesian President Suharto forced to step down in the following year amid widespread riots sparked off by the devaluation of the rupiah. In Singapore, the STI nosedived from about 2,050 in January 1997 to about 850 points in September 1998.

So the last three Ox years were dreadful for stock markets.

CRISIS OF THE ECONOMIC SYSTEM

Back to the present, where there is no end to the stream of “gloom and doom” headlines emerging every day. The World Bank has warned that a deep global recession could not be ruled out this year.

Forecasting a significant decline in global economic growth in 2009 for both developed and emerging economies, it noted that “following the insolvency of a large number of banks and financial institutions ... capital flows to developing countries have dried up and huge amounts of market capitalisation have evaporated”.

In an interview with CNBC TV, renowned economist Mohamed El-Erian, the co-chief executive of Pacific Investment Management Co, said: “2008 was the year of the crisis of the financial system. 2009, unfortunately, will be the crisis of the economic system. So the news is going to be full of unemployment, defaults, etc.”

At home, Prime Minister Lee Hsien Loong has warned that Singapore’s economy — already in a recession — will likely continue to weaken. “We must therefore prepare for a difficult year ahead, and especially the first half of 2009,” Lee said in his New Year’s message.

“Our economy will probably contract further. More companies will be forced to downsize. So far, we have not seen many job losses, but I expect more retrenchments in the next few months,” he warned. The Government’s focus is on jobs — “keeping people in jobs, helping workers who lose jobs find new ones, and retraining them with new skills. To do this, we have to help businesses ride over this rough period”, he added.

“The outlook is highly uncertain. At each stage of this crisis, events have turned out worse than the experts predicted ... Quite likely the global recession will be followed not by a quick rebound, but by several more years of slow growth,” he said.

The unwinding of the excesses of past years through large-scale deleveraging and fund redemptions have led to massive global asset price deflation over the last year.

The United States government has responded to the weakening economy with unprecedented levels of stimulus and bailouts. The US Federal Reserve has also effectively made money free by lowering the target interest rate to between zero and 0.25 per cent, while Fed chairman Ben Bernanke has asserted that US authorities will print as much money as is needed to keep the economy afloat.

Likewise, Asian nations are embarking on large-scale spending measures. Japan — Asia’s largest economy — has unveiled since last August stimulus plans worth ¥16.7 trillion (RM640 billion); China, the region’s second largest economy, in November announced a 4-trillion-yuan (RM2 trillion) economic stimulus package, while neighbouring Malaysia will spend RM7 billion on public projects to spur growth. Singapore’s Budget is scheduled for Jan 22.

“Governments everywhere have been implementing monetary and fiscal measures, rescuing troubled financial institutions and key corporations and pumping money into the economy,” Lee said.

“But no one is sure how the financial systems and economies will respond, or which policies will work. There is a loss of business and consumer confidence and, hence, one thing is certain: Things cannot turn around overnight,” he added.

Indeed, one would have to be experiencing Panglossian disorder — a tendency to have an extremely optimistic view regardless of circumstances — to think that we can just snap out of the world’s worst financial crisis since the Great Depression, without any pain. The STI lost 49 per cent last year, while the Dow shed 34 per cent.

As we kick off 2009, the question — given that stock markets are forward-looking — is whether all the negative news has been factored into current price levels. Are 1,473 in the STI and 7,449 in the Dow the troughs of the current bear market or will there be new lows?

We don’t know. What we do know is that we won’t be betting against history. — TODAY

I thought this article is pretty interesting. It gives a short history of the local equity market along with the reasons on why it crashed. Coincidentally, Ox years were not good for the stock market indeed. Since 2009 is an Ox year, will it be a bad year for the stock market ?

Sunday, January 4

Property Cycles and Recessions

Posted by Kay at Sunday, January 04, 2009 No comments

There was an informative discussion in the chatbox on bullythebear.blogspot.com about the correlation between property cycles and recessions a few days ago and an fellow investor, who has a lot of experience in the property market, shared with us some of the observations on the property cycle along with a historical chart of the Private Residential Property Price Index or in short, PPI.

I have attached a snapshot of the PPI above. There are some interesting observations about the charts.

1. Property lags behind the economy as an asset class. The previous recessions occurred in 1985, 1997 and 2002. However, the property market only bottomed in 2Q of 1986 and 4Q of 1998. As for the technical recession in 2002, the property market did not rebound from the bottom sharply. It consolidated for a while from 2002 to 2004 before moving towards the upside gradually in 3Q of 2004

2. Timing of entry into the property market is of utmost importance. Those who bought at the peak of the bullish property market in 2Q of 1996 are probably still having losses for their properties at this point of time. This is rather similar to those who bought near the peak of the stock market in October 2007. I wonder how long will it take for them to break even on their investments in stocks.

Going by these past examples, the current recession is confirmed in 4Q of 2008 thus the earliest time that the property market will probably be in late 2009 or early 2010. Any comments or opinions regarding this ?

Friday, January 2

How to buy the STI ETF

Posted by Kay at Friday, January 02, 2009 74 comments

This post is part of a series of posts that discuss about the STI ETF in detail. To access the other posts in this series, click here.

STI ETF is a fund that tracks the Straits Times Index but can be traded like a stock on the stock exchange thus if you wish to purchase or sell it, you will have to buy it on the local stock market. So how does one get started with buying it on the local stock market ?

In order to purchase or sell the STI ETF, you will need to open a brokerage account and CDP account. A brokerage account will enable you to buy or sell the STI ETF with the brokerage that you have chosen. CDP stands for Central Depository and the CDP account is an account where stocks will be stored or deposited at after you have bought the STI ETF. For a list of brokerages and their brokerage fees, you can take a look at a separate post which I have blogged here while the link to the CDP website is here.

To open a brokerage account and CDP account, all you have to do is to walk into any brokerage and tell the staff that you wish to open a account to buy stocks. They will probably help you to fill in and submit some forms to open the brokerage account and CDP account. The process should take a few days to complete and after which, you will be given the user name and password to login to the brokerage and CDP account. Do take note that you may have to put up a sum of money which is in the region of a few thousand dollars, depending on the brokerage as a form of security deposit. After the accounts are opened, you can take out this sum of money or use it to purchase the STI ETF.

Basically there are two ways in which you can ask your brokerage to do the purchase for you. The first would be to use an online trading account whereas the other option is to call your trading representative or broker to do the purchase for you. I would prefer the 1st method since the brokerage fees will be cheaper as compared to the other method.

If you are using an online trading account to do your purchase, you will be given a user name and a password to log in to your account. I will be showing an example on how to purchase the STI ETF using POEMS by Philips Securities below as I am currently using POEMS to do my purchase although I have other brokerage accounts. Generally, the online trading accounts being offered by all the brokerages are roughly the same.

1. Go to http://www.poems.com.sg/ and login with your user name and password

2. After you have log in sucessfully, click on 'stocks' as highlighted by the red circle and click on 'S' as highlighted by the green circle subsequently.

3. Find 'STI ETF' and click on it

4. Enter the price that you wish to purchase at, whether you wish to buy or sell, number of shares and whether you wish to buy using CPF. Do take note that the quantity is in number of shares and 1 lot is equal to 1000 shares. Thus for example, if you wish to buy 3 lots, enter 3000 shares.

The buy price is the price that those who wish to buy the STI ETF are willing to pay and the sell price is the price that those who wish to sell the STI ETF are willing to pay while the last done is the price which the last transcation was carried out at. You can key in the last done price to buy the STI ETF if you do not wish to wait that long for your order to be fulfilled. Otherwise, you can key in the price you are willing to buy and wait for your order to be fulfilled once the price of the STI ETF hits your buying price.

Please make sure that you do not accidentally click on sell if you wish to buy as you may accidentally short the stock. Shorting means that you are selling a stock which you do not own and currently, there are penalties imposed by SGX on shorting.

5. After you have submitted your order by clicking 'ok', go to the 'order status' as highlighted by the blue order to check whether your order has been fulfilled. If your order has been fulfilled, it will appear in the 'Order Processed (today)' page under SGX. Otherwise, it will appear in the 'Working Orders' page under SGX.

After your order has been processed, do remember to pay for the STI ETF that you have purchased. within 3 days. In other words, the day that you bought the stocks is known as T and you will need to pay for your stocks by T+3. Currently there are 3 ways of paying and they are listed below.

EPS - EPS stands for Electronic Payment for Shares and you can pay for your shares through your designated online banking account by logging in to it. You can opt for this option when you opened your brokerage and CDP account. Do inform the staff at the brokerage about this option when you open your account and you will have to give them your bank account number. Payment will have to be made by T+3 on 9pm.

GIRO - Payment will be automatically deducted 2 market days after due the date i.e. D + 2. Do ensure that there is sufficient funds in your account by D + 1.

Cheques/Cash - Payment is to be received latest T + 3 by 5 p.m.

Once you have paid for the STI ETF that you have bought, you can login to your CDP account here to make sure that the STI ETF is at the CDP. That should be all. If you have any doubts or queries, feel free to leave comments and I will get back to you.