The Board of Directors of CSC Holdings Limited (the “Company” or “CSC”) wishes to announce that it has entered into a Shareholders Agreement (“SA”) with IJM Construction Sdn Bhd (“IJMC”) a wholly owned subsidiary of IJM Corporation Berhad (a company listed on the Bursa Malaysia Securities Berhad) to form a joint venture (the “JV Co”) for the purpose of carrying out the business of foundation engineering and other related works in Malaysia and the region.
IJMC has its core business and competencies in civil, building and infrastructure constructions and has a strong and extensive network in Malaysia in relation to its business.
It is the intention of both parties for the JV Co to have an authorised share capital of RM20,000,000 or approximately S$8,700,000 with an initial paid up capital of RM10,000,000
or approximately S$4,350,000. Under the terms of the SA, CSC shall hold 70% of the JV Co while IJMC would hold the remaining 30%.
The completion of the SA is conditional upon the fulfillment of all conditions precedent in the SA and obtaining of all governmental and other approvals and/or consents which may be required in connection with the transactions contemplated.
The formation of the JV Co is not expected to have any material impact on the earnings of the Company for the financial year ending 31 March 2008. The Company intends to fund the investment in the JV Co using its own internal resources.
None of the directors or substantial shareholders of the Company has any interest, direct or indirect, in the SA.
BY ORDER OF THE BOARD
Lee Quang Loong
Company Secretary
Date: 21 December 2007
Monday, December 31, 2007
HWT (Hyflux NewSpring,Yangzhou), granted an exclusive 20-year concession by the people’s government of Jiangsu Province
Source: SGX Masnet
Hyflux Water Trust (“HWT”) announced that HWT’s wholly-owned subsidiary, Hyflux NewSpring (Yangzhou) Co., Ltd, has been granted an exclusive 20-year concession by the people’s government of Jiangsu Province, China to build, own, operate and transfer an expansion plant next to HWT’s existing waste water treatment plant in the Yangzhou Chemical Industrial Park. Upon expiry of the concession agreement, HWT as a first right to negotiate for an extension of the concession term.
With a design capacity of 20,000m3/day, and an estimated project cost of RMB 50 million, the expansion plant is HWT’s second plant in the Yangzhou Chemical Industrial Park, the first being the existing waste water treatment plant, which was acquired by HWT as part of the initial portfolio of HWT upon its listing.
The combined design capacity of the two plants will be 40,000m3/day. The expansion plant is required to meet the growing industrial demand for waste water treatment in the concession area.
Construction of the expansion plant is expected to begin in the second quarter of 2008. Operation is expected to commence in mid 2009, with full capacity utilization by 2011.
Hyflux Water Trust (“HWT”) announced that HWT’s wholly-owned subsidiary, Hyflux NewSpring (Yangzhou) Co., Ltd, has been granted an exclusive 20-year concession by the people’s government of Jiangsu Province, China to build, own, operate and transfer an expansion plant next to HWT’s existing waste water treatment plant in the Yangzhou Chemical Industrial Park. Upon expiry of the concession agreement, HWT as a first right to negotiate for an extension of the concession term.
With a design capacity of 20,000m3/day, and an estimated project cost of RMB 50 million, the expansion plant is HWT’s second plant in the Yangzhou Chemical Industrial Park, the first being the existing waste water treatment plant, which was acquired by HWT as part of the initial portfolio of HWT upon its listing.
The combined design capacity of the two plants will be 40,000m3/day. The expansion plant is required to meet the growing industrial demand for waste water treatment in the concession area.
Construction of the expansion plant is expected to begin in the second quarter of 2008. Operation is expected to commence in mid 2009, with full capacity utilization by 2011.
Friday, December 21, 2007
The Economist: Crunching the credit crunch
The credit crunch Postcards from the ledge
Dec 19th 2007
From The Economist print edition
There is certainly a path out of the gathering banking crisis, but no guarantee that the world economy will find it
A CREDIT crunch, a liquidity squeeze, a subprime meltdown—the shape-shifting menace that has vexed the world in 2007 has been all these things. But now it looks like becoming a banking crisis as well. The grievous experience of two centuries of financial busts is that when the banking system is in difficulties the mess spreads. Straitened banks lend less, sucking money out of the economy. In rich countries that threatens to tie down companies and give ailing housing markets a kicking. The data barely show it yet, but the financial malaise could yet be aggravated by a broader economic malaise.
Back in October it briefly seemed as if the summer's turmoil was abating. But a month later investors' confidence took a giddying turn as the weakening American housing market jeopardised the banks' capital. In December the leading central banks acted together to jolt the money markets into life. On December 18th the European Central Bank lent almost €350 billion ($500 billion) to tide banks over the new year. And yet most fear-meters, including, crucially, the price banks have to pay for funds (see chart), still register chronic anxiety.
This raises two broad questions. How gravely will the economy suffer? And what will become of the financial innovation that promised so much, but has proved so treacherous?
Subprime suspect
For answers, start in America's housing market, where the crisis had its origins. Subprime borrowers will probably default on $200 billion-300 billion of mortgages. That is a lot of money, to be sure, but hardly enough to imperil the world economy. For that, you need the baroque superstructure of mortgage-backed derivatives that enabled investors to bet on the housing market. From a mathematical viewpoint, the combined profits and losses on these derivatives will, by definition, cancel out, so they should not add anything to the total underlying loss. But that is only half the story. Individual investment vehicles may have sustained huge losses, especially if they borrowed heavily: it is the fear that your counterparty might be in that predicament that is gumming up the markets.
In theory the damage is safely contained off banks' balance sheets. But then, in theory American house prices never fall. The banks have belatedly discovered that they cannot just abandon their failing progeny of SIVs, conduits and the rest—at least if they want a reputation worth having. Worse, the banks now facing up to these contingent liabilities have not had to set aside capital in case of trouble—that gap in the regulations was precisely what made it so attractive to get their investments off the balance sheets in the first place.
November marked the stomach-churning moment when investors realised that the housing market was falling, that the losses would be big, that the banks would end up owning them, and that they had not put capital aside for the job. To make a bad case worse, nobody knows which bank is sitting on which liability. Every bank is suspect and any bank seeking to raise money by selling a position is more suspect than ever. As fear has played upon this lack of information, the money-market funds have gone on strike, cutting off the interbank markets' main source of cash, and the (embryonic) market for complex mortgage-backed derivatives has closed. It is an alarming mix of hiatus and distress.
If you put all that together, it is easy to see why an economy burdened by debt and a housing bust is in extra danger. Starved of funds and facing not just losses but lawsuits (see article), the banks are hoarding liquidity and capital. That can create a vicious circle. As the system of leverage that magnified credit collapses in on itself, borrowing becomes harder and demand falters. The rot can spread from housing to other areas, such as commercial property and credit-card debt. If the money-market funds then withdraw even more of their longer-term lending from the banks, then banks will need to conserve yet more capital. And so it goes dismally on.
Just take the hit
Nobody yet knows whether the extreme borrowing in the credit boom was a sensible result of the powerful new machinery of debt, or the sort of excess still unwinding in Japan: the lawyers will argue about that. But if the downward spiral takes hold, America will end up in recession and so quite possibly will Europe. The need is to break the chain—which leads back to the financial system. It urgently needs attention.
The markets will not recover until lenders believe the banks have credibly owned up to their losses. Sometimes this is best done when a bank chief has quit, as at Merrill Lynch. Often, the reckoning is more convincing when the bank has absorbed its off-balance-sheet ventures—as at HSBC and Citigroup. That is a risk, because it can weaken the banks' capital base and because the assets can fall further in value. But it is better than leaving the mess to fester and investors to fear the worst. Some banks will need fresh capital. UBS sugared a huge loss by announcing billions of dollars of new capital from government-backed funds in Singapore and the Gulf.
Citigroup took $7.5 billion of Abu Dhabi's money. Others are sure to need help—and may well turn to sovereign wealth funds, too.
There is an irony in seeing state-owned investors bail out capitalism's most ardent exponents; back when money was plentiful, the government outfits were rebuffed. But the banks are less choosy now. Moreover, the frenzy of innovation around debt and securitisation got out of hand. Risk was supposed to be bought by those best able to afford it, but often ended up with those seduced by yields they did not understand. Mathematical brilliance was supposed to model risk with precision, but the models evaporated along with the liquidity that they had failed to quantify. Rating agencies were supposed to serve the market, but their first loyalty seems to have been to the issuers who were paying their fees.
Finance now needs a flight to simplicity—to tame the jungle of investment vehicles, to reform the rating agencies, and to price liquidity risk. In a few cases regulation, chiefly aimed at transparency, looks justified. But do not expect the ethos of finance to change—or even wish that it were so. The system will purge the worst complexities of the past few years of its own accord. The tools of modern finance are too valuable to be cast aside. Securitisation makes assets easier to sell. Derivatives, used well, increase financial flexibility. And opportunists with names like Goldman Sachs and Cerberus are just the people to pick over the carcass of the credit boom and make a market where none exists today. When they put their billions to work, you will know the corner has been turned.
Back to Ben
Until that moment, the burden will fall on the central banks. They have tried to help by tinkering with the technical operations that supply liquidity (though they keep overnight interest rates on target by draining money elsewhere). By and large, this has failed: the banks' problems are not technical, but real.
Monetary policy matters far more and central banks must weigh the short-term danger to the economy against the medium-term threat to their own standing as inflation fighters. If the economy looks likely to weaken, further interest-rate cuts will be needed. But the effect of any rate cut will be lessened by those wide, fear-induced spreads in the money markets. And the severity of the slowdown is unknown. If central banks overestimate this and cut too much, it will fuel inflation, already stoked by demand in the emerging economies. Inflation is above target in the euro zone and (by a shade) in Britain and rising in America. It is a recipe for repenting at leisure.
The hope is that the credit markets unblock themselves and that buoyant emerging markets buy rich-world exports and recapitalise rich-world banks. The fear is that this crisis will assume yet more guises before it takes its leave—especially if politicians try to seize control. Bankruptcies, recession, litigation, protectionism: sadly, all are possible in 2008
Dec 19th 2007
From The Economist print edition
There is certainly a path out of the gathering banking crisis, but no guarantee that the world economy will find it
A CREDIT crunch, a liquidity squeeze, a subprime meltdown—the shape-shifting menace that has vexed the world in 2007 has been all these things. But now it looks like becoming a banking crisis as well. The grievous experience of two centuries of financial busts is that when the banking system is in difficulties the mess spreads. Straitened banks lend less, sucking money out of the economy. In rich countries that threatens to tie down companies and give ailing housing markets a kicking. The data barely show it yet, but the financial malaise could yet be aggravated by a broader economic malaise.
Back in October it briefly seemed as if the summer's turmoil was abating. But a month later investors' confidence took a giddying turn as the weakening American housing market jeopardised the banks' capital. In December the leading central banks acted together to jolt the money markets into life. On December 18th the European Central Bank lent almost €350 billion ($500 billion) to tide banks over the new year. And yet most fear-meters, including, crucially, the price banks have to pay for funds (see chart), still register chronic anxiety.
This raises two broad questions. How gravely will the economy suffer? And what will become of the financial innovation that promised so much, but has proved so treacherous?
Subprime suspect
For answers, start in America's housing market, where the crisis had its origins. Subprime borrowers will probably default on $200 billion-300 billion of mortgages. That is a lot of money, to be sure, but hardly enough to imperil the world economy. For that, you need the baroque superstructure of mortgage-backed derivatives that enabled investors to bet on the housing market. From a mathematical viewpoint, the combined profits and losses on these derivatives will, by definition, cancel out, so they should not add anything to the total underlying loss. But that is only half the story. Individual investment vehicles may have sustained huge losses, especially if they borrowed heavily: it is the fear that your counterparty might be in that predicament that is gumming up the markets.
In theory the damage is safely contained off banks' balance sheets. But then, in theory American house prices never fall. The banks have belatedly discovered that they cannot just abandon their failing progeny of SIVs, conduits and the rest—at least if they want a reputation worth having. Worse, the banks now facing up to these contingent liabilities have not had to set aside capital in case of trouble—that gap in the regulations was precisely what made it so attractive to get their investments off the balance sheets in the first place.
November marked the stomach-churning moment when investors realised that the housing market was falling, that the losses would be big, that the banks would end up owning them, and that they had not put capital aside for the job. To make a bad case worse, nobody knows which bank is sitting on which liability. Every bank is suspect and any bank seeking to raise money by selling a position is more suspect than ever. As fear has played upon this lack of information, the money-market funds have gone on strike, cutting off the interbank markets' main source of cash, and the (embryonic) market for complex mortgage-backed derivatives has closed. It is an alarming mix of hiatus and distress.
If you put all that together, it is easy to see why an economy burdened by debt and a housing bust is in extra danger. Starved of funds and facing not just losses but lawsuits (see article), the banks are hoarding liquidity and capital. That can create a vicious circle. As the system of leverage that magnified credit collapses in on itself, borrowing becomes harder and demand falters. The rot can spread from housing to other areas, such as commercial property and credit-card debt. If the money-market funds then withdraw even more of their longer-term lending from the banks, then banks will need to conserve yet more capital. And so it goes dismally on.
Just take the hit
Nobody yet knows whether the extreme borrowing in the credit boom was a sensible result of the powerful new machinery of debt, or the sort of excess still unwinding in Japan: the lawyers will argue about that. But if the downward spiral takes hold, America will end up in recession and so quite possibly will Europe. The need is to break the chain—which leads back to the financial system. It urgently needs attention.
The markets will not recover until lenders believe the banks have credibly owned up to their losses. Sometimes this is best done when a bank chief has quit, as at Merrill Lynch. Often, the reckoning is more convincing when the bank has absorbed its off-balance-sheet ventures—as at HSBC and Citigroup. That is a risk, because it can weaken the banks' capital base and because the assets can fall further in value. But it is better than leaving the mess to fester and investors to fear the worst. Some banks will need fresh capital. UBS sugared a huge loss by announcing billions of dollars of new capital from government-backed funds in Singapore and the Gulf.
Citigroup took $7.5 billion of Abu Dhabi's money. Others are sure to need help—and may well turn to sovereign wealth funds, too.
There is an irony in seeing state-owned investors bail out capitalism's most ardent exponents; back when money was plentiful, the government outfits were rebuffed. But the banks are less choosy now. Moreover, the frenzy of innovation around debt and securitisation got out of hand. Risk was supposed to be bought by those best able to afford it, but often ended up with those seduced by yields they did not understand. Mathematical brilliance was supposed to model risk with precision, but the models evaporated along with the liquidity that they had failed to quantify. Rating agencies were supposed to serve the market, but their first loyalty seems to have been to the issuers who were paying their fees.
Finance now needs a flight to simplicity—to tame the jungle of investment vehicles, to reform the rating agencies, and to price liquidity risk. In a few cases regulation, chiefly aimed at transparency, looks justified. But do not expect the ethos of finance to change—or even wish that it were so. The system will purge the worst complexities of the past few years of its own accord. The tools of modern finance are too valuable to be cast aside. Securitisation makes assets easier to sell. Derivatives, used well, increase financial flexibility. And opportunists with names like Goldman Sachs and Cerberus are just the people to pick over the carcass of the credit boom and make a market where none exists today. When they put their billions to work, you will know the corner has been turned.
Back to Ben
Until that moment, the burden will fall on the central banks. They have tried to help by tinkering with the technical operations that supply liquidity (though they keep overnight interest rates on target by draining money elsewhere). By and large, this has failed: the banks' problems are not technical, but real.
Monetary policy matters far more and central banks must weigh the short-term danger to the economy against the medium-term threat to their own standing as inflation fighters. If the economy looks likely to weaken, further interest-rate cuts will be needed. But the effect of any rate cut will be lessened by those wide, fear-induced spreads in the money markets. And the severity of the slowdown is unknown. If central banks overestimate this and cut too much, it will fuel inflation, already stoked by demand in the emerging economies. Inflation is above target in the euro zone and (by a shade) in Britain and rising in America. It is a recipe for repenting at leisure.
The hope is that the credit markets unblock themselves and that buoyant emerging markets buy rich-world exports and recapitalise rich-world banks. The fear is that this crisis will assume yet more guises before it takes its leave—especially if politicians try to seize control. Bankruptcies, recession, litigation, protectionism: sadly, all are possible in 2008
Thursday, December 20, 2007
BT: Dubai World unit, UEM to develop waterfront homes
Business Times - 20 Dec 2007
Dubai World unit, UEM to develop waterfront homes
111-acre project is in the Residential North precinct of Puteri Harbour
By PAULINE NG IN KUALA LUMPUR
A UNIT of Dubai World has signed an agreement with Malaysia's UEM Land to jointly develop a premier waterfront real estate project with canal-front homes and high-end condominiums in Nusajaya in the Iskandar Development Region (IDR).
Haute Property, the special purpose vehicle established to undertake the 111-acre development in the Residential North precinct of Puteri Harbour, would be 60 per cent held by Limitless Holdings - the global development arm of Dubai World - and 40 per cent by UEM Land.
Limitless's majority stake indicates that it is likely to call the shots. In any event, its participation is calculated to boost the prospects of the 688-acre Puteri Harbour integrated waterfront and marina development which its promoters say is to be fashioned after the French Riviera, 'offering a panoramic view of the Straits of Johor'.
Limitless regional director, South East Asia, Philip Atkinson said that Nusajaya was an 'excellent initiative' by the Malaysian government. In view of the developments in the Far East and China, he believed that it is important for countries to form strategic alliances, this initiative allowing closer ties with Singapore.
Haute has been set up with an initial investment of nearly RM242 million (S$106 million), mainly for land costs. Physical activity on the Residential North precinct - said by some to be similar to Singapore's Sentosa Cove - is expected to commence in the second half of next year, with Limitless expected to tap into the experience and exposure gained by its other real estate initiatives including the Palm Islands, World Islands and Jumeirah Islands in Dubai.
Residence North's estimated gross development value is expected to be in excess of RM1.5 billion by the time of its completion in 2013.
The Dubai World unit is the latest Middle East outfit to signal its real estate development intentions in the IDR, which the Malaysian government seeks to transform into a special economic zone.
In August, the Abu Dhabi government investment arm Mubadala Development Company, Kuwait Finance House and Millennium International Development Co signed a conditional agreement with the State Johor Investment Committee to invest an initial US$1.2 billion to develop 902 ha in South Johor into a lifestyle, cultural and financial centre. But the amount was mainly for land and infrastructure costs and could rise to up to US$10 billion upon completion of the entire development.
A bigger project in South Johor which Dubai World is also involved in is a planned RM16 billion Petroleum & Maritime Industrial Zone and ports and shipyards expansion project with local conglomerate Malaysian Mining Corporation.
Residence North is the smallest of Limitless' six global projects which total some US$100 billion. The flagship project of the two-year-old global integrated real estate master developer, which has a regional office in Singapore, is Downtown Jebel Ali in Dubai. But its biggest and most complex project by far must be the US$61 billion 20,000 ha 'city within a city' Arabian Canal mega project, also in Dubai.
Dubai World unit, UEM to develop waterfront homes
111-acre project is in the Residential North precinct of Puteri Harbour
By PAULINE NG IN KUALA LUMPUR
A UNIT of Dubai World has signed an agreement with Malaysia's UEM Land to jointly develop a premier waterfront real estate project with canal-front homes and high-end condominiums in Nusajaya in the Iskandar Development Region (IDR).
Haute Property, the special purpose vehicle established to undertake the 111-acre development in the Residential North precinct of Puteri Harbour, would be 60 per cent held by Limitless Holdings - the global development arm of Dubai World - and 40 per cent by UEM Land.
Limitless's majority stake indicates that it is likely to call the shots. In any event, its participation is calculated to boost the prospects of the 688-acre Puteri Harbour integrated waterfront and marina development which its promoters say is to be fashioned after the French Riviera, 'offering a panoramic view of the Straits of Johor'.
Limitless regional director, South East Asia, Philip Atkinson said that Nusajaya was an 'excellent initiative' by the Malaysian government. In view of the developments in the Far East and China, he believed that it is important for countries to form strategic alliances, this initiative allowing closer ties with Singapore.
Haute has been set up with an initial investment of nearly RM242 million (S$106 million), mainly for land costs. Physical activity on the Residential North precinct - said by some to be similar to Singapore's Sentosa Cove - is expected to commence in the second half of next year, with Limitless expected to tap into the experience and exposure gained by its other real estate initiatives including the Palm Islands, World Islands and Jumeirah Islands in Dubai.
Residence North's estimated gross development value is expected to be in excess of RM1.5 billion by the time of its completion in 2013.
The Dubai World unit is the latest Middle East outfit to signal its real estate development intentions in the IDR, which the Malaysian government seeks to transform into a special economic zone.
In August, the Abu Dhabi government investment arm Mubadala Development Company, Kuwait Finance House and Millennium International Development Co signed a conditional agreement with the State Johor Investment Committee to invest an initial US$1.2 billion to develop 902 ha in South Johor into a lifestyle, cultural and financial centre. But the amount was mainly for land and infrastructure costs and could rise to up to US$10 billion upon completion of the entire development.
A bigger project in South Johor which Dubai World is also involved in is a planned RM16 billion Petroleum & Maritime Industrial Zone and ports and shipyards expansion project with local conglomerate Malaysian Mining Corporation.
Residence North is the smallest of Limitless' six global projects which total some US$100 billion. The flagship project of the two-year-old global integrated real estate master developer, which has a regional office in Singapore, is Downtown Jebel Ali in Dubai. But its biggest and most complex project by far must be the US$61 billion 20,000 ha 'city within a city' Arabian Canal mega project, also in Dubai.
BT: Outlook for S-Reit market remains positive despite sub-prime fears
Business Times - 20 Dec 2007
Outlook for S-Reit market remains positive despite sub-prime fears
Increased volatility in Reit prices will attract more investors in 2008
By CHRISTOPHER TANG
SINCE consumer confidence is the most fickle of all economic factors, the retail trade is a good barometer for the health of an economy.
For 2007, this barometer has been in the 'extremely healthy' range. Sales have been up - to the tune of 14.4 per cent as of June 2007 - and so has rental of retail space.
We expect retail to continue nicely right through 2008. For one thing, retail malls - led by the professionally run retail Reits - are investing in physical enhancements to improve and maintain competitiveness.
The enhancements inject a new vibrancy, creating a better experience for the shoppers and improved business for the tenants. For example, thanks to Anchorpoint's $12 million repositioning as a village-mall, shopper traffic and tenant business have improved substantially.
The malls are not the only innovators. Retailers, too, are coming up with new concepts. For instance, the Tung Lok Group created their first kitchen-concept eatery in the new Anchorpoint with Zhou's Kitchen. Similarly, Charles & Keith, G2000, FOS, Club Marc, City Chain, Capitol Optical, Pedro and Giordano have also created unique outlet concepts.
With the advantages of Reits, there will be increasing securitisation of the Singapore retail scene through 2008, with more properties being injected into a Reit structure.
Singapore's Reit scene is only about five years old but the market has grown. By September 2007, there were 18 listed Reits with a total market capitalisation of $29.5 billion, which made Singapore the third-largest Reit market in the Asia-Pacific and the seventh largest worldwide.
We expect more Reits to be launched in the medium term, with at least one or two being retail Reits or Reits with retail components.
The two retail Reits listed at present - Frasers Centrepoint Trust and CapitaMall Trust - are also growing aggressively in the region, particularly in Malaysia and China.
Institutional and retail investor appetite for Singapore Reits continue to be strong.
Reit prices took a bit of a correction in the second half of 2007 when prices fell by about 25 per cent as a result of the US sub-prime fears. I believe the increased volatility will attract more investors to Reits in 2008. Reits are a defensive investment instrument - providing a consistent underlying yield and yet providing exposure to the on-going recovery and long-term growth of the Asian economies and property markets.
Investors will gravitate towards Reits with quality assets. In this respect, suburban malls are very resilient. After all, Singaporeans will still need to shop for their basic necessities. Suburban malls in Singapore managed to ride through the Sars epidemic as people cut back on luxury goods and focused on daily essentials. There exists a very inelastic demand at the suburban mall level.
Investors will also look to Reits with proven track records. Typically, institutional investors have found Reits associated with strong sponsors attractive because of their ability to leverage on the synergies with the sponsor for growth opportunities.
Ultimately, the outlook on Singapore's overall Reit market remains very positive, with market experts expecting it to double by 2010. Retail Reits should continue to remain stable and sensible investment options, even in the current sub-prime environment.
The writer is CEO, Frasers Centrepoint Trust
Outlook for S-Reit market remains positive despite sub-prime fears
Increased volatility in Reit prices will attract more investors in 2008
By CHRISTOPHER TANG
SINCE consumer confidence is the most fickle of all economic factors, the retail trade is a good barometer for the health of an economy.
For 2007, this barometer has been in the 'extremely healthy' range. Sales have been up - to the tune of 14.4 per cent as of June 2007 - and so has rental of retail space.
We expect retail to continue nicely right through 2008. For one thing, retail malls - led by the professionally run retail Reits - are investing in physical enhancements to improve and maintain competitiveness.
The enhancements inject a new vibrancy, creating a better experience for the shoppers and improved business for the tenants. For example, thanks to Anchorpoint's $12 million repositioning as a village-mall, shopper traffic and tenant business have improved substantially.
The malls are not the only innovators. Retailers, too, are coming up with new concepts. For instance, the Tung Lok Group created their first kitchen-concept eatery in the new Anchorpoint with Zhou's Kitchen. Similarly, Charles & Keith, G2000, FOS, Club Marc, City Chain, Capitol Optical, Pedro and Giordano have also created unique outlet concepts.
With the advantages of Reits, there will be increasing securitisation of the Singapore retail scene through 2008, with more properties being injected into a Reit structure.
Singapore's Reit scene is only about five years old but the market has grown. By September 2007, there were 18 listed Reits with a total market capitalisation of $29.5 billion, which made Singapore the third-largest Reit market in the Asia-Pacific and the seventh largest worldwide.
We expect more Reits to be launched in the medium term, with at least one or two being retail Reits or Reits with retail components.
The two retail Reits listed at present - Frasers Centrepoint Trust and CapitaMall Trust - are also growing aggressively in the region, particularly in Malaysia and China.
Institutional and retail investor appetite for Singapore Reits continue to be strong.
Reit prices took a bit of a correction in the second half of 2007 when prices fell by about 25 per cent as a result of the US sub-prime fears. I believe the increased volatility will attract more investors to Reits in 2008. Reits are a defensive investment instrument - providing a consistent underlying yield and yet providing exposure to the on-going recovery and long-term growth of the Asian economies and property markets.
Investors will gravitate towards Reits with quality assets. In this respect, suburban malls are very resilient. After all, Singaporeans will still need to shop for their basic necessities. Suburban malls in Singapore managed to ride through the Sars epidemic as people cut back on luxury goods and focused on daily essentials. There exists a very inelastic demand at the suburban mall level.
Investors will also look to Reits with proven track records. Typically, institutional investors have found Reits associated with strong sponsors attractive because of their ability to leverage on the synergies with the sponsor for growth opportunities.
Ultimately, the outlook on Singapore's overall Reit market remains very positive, with market experts expecting it to double by 2010. Retail Reits should continue to remain stable and sensible investment options, even in the current sub-prime environment.
The writer is CEO, Frasers Centrepoint Trust
BT: Abterra to buy stake in China coal mining firm
Published December 20, 2007
ACQUISITIONS
Abterra to buy stake in China coal mining firm
It'll pay 188m yuan for 49% share; deal includes 30m yuan profit guarantee
By MATTHEW PHAN
MINING and logistics firm Abterra yesterday signed a conditional agreement to buy 49 per cent of a Chinese coal mining company for 188 million yuan ($37 million).
The seller is Shenzhen Manfu Industrial Co, from which Abterra plans to acquire part of the Shanxi Tai Xing Jiao Zhong Coal Industry Company (Tai Xing).
Tai Xing's main asset is the Jiao Zhong Coal Mine in Shanxi, which produces high-quality coking coal.
It has reserves of 10.24 million tonnes of coal and annual production capacity of 150,000 tonnes. Production started in 1986.
Abterra said that the acquisition was in line with 'plans to expand the scope of its business activities, vertically and horizontally, into the production of coal and coke, and other synergistic businesses'.
The firm is involved in developing iron ore mines in Australia, India and Indonesia and selling the ore to steel mills in China. It also owns a stake in a firm that processes coal into coke.
Abterra said on Tuesday that it would acquire 22.8 per cent of Zuoquan Xinrui Metallurgy Mine Co Ltd for about $77.8 million.
Payment for the Tai Xing stake will be in two stages - an initial 94 million yuan in cash, then the remainder when the seller meets certain obligations.
Abterra said that it would fund the acquisition - which represents about 8 per cent of its market value as of Tuesday's close - with the proceeds from a rights issue that took place in October.
Seller Manfu, which now owns 80 per cent of Tai Xing, has guaranteed that Tai Xing's net profit would not be less than 30 million yuan for the year ending Dec 31, 2008.
If the target is not met, Manfu will compensate Abterra for 49 per cent of the shortfall.
As security for the guarantee, Manfu will deposit 14.7 million yuan in a bank account.
The transaction is contingent on Chinese government approval and other conditions.
ACQUISITIONS
Abterra to buy stake in China coal mining firm
It'll pay 188m yuan for 49% share; deal includes 30m yuan profit guarantee
By MATTHEW PHAN
MINING and logistics firm Abterra yesterday signed a conditional agreement to buy 49 per cent of a Chinese coal mining company for 188 million yuan ($37 million).
The seller is Shenzhen Manfu Industrial Co, from which Abterra plans to acquire part of the Shanxi Tai Xing Jiao Zhong Coal Industry Company (Tai Xing).
Tai Xing's main asset is the Jiao Zhong Coal Mine in Shanxi, which produces high-quality coking coal.
It has reserves of 10.24 million tonnes of coal and annual production capacity of 150,000 tonnes. Production started in 1986.
Abterra said that the acquisition was in line with 'plans to expand the scope of its business activities, vertically and horizontally, into the production of coal and coke, and other synergistic businesses'.
The firm is involved in developing iron ore mines in Australia, India and Indonesia and selling the ore to steel mills in China. It also owns a stake in a firm that processes coal into coke.
Abterra said on Tuesday that it would acquire 22.8 per cent of Zuoquan Xinrui Metallurgy Mine Co Ltd for about $77.8 million.
Payment for the Tai Xing stake will be in two stages - an initial 94 million yuan in cash, then the remainder when the seller meets certain obligations.
Abterra said that it would fund the acquisition - which represents about 8 per cent of its market value as of Tuesday's close - with the proceeds from a rights issue that took place in October.
Seller Manfu, which now owns 80 per cent of Tai Xing, has guaranteed that Tai Xing's net profit would not be less than 30 million yuan for the year ending Dec 31, 2008.
If the target is not met, Manfu will compensate Abterra for 49 per cent of the shortfall.
As security for the guarantee, Manfu will deposit 14.7 million yuan in a bank account.
The transaction is contingent on Chinese government approval and other conditions.
Wednesday, December 19, 2007
BT: India sees 10% growth by 2012, sub-prime a risk
Business Times - 19 Dec 2007
India sees 10% growth by 2012, sub-prime a risk
NEW DELHI - India's economy could be growing by 10 per cent a year by 2012 with the right set of policies, but the US sub-prime crisis might trim exports and capital flows, the prime minister said on Wednesday.
Annual growth dipped to 8.9 per cent in the September quarter, falling below 9 per cent for the first time in three quarters, as industrial output slowed due to monetary tightening designed to trim inflation.
Top officials are confident they can maintain growth momentum despite a surge in the value of the rupee against the dollar this year, which is hurting exporters, and high interest rates.
'It is possible that with the correct set of policies ...
we will not only be able to maintain this momentum of high growth into the near future but may be able to raise it to 10 per cent,' Manmohan Singh told top policy makers.
India, the world's fastest-growing major economy after China, grew 9.4 per cent in the last fiscal year, its strongest in 18 years. Its surging expansion has attracted global investors, fuelling a stock market boom and pushing firms to expand capacity.
'This high growth rate has become possible because of the historically high savings and investment rates which we are witnessing,' Mr Singh said at a meeting of the National Development Council set to approve a policies for the 5 years to 2012.
'Our savings rate after stagnating for almost two decades has touched 34 percent of GDP and the investment rate has crossed 35 per cent. These high rates ... are likely to go up in future because of our young population profile.' Trade Minister Kamal Nath said on Tuesday expansion in the 2007/08 fiscal year to March 31 would be in excess of 9 per cent, and analysts say the central bank's forecast of 8.5 per cent should be met in Asia's third-largest economy.
Mr Singh said global credit worries would not completely skirt India's economy, despite it being largely driven by domestic demand.
'There are somes clouds on global financial markets following the subprime lending crisis. There are worries that the growth of the US and other leading economies may slow down and some may even go into a recession,' he said. 'This may impact both our exports as well as capital flows.'
Such concerns mean India must redouble efforts to maintain domestic drivers of growth, the prime minister said.
The government is discussing ways to minimise the impact of the rupee's appreciation on exporters, who have seen their margins squeezed by a 12 per cent rise in the currency this year.
The Reserve Bank of India, keen to cool price pressures and stop the economy from overheating, raised interest rates five times between mid-2006 and March this year, but has since held them steady. Many economists now expect the next move to be down. -- REUTERS
India sees 10% growth by 2012, sub-prime a risk
NEW DELHI - India's economy could be growing by 10 per cent a year by 2012 with the right set of policies, but the US sub-prime crisis might trim exports and capital flows, the prime minister said on Wednesday.
Annual growth dipped to 8.9 per cent in the September quarter, falling below 9 per cent for the first time in three quarters, as industrial output slowed due to monetary tightening designed to trim inflation.
Top officials are confident they can maintain growth momentum despite a surge in the value of the rupee against the dollar this year, which is hurting exporters, and high interest rates.
'It is possible that with the correct set of policies ...
we will not only be able to maintain this momentum of high growth into the near future but may be able to raise it to 10 per cent,' Manmohan Singh told top policy makers.
India, the world's fastest-growing major economy after China, grew 9.4 per cent in the last fiscal year, its strongest in 18 years. Its surging expansion has attracted global investors, fuelling a stock market boom and pushing firms to expand capacity.
'This high growth rate has become possible because of the historically high savings and investment rates which we are witnessing,' Mr Singh said at a meeting of the National Development Council set to approve a policies for the 5 years to 2012.
'Our savings rate after stagnating for almost two decades has touched 34 percent of GDP and the investment rate has crossed 35 per cent. These high rates ... are likely to go up in future because of our young population profile.' Trade Minister Kamal Nath said on Tuesday expansion in the 2007/08 fiscal year to March 31 would be in excess of 9 per cent, and analysts say the central bank's forecast of 8.5 per cent should be met in Asia's third-largest economy.
Mr Singh said global credit worries would not completely skirt India's economy, despite it being largely driven by domestic demand.
'There are somes clouds on global financial markets following the subprime lending crisis. There are worries that the growth of the US and other leading economies may slow down and some may even go into a recession,' he said. 'This may impact both our exports as well as capital flows.'
Such concerns mean India must redouble efforts to maintain domestic drivers of growth, the prime minister said.
The government is discussing ways to minimise the impact of the rupee's appreciation on exporters, who have seen their margins squeezed by a 12 per cent rise in the currency this year.
The Reserve Bank of India, keen to cool price pressures and stop the economy from overheating, raised interest rates five times between mid-2006 and March this year, but has since held them steady. Many economists now expect the next move to be down. -- REUTERS
BT: Asian markets caught in global equity downdraft
Business Times - 19 Dec 2007
Asian markets caught in global equity downdraft
Only India, M'sia still in positive territory over past month, China and Taiwan badly hit
By NEIL BEHRMANN IN LONDON
EMERGING markets have not decoupled from the major stock markets and have been caught in the downdraft of global equity declines.
Suggestions that China and India would not be affected by the credit crunch or the slowing US and European economies have proved to be quite wrong.
Goldman Sachs wisely advised its clients several weeks ago to take profits in China and other emerging markets.
Indices of MSCI Barra until Monday show that in US dollar terms only India and Malaysia are still in positive territory over the past month, although they have also fallen during the past few days.
Of the Asian markets China and Taiwan have been hit particularly badly. Despite the market gloom, there could well be a rally in the remaining days of 2007 as fund managers 'window dress' by purchasing stocks to boost fund performance by the end of the year.
The change in sentiment has been marked during the past few days. According to EPFR Global some investors were bargain hunting last week.
Besides US$3.37 billion that flowed into Global Emerging Market Equity Funds, Asia ex-Japan Funds absorbed another US$1.57 billion during that week. Inflows into Brazil, Korea, India, China, Greater China and Russia Country Funds totalled US$1.54 billion while Bric (Brazil, Russia, India, China) Equity Funds took in another US$985 million, estimates EPFR Global. The recent declines indicate that there have since been foreign withdrawals.
Asian and other emerging market performance in 2008 will be vitally dependent on global inflation trends and US and European economic performance. Indeed there are fears that there could be stagflation with food prices, soaring and energy prices remaining high.
'Slower growth but rising inflationary pressures despite appreciating currencies pose major challenges for the policy makers' next year, said Jong-Wha Lee, head of the Asian Development Bank office of Regional Economic Integration. Mr Lee said the region has so far experienced limited impact from effects of the US sub-prime mortgage woes, but he said East Asian economies, which have close trade ties with the US, will suffer if the US economy struggles.
Goldman Sachs advised clients to cut exposure to emerging markets, fearing that turmoil in the global credit markets risks triggering a 'painful' correction in Latin America, Eastern Europe and parts of Asia. In a series of client notes in December, the US investment bank advised cashing in profits as a precautionary 'near-term' measure.
Some analysts fear that emerging markets have succumbed to a dangerous bubble, replacing US property and structured credit as the new focus of systemic risk. Credit rating agency Standard & Poor's has warned investors to cut the portfolio share of emerging markets from 6 per cent to 4 per cent.
Goldman said it remained 'very bullish' on the emerging markets for the longer run but added that investors need to be very careful at this stage.
Asian markets caught in global equity downdraft
Only India, M'sia still in positive territory over past month, China and Taiwan badly hit
By NEIL BEHRMANN IN LONDON
EMERGING markets have not decoupled from the major stock markets and have been caught in the downdraft of global equity declines.
Suggestions that China and India would not be affected by the credit crunch or the slowing US and European economies have proved to be quite wrong.
Goldman Sachs wisely advised its clients several weeks ago to take profits in China and other emerging markets.
Indices of MSCI Barra until Monday show that in US dollar terms only India and Malaysia are still in positive territory over the past month, although they have also fallen during the past few days.
Of the Asian markets China and Taiwan have been hit particularly badly. Despite the market gloom, there could well be a rally in the remaining days of 2007 as fund managers 'window dress' by purchasing stocks to boost fund performance by the end of the year.
The change in sentiment has been marked during the past few days. According to EPFR Global some investors were bargain hunting last week.
Besides US$3.37 billion that flowed into Global Emerging Market Equity Funds, Asia ex-Japan Funds absorbed another US$1.57 billion during that week. Inflows into Brazil, Korea, India, China, Greater China and Russia Country Funds totalled US$1.54 billion while Bric (Brazil, Russia, India, China) Equity Funds took in another US$985 million, estimates EPFR Global. The recent declines indicate that there have since been foreign withdrawals.
Asian and other emerging market performance in 2008 will be vitally dependent on global inflation trends and US and European economic performance. Indeed there are fears that there could be stagflation with food prices, soaring and energy prices remaining high.
'Slower growth but rising inflationary pressures despite appreciating currencies pose major challenges for the policy makers' next year, said Jong-Wha Lee, head of the Asian Development Bank office of Regional Economic Integration. Mr Lee said the region has so far experienced limited impact from effects of the US sub-prime mortgage woes, but he said East Asian economies, which have close trade ties with the US, will suffer if the US economy struggles.
Goldman Sachs advised clients to cut exposure to emerging markets, fearing that turmoil in the global credit markets risks triggering a 'painful' correction in Latin America, Eastern Europe and parts of Asia. In a series of client notes in December, the US investment bank advised cashing in profits as a precautionary 'near-term' measure.
Some analysts fear that emerging markets have succumbed to a dangerous bubble, replacing US property and structured credit as the new focus of systemic risk. Credit rating agency Standard & Poor's has warned investors to cut the portfolio share of emerging markets from 6 per cent to 4 per cent.
Goldman said it remained 'very bullish' on the emerging markets for the longer run but added that investors need to be very careful at this stage.
BT: Investing tricks of the wealthy
Business Times - 19 Dec 2007
COMMENTARY
Investing tricks of the wealthy
Average investors can apply the same techniques to their own investments, no matter the size of their portfolio
RECENTLY, I asked a wealth manager whether an average investor can make more money by mimicking the investment strategies of the rich. He answered: not really. Later he explained that the rich invest differently because, well, they're different. They can take more risks because they have more money to lose. Furthermore, they can speculate and have a short-term view because losing money is not a problem for them.
Well, I do not totally agree with his opinion. For the past few years, I have been advising wealthy people on their financial well-being. As a financial adviser, my job is to help these rich clients search for financial services who meet their needs. Throughout my interaction with them, I have gained an insight into how they accumulate wealth.
I can tell that the rich don't necessarily have any special insights into which stocks or assets are going to soar. But what they do have is the confidence to apply a disciplined and systematic approach to managing their money. They have the habit of applying common sense to each investment opportunity facing them. Even though the interests of wealthy investors are not always necessarily aligned with those of the average investor, there are a number of principles and strategies employed by wealthy investors that do apply to virtually anyone who seeks to invest for the future.
It is a common fact that most financial textbooks teach us that in order to build wealth we need diversification, wealth preservation and strategic growth. To me, this not an accurate statement in itself because two of those strategies - diversification and preservation - don't help to build wealth. Perhaps the rich use these two strategies to maintain wealth.
After they have accumulated great wealth, they didn't use the strategies during the accumulation phase and they tend to preserve the wealth they have built. Yet average investors have not yet reached the ranks of the financially independent, so they are generally more concerned about investment growth and losses. The wealthy, as a general rule, do not have this concern. At the same time, they also learn how to avoid taxes legally so that they can keep their money working for them and learn how to pass their assets on to the future generations without the government taking a huge part of what they spent their lives building.
Another common perception is that the rich take more risk, therefore they accumulate wealth faster. However, the truth is that the majority of rich people do not build their fortunes by speculating on high-risk investments as is commonly believed. My experience tells me that the rich do not heavily rely on high-risk investment vehicles like hedge funds or venture capital funds but are moderate risk takers who put more than half of their money into listed securities and keep a large amount as cash. The reason for this is that they have so much money that even if they do not meet their goals for investment growth, it would not be bad news to them; however losing their financial independence would be devastating.
So how do the rich invest? Unlike the average investor, the rich think long term in most of their investment strategies. They believe that there is power in long-term thinking and many of them make it habit of doing so. Great investors like Warren Buffett - his successes in investment include Washington Post Co, where Berkshire invested US$11 million in 1973 and which investment was worth US$1.3 billion at the end of 2006. That is 33 years of holding power which demonstrates his investment philosophy - always invest for the long term. Hence, most rich do not engage in short-term speculation but have a long-term goal in mind.
However, the rich make use of risk by taking advantage of risk. They often build fortunes using volatile assets and investments but that does not mean they were engaging in risky behaviour. They understand the risk and embrace risk because they know it always brings an opportunity for growth; however, the average investor is fearful of risk. Nevertheless, taking risk for the rich does not mean taking a shot in the dark. The rich take calculated risk that means to gain knowledge first and to consider the consequences of failing before taking action. The rich overcome fear with knowledge as knowledge can cause fear to fade away.
The rich also demand value for their money. Otherwise, how do you think they got to be rich in the first place? Value to them is buying assets at a discount to its intrinsic value. So for them the right time to buy is when there is weakness in the market. They buy when others are despondently selling and sell when others are greedily buying. This requires the greatest fortitude but also has the greatest rewards. This bargain-hunting approach to buying value will enable them to buy quality assets at reasonable prices. So they buy when there is bad news and sell on good news. For instance, some of the wealthy invest because they understand that the weakness is only temporary, and the stock price had fully priced in negative news and it was time for them to hunt for bargains again.
If we look back at the Singapore stock market, there are many opportunities for investors to bargain hunt and buy on bad news, e.g. the Asian financial crisis in 1997/98, the Sept 11 terrorist attack and SARS. The rich take advantage of these negative events to buy assets, whether in real estate or stocks and that's where value can be found. However, the average investor will seek to sell and get out of a bear market fearing that the asset will fall in value.
To the rich, probably now is the best time to sell and get out of the market, where all assets prices have gone up in value. Over the past years, we have very good reports about our economic growth and all the good news are now factored into the stock price, so for the rich it's time to sell.
Another investing secret of the rich is that they approach investing like a business. They set up a business plan, establish annual targets, then analyse the results and they have reasonable expectation. At the end of the day what they want to achieve is increasing their net worth and not their income. The rich truly understand the meaning of working smart not working hard: to focus on growing your net worth is working smart but working for an income is working hard. As their net worth grows, they do not increase their spending, instead they increase their investment. By repeating this over the years, once their net worth is built to a certain level, they are free to do what they want. Hence, to increase your net worth you need patience, knowledge, and wisdom.
Often they are not willing to pay more for investment services simply because they find a particular adviser to be charming or knowledgeable. Nor do they chase after the hottest manager or the most publicised fund. Instead, they go shopping for the best combination of reasonable fees and consistently good performance. However, they will pay for advice from people who have specialised knowledge in a field they need to learn about. They don't believe in free advice as it can often be the most expensive advice.
As you can see, most investing secrets of the rich are nothing more than a combination of basic common sense and knowledge. The difference between the rich and the average investor is that they have the self-confidence to stick to the basics and to find out what they need to know. They don't get caught up in the theory of the week or the trend of the month. It's an approach that's easy to articulate but difficult to follow.
However, average investors can learn important lessons from the wealthy, specifically the need to manage both risk and their own investment expectations. The failure to match expectations to the risk an investor is willing to take can result in frequent switching among investments, or even worse. Now the good news for the average investor is that you can apply many of the same techniques to your own investments, no matter how big or small your portfolio is.
The writer is the Chief Executive Officer, Grandtag Financial Consultancy (Singapore) Pte Ltd. He can be reached at ben.fok@grandtag.com
COMMENTARY
Investing tricks of the wealthy
Average investors can apply the same techniques to their own investments, no matter the size of their portfolio
RECENTLY, I asked a wealth manager whether an average investor can make more money by mimicking the investment strategies of the rich. He answered: not really. Later he explained that the rich invest differently because, well, they're different. They can take more risks because they have more money to lose. Furthermore, they can speculate and have a short-term view because losing money is not a problem for them.
Well, I do not totally agree with his opinion. For the past few years, I have been advising wealthy people on their financial well-being. As a financial adviser, my job is to help these rich clients search for financial services who meet their needs. Throughout my interaction with them, I have gained an insight into how they accumulate wealth.
I can tell that the rich don't necessarily have any special insights into which stocks or assets are going to soar. But what they do have is the confidence to apply a disciplined and systematic approach to managing their money. They have the habit of applying common sense to each investment opportunity facing them. Even though the interests of wealthy investors are not always necessarily aligned with those of the average investor, there are a number of principles and strategies employed by wealthy investors that do apply to virtually anyone who seeks to invest for the future.
It is a common fact that most financial textbooks teach us that in order to build wealth we need diversification, wealth preservation and strategic growth. To me, this not an accurate statement in itself because two of those strategies - diversification and preservation - don't help to build wealth. Perhaps the rich use these two strategies to maintain wealth.
After they have accumulated great wealth, they didn't use the strategies during the accumulation phase and they tend to preserve the wealth they have built. Yet average investors have not yet reached the ranks of the financially independent, so they are generally more concerned about investment growth and losses. The wealthy, as a general rule, do not have this concern. At the same time, they also learn how to avoid taxes legally so that they can keep their money working for them and learn how to pass their assets on to the future generations without the government taking a huge part of what they spent their lives building.
Another common perception is that the rich take more risk, therefore they accumulate wealth faster. However, the truth is that the majority of rich people do not build their fortunes by speculating on high-risk investments as is commonly believed. My experience tells me that the rich do not heavily rely on high-risk investment vehicles like hedge funds or venture capital funds but are moderate risk takers who put more than half of their money into listed securities and keep a large amount as cash. The reason for this is that they have so much money that even if they do not meet their goals for investment growth, it would not be bad news to them; however losing their financial independence would be devastating.
So how do the rich invest? Unlike the average investor, the rich think long term in most of their investment strategies. They believe that there is power in long-term thinking and many of them make it habit of doing so. Great investors like Warren Buffett - his successes in investment include Washington Post Co, where Berkshire invested US$11 million in 1973 and which investment was worth US$1.3 billion at the end of 2006. That is 33 years of holding power which demonstrates his investment philosophy - always invest for the long term. Hence, most rich do not engage in short-term speculation but have a long-term goal in mind.
However, the rich make use of risk by taking advantage of risk. They often build fortunes using volatile assets and investments but that does not mean they were engaging in risky behaviour. They understand the risk and embrace risk because they know it always brings an opportunity for growth; however, the average investor is fearful of risk. Nevertheless, taking risk for the rich does not mean taking a shot in the dark. The rich take calculated risk that means to gain knowledge first and to consider the consequences of failing before taking action. The rich overcome fear with knowledge as knowledge can cause fear to fade away.
The rich also demand value for their money. Otherwise, how do you think they got to be rich in the first place? Value to them is buying assets at a discount to its intrinsic value. So for them the right time to buy is when there is weakness in the market. They buy when others are despondently selling and sell when others are greedily buying. This requires the greatest fortitude but also has the greatest rewards. This bargain-hunting approach to buying value will enable them to buy quality assets at reasonable prices. So they buy when there is bad news and sell on good news. For instance, some of the wealthy invest because they understand that the weakness is only temporary, and the stock price had fully priced in negative news and it was time for them to hunt for bargains again.
If we look back at the Singapore stock market, there are many opportunities for investors to bargain hunt and buy on bad news, e.g. the Asian financial crisis in 1997/98, the Sept 11 terrorist attack and SARS. The rich take advantage of these negative events to buy assets, whether in real estate or stocks and that's where value can be found. However, the average investor will seek to sell and get out of a bear market fearing that the asset will fall in value.
To the rich, probably now is the best time to sell and get out of the market, where all assets prices have gone up in value. Over the past years, we have very good reports about our economic growth and all the good news are now factored into the stock price, so for the rich it's time to sell.
Another investing secret of the rich is that they approach investing like a business. They set up a business plan, establish annual targets, then analyse the results and they have reasonable expectation. At the end of the day what they want to achieve is increasing their net worth and not their income. The rich truly understand the meaning of working smart not working hard: to focus on growing your net worth is working smart but working for an income is working hard. As their net worth grows, they do not increase their spending, instead they increase their investment. By repeating this over the years, once their net worth is built to a certain level, they are free to do what they want. Hence, to increase your net worth you need patience, knowledge, and wisdom.
Often they are not willing to pay more for investment services simply because they find a particular adviser to be charming or knowledgeable. Nor do they chase after the hottest manager or the most publicised fund. Instead, they go shopping for the best combination of reasonable fees and consistently good performance. However, they will pay for advice from people who have specialised knowledge in a field they need to learn about. They don't believe in free advice as it can often be the most expensive advice.
As you can see, most investing secrets of the rich are nothing more than a combination of basic common sense and knowledge. The difference between the rich and the average investor is that they have the self-confidence to stick to the basics and to find out what they need to know. They don't get caught up in the theory of the week or the trend of the month. It's an approach that's easy to articulate but difficult to follow.
However, average investors can learn important lessons from the wealthy, specifically the need to manage both risk and their own investment expectations. The failure to match expectations to the risk an investor is willing to take can result in frequent switching among investments, or even worse. Now the good news for the average investor is that you can apply many of the same techniques to your own investments, no matter how big or small your portfolio is.
The writer is the Chief Executive Officer, Grandtag Financial Consultancy (Singapore) Pte Ltd. He can be reached at ben.fok@grandtag.com
Tuesday, December 18, 2007
BT: Pressure building up in crowded S-Reit sector
Business Times - 17 Dec 2007
Pressure building up in crowded S-Reit sector
Mergers seen as one response to slowing growth as assets, funding get scarce
By UMA SHANKARI
THE Singapore real estate investment trust (S-Reit) market is expected to face waning investor appetite and a short supply of potential acquisitions next year.
The S-Reit sector could also enter a consolidation phase, triggered by the implementation of a takeover code for Reits, analysts say.
'Reits are under pressure at the moment,' said Mark Ebbinghaus, the head of Asian real estate at investment bank UBS. 'Many Reits have been sold off because of money leaving Asia.'
S-Reits have taken a beating over the past few months as large chunks of capital fled Asia on the back of the US sub-prime crisis. Many Reits are now trading at about 20 per cent below their June or July peaks.
Despite this, the sector will grow, with analysts predicting that at least three to five Reits will be listed in Singapore next year. This compares to five Reits in 2007 and seven in 2006.
Mr Ebbinghaus, for one, expects at least five Reits to go public here next year. The Reits are more likely to come to the market in the second half of 2008 as global financial markets recover, he said.
Others see a smaller number. 'Going into 2008, we can expect at least a further two to three Reits to come into the market,' said OCBC Investment Research analyst Wilson Liew.
However, he cautioned that the success of these new Reits is not assured. To do well, the Reits have to offer 'something new' to differentiate themselves from the others in a now fairly crowded market space, Mr Liew said.
The S-Reit sector has grown substantially since the first trust - CapitaMall Trust (CMT) - was listed back in 2002. Right now, there are 20 Reits listed on the Singapore Exchange. Their combined market capitalisation is about $27.2 billion.
This compares to 15 S-Reits with a total market capitalisation of $24.4 billion at end-2006.
Right now, most S-Reits are based on properties in Singapore. A few are based on properties in China, India, Indonesia and Japan.
More diversity is needed, market watchers said. 'A Reit based on properties in Thailand or Vietnam could do well,' said Mr Ebbinghaus.
The S-Reit sector has to some extent become a victim of its own success, said OCBC's Mr Liew.
'The success of early Reits encouraged more players into the market, all hoping to replicate the same growth strategy,' he said.
This quickly led to an asset squeeze, made worse as other new players - such as private equity and property funds - entered the market. The buying spree mopped up all the quality properties, pushing up valuations while bringing down yields, Mr Liew said.
BT understands that some Reit managers are putting off buying assets from the sponsor companies due to the high capital values of properties, which reduces the yields.
Acquisitions are slowing down as some S-Reits are also having trouble raising funds to buy the properties they want amid poor market conditions.
One theme for 2008 could be merger and acquisition activity in the S-Reit market.
Singapore's Securities Industry Council (SIC) announced in June this year that it will extend the Singapore Code on Takeovers & Mergers to Reits. Now, anyone who acquires 30 per cent or more of any Reit must make a general offer for the remaining units.
Underperforming Reit managers could also be removed under the code. Guidelines allow for the removal of a Reit manager if at least 50 per cent of unit-holders are present and the majority votes for it.
OCBC Investment Research said that the industrial sector is most likely to see some consolidation. 'The candidates could be either Mapletree Logistics Trust (MLT) or A-Reit buying and/or merging with Cambridge,' Mr Liew said.
How well the S-Reit market will do going forward will depend on how quickly global financial markets can recover next year, observers said.
CIMB economist Song Seng Wun noted that Singapore is heading into a turbulent patch in 2008, although the country's economic engine has never been in a better shape. 'While we have faith in the domestic drivers, we note that external threats to growth are real and visible,' he said.
Reits listed here have raised some $4.0 billion this year, compared to $3.2 billion in 2006, according to data compiled by UBS.
With more Reit listings on the table, the amount of capital raised next year could well be higher - provided the S-Reit market comes out of the current turbulence intact.
Pressure building up in crowded S-Reit sector
Mergers seen as one response to slowing growth as assets, funding get scarce
By UMA SHANKARI
THE Singapore real estate investment trust (S-Reit) market is expected to face waning investor appetite and a short supply of potential acquisitions next year.
The S-Reit sector could also enter a consolidation phase, triggered by the implementation of a takeover code for Reits, analysts say.
'Reits are under pressure at the moment,' said Mark Ebbinghaus, the head of Asian real estate at investment bank UBS. 'Many Reits have been sold off because of money leaving Asia.'
S-Reits have taken a beating over the past few months as large chunks of capital fled Asia on the back of the US sub-prime crisis. Many Reits are now trading at about 20 per cent below their June or July peaks.
Despite this, the sector will grow, with analysts predicting that at least three to five Reits will be listed in Singapore next year. This compares to five Reits in 2007 and seven in 2006.
Mr Ebbinghaus, for one, expects at least five Reits to go public here next year. The Reits are more likely to come to the market in the second half of 2008 as global financial markets recover, he said.
Others see a smaller number. 'Going into 2008, we can expect at least a further two to three Reits to come into the market,' said OCBC Investment Research analyst Wilson Liew.
However, he cautioned that the success of these new Reits is not assured. To do well, the Reits have to offer 'something new' to differentiate themselves from the others in a now fairly crowded market space, Mr Liew said.
The S-Reit sector has grown substantially since the first trust - CapitaMall Trust (CMT) - was listed back in 2002. Right now, there are 20 Reits listed on the Singapore Exchange. Their combined market capitalisation is about $27.2 billion.
This compares to 15 S-Reits with a total market capitalisation of $24.4 billion at end-2006.
Right now, most S-Reits are based on properties in Singapore. A few are based on properties in China, India, Indonesia and Japan.
More diversity is needed, market watchers said. 'A Reit based on properties in Thailand or Vietnam could do well,' said Mr Ebbinghaus.
The S-Reit sector has to some extent become a victim of its own success, said OCBC's Mr Liew.
'The success of early Reits encouraged more players into the market, all hoping to replicate the same growth strategy,' he said.
This quickly led to an asset squeeze, made worse as other new players - such as private equity and property funds - entered the market. The buying spree mopped up all the quality properties, pushing up valuations while bringing down yields, Mr Liew said.
BT understands that some Reit managers are putting off buying assets from the sponsor companies due to the high capital values of properties, which reduces the yields.
Acquisitions are slowing down as some S-Reits are also having trouble raising funds to buy the properties they want amid poor market conditions.
One theme for 2008 could be merger and acquisition activity in the S-Reit market.
Singapore's Securities Industry Council (SIC) announced in June this year that it will extend the Singapore Code on Takeovers & Mergers to Reits. Now, anyone who acquires 30 per cent or more of any Reit must make a general offer for the remaining units.
Underperforming Reit managers could also be removed under the code. Guidelines allow for the removal of a Reit manager if at least 50 per cent of unit-holders are present and the majority votes for it.
OCBC Investment Research said that the industrial sector is most likely to see some consolidation. 'The candidates could be either Mapletree Logistics Trust (MLT) or A-Reit buying and/or merging with Cambridge,' Mr Liew said.
How well the S-Reit market will do going forward will depend on how quickly global financial markets can recover next year, observers said.
CIMB economist Song Seng Wun noted that Singapore is heading into a turbulent patch in 2008, although the country's economic engine has never been in a better shape. 'While we have faith in the domestic drivers, we note that external threats to growth are real and visible,' he said.
Reits listed here have raised some $4.0 billion this year, compared to $3.2 billion in 2006, according to data compiled by UBS.
With more Reit listings on the table, the amount of capital raised next year could well be higher - provided the S-Reit market comes out of the current turbulence intact.
Monday, December 17, 2007
AFP: Morgan Stanley Asia chairman says US heading to recession
Sunday December 16, 2:19 PM
Morgan Stanley Asia chairman says US heading to recession
The US is heading for a recession and the rest of the world would be "dead wrong" to think this will not impact on growing Asian economies, Morgan Stanley senior executive Stephen Roach said Sunday.
In an interview with Sky News in Australia, Roach said the US Federal Reserve Bank would "most assuredly" cut interest rates again soon to boost the economy, following last week's 25 basis points reduction.
"The US is going into recession," he said.
"They (the Federal Reserve) have a lot more work to do. They could cut their policy short-term interest rate by one to one-and-a-half percentage points over the next nine to 12 months."
Roach, who is chairman of the investment bank and trading firm's Asian arm, said it was wrong to think that the rapidly developing economies of China and India could fully compensate for a US recession.
"What is interesting, and potentially disturbing, is that the rest of the world just doesn't think this is a big deal any more," he said of the potential of a US recession.
"There is a view that the world is somehow decoupled from the American growth engine.
"I think that view will turn out to be dead wrong, and this is a global event with consequences for Asia and Australia."
Roach, in Australia for a business roundtable, said economies outside of the US needed to determine how their internal consumer demand compared with demand from American consumers in terms of keeping their economies booming.
"My conclusion is: not nearly as much as you would like," Roach said.
Growth in Asia was export led, with the American consumer often the "end game" of the Asian growth machine, he said.
"The US is a 9.5 trillion US dollar consumer. China is a 1.0 trillion US dollar consumer. India's a 650 billion US dollar consumer," he said.
"Mathematically, it is almost impossible for the young dynamic consumers of China and India to fill the void that would be left by what is likely to be a significant shortfall of US consumer demand."
Morgan Stanley Asia chairman says US heading to recession
The US is heading for a recession and the rest of the world would be "dead wrong" to think this will not impact on growing Asian economies, Morgan Stanley senior executive Stephen Roach said Sunday.
In an interview with Sky News in Australia, Roach said the US Federal Reserve Bank would "most assuredly" cut interest rates again soon to boost the economy, following last week's 25 basis points reduction.
"The US is going into recession," he said.
"They (the Federal Reserve) have a lot more work to do. They could cut their policy short-term interest rate by one to one-and-a-half percentage points over the next nine to 12 months."
Roach, who is chairman of the investment bank and trading firm's Asian arm, said it was wrong to think that the rapidly developing economies of China and India could fully compensate for a US recession.
"What is interesting, and potentially disturbing, is that the rest of the world just doesn't think this is a big deal any more," he said of the potential of a US recession.
"There is a view that the world is somehow decoupled from the American growth engine.
"I think that view will turn out to be dead wrong, and this is a global event with consequences for Asia and Australia."
Roach, in Australia for a business roundtable, said economies outside of the US needed to determine how their internal consumer demand compared with demand from American consumers in terms of keeping their economies booming.
"My conclusion is: not nearly as much as you would like," Roach said.
Growth in Asia was export led, with the American consumer often the "end game" of the Asian growth machine, he said.
"The US is a 9.5 trillion US dollar consumer. China is a 1.0 trillion US dollar consumer. India's a 650 billion US dollar consumer," he said.
"Mathematically, it is almost impossible for the young dynamic consumers of China and India to fill the void that would be left by what is likely to be a significant shortfall of US consumer demand."
Wednesday, December 5, 2007
AFP: Higher Indian growth depends on improving infrastructure: official
Wednesday December 5, 2:49 AM
Higher Indian growth depends on improving infrastructure: official
Billions of dollars must be spent to improve India's creaking infrastructure to achieve the economic growth needed to lift millions out of poverty, a top government policy advisor said Tuesday.
India's dilapidated ports, roads, power supplies and other infrastructure are a "critical constraint" to stronger growth, Montek Singh Ahluwalia, deputy chairman of the government's key Planning Commission, told the India Economic Summit.
"Investment in infrastructure in 2006-07 was five percent of gross domestic product and was inadequate. We need to increase it to about nine percent" by the financial year 2011-12 to around five billion dollars, said Ahluwalia.
India's goal of attaining 10 percent growth by the 2011-2012 financial year would be unachievable unless infrastructure spending moves into much higher gear, said Ahluwalia.
India has logged 8.6 percent average annual growth in the last four years and economists say expansion must shift to double digits to make a significant dent in deep poverty afflicting millions.
The Indian government will pick up the tab for 70 percent of the infrastructure spending but the rest -- around 150 billion dollars -- must come from private sources, Ahluwalia told the summit, part of a series of regional meetings ahead of the World Economic Forum in Davos, Switzerland in early 2008.
The meeting of financial players from around the world eager to learn about India's rapidly expanding economy has heard a litany of complaints from business leaders about the disastrous state of India's infrastructure.
The Indian government has introduced new policies to attract private sector investment and "now the scale of activity needs to increase" to compensate for India's "infrastructure deficit," Ahluwalia said.
India's high growth has pushed its shabby infrastructure to its limits. Power cuts last hours, congested ports delay loading and unloading and the nation's roads are notoriously potholed.
"Which state electricity board can guarantee continuous uninterrupted power?" asked Deepak Puri, chairman of compact disc giant Moses Baer India.
Many companies run their own captive power plants to overcome energy shortages and ensure continuous production.
Rajat Nag, managing director of the Asian Development Bank, called infrastructure India's most urgent problem.
India needs to spend as much as 1.6 billion dollars over the next decade or 10.5 to 12.5 percent of its GDP on infrastructure to keep growth on track, Nag said.
Rajiv Lall, managing director of the Infrastructure Development Finance Co., a private sector financier of Indian public works, said poor governance leading to slow decision-making was a major hurdle in drawing infrastructure investment.
He added there was also a shortage of the skills required for building civil engineering and other projects.
However, Ahluwalia said investors were showing interest in putting money into the power sector as India's states plan to introduce reforms to tackle widespread transmission and distribution losses.
Higher Indian growth depends on improving infrastructure: official
Billions of dollars must be spent to improve India's creaking infrastructure to achieve the economic growth needed to lift millions out of poverty, a top government policy advisor said Tuesday.
India's dilapidated ports, roads, power supplies and other infrastructure are a "critical constraint" to stronger growth, Montek Singh Ahluwalia, deputy chairman of the government's key Planning Commission, told the India Economic Summit.
"Investment in infrastructure in 2006-07 was five percent of gross domestic product and was inadequate. We need to increase it to about nine percent" by the financial year 2011-12 to around five billion dollars, said Ahluwalia.
India's goal of attaining 10 percent growth by the 2011-2012 financial year would be unachievable unless infrastructure spending moves into much higher gear, said Ahluwalia.
India has logged 8.6 percent average annual growth in the last four years and economists say expansion must shift to double digits to make a significant dent in deep poverty afflicting millions.
The Indian government will pick up the tab for 70 percent of the infrastructure spending but the rest -- around 150 billion dollars -- must come from private sources, Ahluwalia told the summit, part of a series of regional meetings ahead of the World Economic Forum in Davos, Switzerland in early 2008.
The meeting of financial players from around the world eager to learn about India's rapidly expanding economy has heard a litany of complaints from business leaders about the disastrous state of India's infrastructure.
The Indian government has introduced new policies to attract private sector investment and "now the scale of activity needs to increase" to compensate for India's "infrastructure deficit," Ahluwalia said.
India's high growth has pushed its shabby infrastructure to its limits. Power cuts last hours, congested ports delay loading and unloading and the nation's roads are notoriously potholed.
"Which state electricity board can guarantee continuous uninterrupted power?" asked Deepak Puri, chairman of compact disc giant Moses Baer India.
Many companies run their own captive power plants to overcome energy shortages and ensure continuous production.
Rajat Nag, managing director of the Asian Development Bank, called infrastructure India's most urgent problem.
India needs to spend as much as 1.6 billion dollars over the next decade or 10.5 to 12.5 percent of its GDP on infrastructure to keep growth on track, Nag said.
Rajiv Lall, managing director of the Infrastructure Development Finance Co., a private sector financier of Indian public works, said poor governance leading to slow decision-making was a major hurdle in drawing infrastructure investment.
He added there was also a shortage of the skills required for building civil engineering and other projects.
However, Ahluwalia said investors were showing interest in putting money into the power sector as India's states plan to introduce reforms to tackle widespread transmission and distribution losses.
Monday, December 3, 2007
MARKET TALK: CCB, BOC Subject To High Holding Overhang-UBS
Date: 2007/12/03 15:04
MARKET TALK: CCB, BOC Subject To High Holding Overhang-UBS
0704 GMT [Dow Jones] UBS calculates that since 2002, foreign institutions have invested total of US$18 billion in 10 listed H/A-share banks (most H-shares), current market value of US$97 billion accounts for significant 79% of free float market cap; except for ICBC (1398.HK), most lock-ups will expire by end-2008.
Says while most holdings are strategic, "the risk of overhang is real" due to estimated subprime-related losses of US$285 billion for listed global banks, many of which are investors in China banks; significantly lower valuation of developed market financial institutions which could lead to some existing investors looking for better value elsewhere.
Among H-shares, UBS considers stocks with more overhang risk in 2008 are CCB (0939.HK), Bank of China (3988.HK; while stocks with less or no overhang are CMB (0939.HK), China Life (2628.HK), ICBC, BoCom (3328.HK), Ping An (2318.HK), CMB (3968.HK).(RLI)
MARKET TALK: CCB, BOC Subject To High Holding Overhang-UBS
0704 GMT [Dow Jones] UBS calculates that since 2002, foreign institutions have invested total of US$18 billion in 10 listed H/A-share banks (most H-shares), current market value of US$97 billion accounts for significant 79% of free float market cap; except for ICBC (1398.HK), most lock-ups will expire by end-2008.
Says while most holdings are strategic, "the risk of overhang is real" due to estimated subprime-related losses of US$285 billion for listed global banks, many of which are investors in China banks; significantly lower valuation of developed market financial institutions which could lead to some existing investors looking for better value elsewhere.
Among H-shares, UBS considers stocks with more overhang risk in 2008 are CCB (0939.HK), Bank of China (3988.HK; while stocks with less or no overhang are CMB (0939.HK), China Life (2628.HK), ICBC, BoCom (3328.HK), Ping An (2318.HK), CMB (3968.HK).(RLI)
Sunday, December 2, 2007
BT: Warrants trading: What you need to know
Warrants trading: What you need to know
IF THE experts are right, the current boom in this investment tool is far from petering out.
Sun, Dec 02, 2007 The Straits Times
IF THE experts are right, the current boom in this investment tool is far from petering out.
They say more and more market traders are jumping in, as well as investors looking beyond stocks and bonds to bolster their portfolios.
To get an idea of just how popular they have become, consider this: Warrants turnover on the Singapore Exchange has grown from zero in 2003 to about $3 billion a month now.
The number of active warrant accounts has also shot up more than tenfold, to 20,154 this June from 12 months earlier.
A key attraction of warrants is that they are cheap.
Warrants trade around 20 cents to 30 cents, so the minimum investment for one lot - 1,000 shares - could be as low as $200 to $300.
As with any instrument, money can be made and lost when trading warrants.
For example, say an investor bought a call warrant on stock X for 30 cents with an exercise price of $5. Also, assume the conversion ratio is one to one, which means one warrant can be converted into one share.
The current share price is $5.25.
If the investor holds the warrant to maturity and exercises it, he is effectively paying $5.30 apiece for the shares (30 cents warrant cost plus $5 exercise price).
If the price of stock X stays at $5.25, he will get back 25 cents, so effectively, he will lose five cents ($5.30 minus $5.25).
If the share price falls to $5 or below, he will lose just his investment capital of 30 cents, but no more, even if the share price falls drastically.
On the other hand, if the stock's market price shoots up to $5.35, converting the warrant into a share would mean a five cent profit.
Consultant Peter Ang, 32, started trading warrants this year with a principal sum of $15,000.
He made a 25 per cent return in just three days, after he bought DBS Group Holdings and CapitaLand warrants in September.
But he lost about $20,000 in two weeks when the stock market nosedived recently. 'I wasn't careful, so I didn't cut my losses fast enough,' he said.
Despite the spectacular growth in the Singapore warrants market, Hong Kong is still well ahead because of a flood of China listings there.
Previous attempts to launch warrants trading here in 1995, and again in 1999, tanked for various reasons - including overly stringent listing rules and inadequate investor education.
But three years ago, warrant issuers - some of the biggest players include Deutsche Bank, Macquarie Bank, Societe Generale and BNP Paribas - started to double as market makers.
This means these banks provided buy and sell prices on warrants to ensure that investors had the chance to enter or exit the market.
They also embarked on investor education seminars and dedicated websites featuring trading tools.
How to pick a suitable warrant?
Directional view
Without getting bogged down in technical terms such as 'implied volatility', you should consider one factor when picking a warrant: whether you think the underlying asset is likely to go up or down in value.
Your view will determine whether you select a call warrant or a put warrant.
For example, suppose the Government has announced a new project and the likelihood of CapitaLand securing the project is high.
If you think this is good news for CapitaLand, you could consider buying call warrants on the stock - since you would expect the stock price to rise.
But if you think CapitaLand's share price is more likely to fall, you might want to buy a put warrant.
'Theoretically, if one has a neutral view on a stock, it would not be advisable to invest in warrants,' Deutsche vice-president Sandra Lee cautioned.
Timing
You also need to factor in the timeframe - and be confident that the underlying asset price is set to reach your price target at the same time that the warrant matures.
Take a call warrant, for example. The longer the time to expiry, the more time there is for the underlying asset to appreciate, which in turn will increase the price of the call warrant.
A call warrant that is far 'out-of-the money' with very little time to expiry is considered highly risky. This is because it has an exercise price that is much higher than its underlying price and yet has little time to appreciate.
In contrast, when the call warrant's exercise price is lower than its underlying price, the warrant is regarded as 'in-the-money'.
For both call warrants and put warrants, if the exercise price is equal to the underlying price, the warrants are said to be 'at-the-money'.
'If you believe the market is going to have a sharp correction soon, you should choose a short-term out-of-the- money put warrant,' said Mr Simon Yung, BNP's head of retail listed products sales for Singapore and Hong Kong.
'If you expect a stock to move up gradually in one to two months' time, you should choose a mid-term at-the- money or a 1 to 5 per cent out-of-the- money call warrant.'
Why invest in warrants?
Gearing effect
The biggest advantage warrants trading has over stocks trading is the gearing effect, which means that you can make huge gains from a modest investment outlay.
For example, it can cost nearly $20,000 to buy one lot of DBS shares (assuming a market price of $20 a share).
An increase of 1 per cent in the DBS share price will give you a return of $200.
But if you buy a DBS warrant with an effective gearing of 10 times, it should roughly return the same profit of $200.
The effective gearing indicates roughly how many per cent a warrant price will move if the underlying stock changes by 1 per cent.
In this case, trading in the DBS warrant costs just $2,000 but reaps the same $200 return.
'If the share price moves in your favour, you will get higher returns with a higher level of gearing. But if you get your view wrong, losses will also be greater,' said Mr Barnaby Matthews, Macquarie's head of warrants sales.
Since warrants are typically cheaper than underlying shares, this potentially frees up investors' cash for other purposes.
A hedging tool
Buying a put warrant - which gives you the right to sell the underlying asset later - is like buying an insurance policy for your portfolio, as it protects you from falls in the market.
'If the underlying asset declines, then put warrants will appreciate in price to offset losses suffered by the underlying asset,' said Mr Ooi Lid Seng, Societe Generale's vice-president of structured products for Asia ex-Japan.
For example, one can hold OCBC Bank shares and buy OCBC put warrants. If the OCBC share price keeps falling, losses will be partially offset by the gain in the put warrant price.
As warrants can be used to capture both the upside (call warrants) and the downside (put warrants), they can be used as a tool for risk management in a stock portfolio.
Mr Yung said that warrants can be a perfect instrument for balancing a portfolio's risk profile. 'A portfolio with only bonds, property and stock may not be able to optimise the risk-taking capability of the investor,' he said.
Tips on investing
FIRST, investors should never invest all their investment capital in warrants.
'Generally, we do not advise them to invest more than 10 per cent of their total investment capital in warrants due to the high-risk and high-return nature of warrants,' Mr Ooi said.
Retirees should also not use retirement funds needed to maintain their lifestyle to invest in warrants, as they generally have a lower risk tolerance, he added.
Investors should also be disciplined about taking profits and cutting losses. Mr Matthews advised investors to monitor their positions closely as warrants tend to move in greater percentage terms than shares.
Customer service manager Jason Kua, 37, would know. Three weeks ago, he lost about $25,000 in just two weeks after trading in some Straits Times Index warrants.
'Greed made me lose a lot. I was hoping my initial losses could be recovered, but this didn't happen,' he said.
Finally, investors should attend a seminar or do some reading to ensure that they understand the product before investing.
'Asking the expert before you invest is always a good idea,' Mr Yung said.
gabrielc@sph.com.sg
What is a warrant?
WARRANTS are 'derivative' investment products - that is, they derive their value from an underlying asset such as a stock or a market index such as the Straits Times Index.
They give the investor the right to buy or sell the underlying asset from the issuer by paying a specific 'strike' or exercise price within a certain timeframe.
A call warrant gives the holder the option to buy, while a put warrant gives the option to sell.
Take a Keppel Corp call warrant for example.
If the price of the underlying Keppel stock rises above the exercise price before the expiry of the warrant, it will clearly be to your advantage to exercise the right to buy Keppel shares.
If you plan to exercise the Keppel warrant - that is, convert it into a Keppel share - you must do so before the expiration date. Of course, if Keppel's price stays below the exercise price, the warrants will expire worthless.
But investors often do not have to hold warrants to maturity. Normally, they simply buy and sell warrants on the stock market as they move in line with movements in the underlying share price.
'Warrants, unlike shares, have a finite lifespan,' said Deutsche Bank vice-president Sandra Lee. 'For each day the investor holds on to the warrant, the warrant loses some time value.'
Warrants usually have three- to six-month expiry dates.
IF THE experts are right, the current boom in this investment tool is far from petering out.
Sun, Dec 02, 2007 The Straits Times
IF THE experts are right, the current boom in this investment tool is far from petering out.
They say more and more market traders are jumping in, as well as investors looking beyond stocks and bonds to bolster their portfolios.
To get an idea of just how popular they have become, consider this: Warrants turnover on the Singapore Exchange has grown from zero in 2003 to about $3 billion a month now.
The number of active warrant accounts has also shot up more than tenfold, to 20,154 this June from 12 months earlier.
A key attraction of warrants is that they are cheap.
Warrants trade around 20 cents to 30 cents, so the minimum investment for one lot - 1,000 shares - could be as low as $200 to $300.
As with any instrument, money can be made and lost when trading warrants.
For example, say an investor bought a call warrant on stock X for 30 cents with an exercise price of $5. Also, assume the conversion ratio is one to one, which means one warrant can be converted into one share.
The current share price is $5.25.
If the investor holds the warrant to maturity and exercises it, he is effectively paying $5.30 apiece for the shares (30 cents warrant cost plus $5 exercise price).
If the price of stock X stays at $5.25, he will get back 25 cents, so effectively, he will lose five cents ($5.30 minus $5.25).
If the share price falls to $5 or below, he will lose just his investment capital of 30 cents, but no more, even if the share price falls drastically.
On the other hand, if the stock's market price shoots up to $5.35, converting the warrant into a share would mean a five cent profit.
Consultant Peter Ang, 32, started trading warrants this year with a principal sum of $15,000.
He made a 25 per cent return in just three days, after he bought DBS Group Holdings and CapitaLand warrants in September.
But he lost about $20,000 in two weeks when the stock market nosedived recently. 'I wasn't careful, so I didn't cut my losses fast enough,' he said.
Despite the spectacular growth in the Singapore warrants market, Hong Kong is still well ahead because of a flood of China listings there.
Previous attempts to launch warrants trading here in 1995, and again in 1999, tanked for various reasons - including overly stringent listing rules and inadequate investor education.
But three years ago, warrant issuers - some of the biggest players include Deutsche Bank, Macquarie Bank, Societe Generale and BNP Paribas - started to double as market makers.
This means these banks provided buy and sell prices on warrants to ensure that investors had the chance to enter or exit the market.
They also embarked on investor education seminars and dedicated websites featuring trading tools.
How to pick a suitable warrant?
Directional view
Without getting bogged down in technical terms such as 'implied volatility', you should consider one factor when picking a warrant: whether you think the underlying asset is likely to go up or down in value.
Your view will determine whether you select a call warrant or a put warrant.
For example, suppose the Government has announced a new project and the likelihood of CapitaLand securing the project is high.
If you think this is good news for CapitaLand, you could consider buying call warrants on the stock - since you would expect the stock price to rise.
But if you think CapitaLand's share price is more likely to fall, you might want to buy a put warrant.
'Theoretically, if one has a neutral view on a stock, it would not be advisable to invest in warrants,' Deutsche vice-president Sandra Lee cautioned.
Timing
You also need to factor in the timeframe - and be confident that the underlying asset price is set to reach your price target at the same time that the warrant matures.
Take a call warrant, for example. The longer the time to expiry, the more time there is for the underlying asset to appreciate, which in turn will increase the price of the call warrant.
A call warrant that is far 'out-of-the money' with very little time to expiry is considered highly risky. This is because it has an exercise price that is much higher than its underlying price and yet has little time to appreciate.
In contrast, when the call warrant's exercise price is lower than its underlying price, the warrant is regarded as 'in-the-money'.
For both call warrants and put warrants, if the exercise price is equal to the underlying price, the warrants are said to be 'at-the-money'.
'If you believe the market is going to have a sharp correction soon, you should choose a short-term out-of-the- money put warrant,' said Mr Simon Yung, BNP's head of retail listed products sales for Singapore and Hong Kong.
'If you expect a stock to move up gradually in one to two months' time, you should choose a mid-term at-the- money or a 1 to 5 per cent out-of-the- money call warrant.'
Why invest in warrants?
Gearing effect
The biggest advantage warrants trading has over stocks trading is the gearing effect, which means that you can make huge gains from a modest investment outlay.
For example, it can cost nearly $20,000 to buy one lot of DBS shares (assuming a market price of $20 a share).
An increase of 1 per cent in the DBS share price will give you a return of $200.
But if you buy a DBS warrant with an effective gearing of 10 times, it should roughly return the same profit of $200.
The effective gearing indicates roughly how many per cent a warrant price will move if the underlying stock changes by 1 per cent.
In this case, trading in the DBS warrant costs just $2,000 but reaps the same $200 return.
'If the share price moves in your favour, you will get higher returns with a higher level of gearing. But if you get your view wrong, losses will also be greater,' said Mr Barnaby Matthews, Macquarie's head of warrants sales.
Since warrants are typically cheaper than underlying shares, this potentially frees up investors' cash for other purposes.
A hedging tool
Buying a put warrant - which gives you the right to sell the underlying asset later - is like buying an insurance policy for your portfolio, as it protects you from falls in the market.
'If the underlying asset declines, then put warrants will appreciate in price to offset losses suffered by the underlying asset,' said Mr Ooi Lid Seng, Societe Generale's vice-president of structured products for Asia ex-Japan.
For example, one can hold OCBC Bank shares and buy OCBC put warrants. If the OCBC share price keeps falling, losses will be partially offset by the gain in the put warrant price.
As warrants can be used to capture both the upside (call warrants) and the downside (put warrants), they can be used as a tool for risk management in a stock portfolio.
Mr Yung said that warrants can be a perfect instrument for balancing a portfolio's risk profile. 'A portfolio with only bonds, property and stock may not be able to optimise the risk-taking capability of the investor,' he said.
Tips on investing
FIRST, investors should never invest all their investment capital in warrants.
'Generally, we do not advise them to invest more than 10 per cent of their total investment capital in warrants due to the high-risk and high-return nature of warrants,' Mr Ooi said.
Retirees should also not use retirement funds needed to maintain their lifestyle to invest in warrants, as they generally have a lower risk tolerance, he added.
Investors should also be disciplined about taking profits and cutting losses. Mr Matthews advised investors to monitor their positions closely as warrants tend to move in greater percentage terms than shares.
Customer service manager Jason Kua, 37, would know. Three weeks ago, he lost about $25,000 in just two weeks after trading in some Straits Times Index warrants.
'Greed made me lose a lot. I was hoping my initial losses could be recovered, but this didn't happen,' he said.
Finally, investors should attend a seminar or do some reading to ensure that they understand the product before investing.
'Asking the expert before you invest is always a good idea,' Mr Yung said.
gabrielc@sph.com.sg
What is a warrant?
WARRANTS are 'derivative' investment products - that is, they derive their value from an underlying asset such as a stock or a market index such as the Straits Times Index.
They give the investor the right to buy or sell the underlying asset from the issuer by paying a specific 'strike' or exercise price within a certain timeframe.
A call warrant gives the holder the option to buy, while a put warrant gives the option to sell.
Take a Keppel Corp call warrant for example.
If the price of the underlying Keppel stock rises above the exercise price before the expiry of the warrant, it will clearly be to your advantage to exercise the right to buy Keppel shares.
If you plan to exercise the Keppel warrant - that is, convert it into a Keppel share - you must do so before the expiration date. Of course, if Keppel's price stays below the exercise price, the warrants will expire worthless.
But investors often do not have to hold warrants to maturity. Normally, they simply buy and sell warrants on the stock market as they move in line with movements in the underlying share price.
'Warrants, unlike shares, have a finite lifespan,' said Deutsche Bank vice-president Sandra Lee. 'For each day the investor holds on to the warrant, the warrant loses some time value.'
Warrants usually have three- to six-month expiry dates.
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