Personal Investment Strategy, Tactics and Tips

Asia has always been a fast follower of all things Western. None more so than the stock markets. When the US sneezes, Asia catches a cold. Actually the whole world catches the cold. Anyway, with the Asian powerhouses like China and India blazing ahead in economic growth, there will come a time when Asia will begin calling the shots. When will that happen? Singapore’s BT has this piece…

Asia all set to decouple further in 2008, Business Times, Singapore, 28 December

AT a personal level, many involved in the financial market universe will no doubt have suffered from the credit market crunch whose after-shocks have reverberated throughout the world’s financial capitals since August.

Bonuses paid for 2007’s efforts have by several accounts been less generous. And more cost-cutting can be expected. In the bigger picture, however, the world’s financial markets have so far weathered the crisis well, thanks no doubt to timely central bank intervention, in the form of interest rate cuts and generous liquidity injections.

So despite the fact that a host of blue-chip US investment banks have announced billions of dollars in losses or provisions related to the sub-prime debt held on their books, Wall Street’s blue-chip indices will end 2007 comfortably higher than in 2006. Not even the falling US dollar or the threat of slower US growth in 2008 has been enough to force the US stock market into a dizzy downward spiral. Researchers at US investment bank Morgan Stanley - itself a victim of large losses on the sub-prime front - warn that the US economy could even experience a mild contraction over the coming months.
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A WSJ take on the effect of countries’ reserves (aka Sovereign Wealth) being used to buy assets in the US. Of course, a country buying assets in another is nothing new. Many countries (China and Japan being highly visible) have been known to be buying billions of dollars in US treasuries. However, what’s creating headlines lately has been the identities of these buyers and the fact that they’re buying the bluest of the blue chip companies in the USA.

Living With ‘Sovereign Wealth’, The Wall Street Journal Asia, 27 December

Citigroup and Morgan Stanley were feeling lonely around the holidays and found love in the arms of an SWF, and so can you.

We refer, of course, to sovereign wealth funds, those large accumulations of dollars in the hands of oil-producing nations and Asian export powerhouses (partly as a result of the way the latter run their currency systems). It was a poke in the eye to some Americans recently when Abu Dhabi came to the rescue of Citigroup with a $7.5 billion investment. China’s government soon thereafter coughed up $5 billion for a piece of Morgan Stanley, followed by Singapore’s tentative $4.4 billion investment in Merrill Lynch.

More than $1.2 trillion is said to be burning a hole in China’s pockets. Abu Dhabi, the Mideast oil sheikdom, has an estimated $875 billion. Even Russia has $300 billion. Many say these government dollars necessarily come with a political agenda. Should we worry?

Maybe, but the problem is not as new as it sounds, and SWFs are not an especially worrisome form of it. Having assayed the risk of nationalist blowback, sovereign investors already have been restricting themselves to passive, non-controlling stakes in companies, behaving more like mutual funds than private equity funds.

More troubling in principle are foreign governments taking direct controlling stakes in individual businesses. We’ve seen our share of that too.
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Once the domain of religious groups, anti-war activists and conservationists, Socially Responsible Investment (SRI) funds has now caught on in popularity. SRI funds are those that invest according to social values. So they usually shun companies that deal with tobacco and gambling. Typically more volatile, more and more of these funds are doing very well. An article in the SCMP deals with this topic in depth from an Asian perspective…

Responsible investments worth their weight in gold.More funds are seeking to do good while making money, South China Morning Post, 23 December

In his October policy address, Chief Executive Donald Tsang Yam-kuen called for the development of an Islamic bond market in Hong Kong.

Sharia-compliant funds are designed to appeal to Muslims and invest only in companies that adhere to a specific set of values codified in Islamic law.

More broadly, value-based funds are called socially responsible investment (SRI) funds and put their money where their conscience is.

They seek maximum returns while considering social values. They limit their investments to companies that meet certain social requirements - corporate governance reform, a commitment to the environment, workplace diversity - while sometimes rejecting those involved in areas they oppose, such as gambling, alcohol, weapons or abortion.

Mainstream funds typically use financial ratios to choose stocks, while SRI funds often exclude companies for ethical reasons before considering financial performance and prospects.

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If you’re into Singapore stocks, analysts are predicting the 3 telecom stocks (Singtel, M1 and Starhub) to do well in 2008. Reasons given - strong recurrent cash flow due foreigner workers high usage and to Singaporeans’ love affair with the mobile or cellphone.

Singapore, Telco stocks expected to ring in good value, Business Times, 21 December

By Siow Li Sen

Analysts see them as fairly safe bets in times of economic uncertainty next year

SINGAPORE’s three telco stocks are among the best bets as defensive stocks for next year amid economic uncertainty and continuing volatility in the financial markets.

Not surprisingly, Singapore Telecommunications, the biggest listed company by market capitalisation here, gets the most votes.

But StarHub and M1, ranked the Number 2 and 3 telco players, have their own fans, too, who look to the smaller telcos for their high dividend payouts.

Telco stocks will continue to perform well next year benefiting from the liberal foreign workers policy as well as Singaporeans’ continuing love affair with the handphone.

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Way back in kindergarten, I remembered my mom taught me one thing: do only one thing at a time (I’m sure yours did too). Warren Buffett suggest that we look at only 6 stocks (can’t remember that source now). Now, research has shown that our moms and Warren Buffett have been right all along…

STOCK MARKET INVESTING
THE GREAT DATA BLANK
By Michael R. Sesit
The Straits Times

DO YOU find yourself spending days examining countless bits of data before deciding where to invest? The bad news is you might be wasting your time. The good news, if you can call it that, is you have plenty of company - particularly in the professional investment community.

‘Our industry is obsessed with the minutiae of detail,’ says Mr James Montier, chief global equity strategist at SG Securities in London and a specialist in applying psychology to finance.

One reason is that analysts seek to impress with quantity over quality, often producing voluminous reports that amount to the ostentatious presentation of the obvious. Another is that ‘analysts are often petrified of saying, ‘I don’t know’,’ Mr Montier says.

Academic research shows more information does not necessarily imply better information - except perhaps when computers are used to process the data.

Expert handicappers were just as accurate at predicting winners of horse races when they had five bits of information as when they had 10, 20 or even 40 bits, according to a 1973 unpublished study by Mr Paul Slovic, a psychologist at the Oregon Research Institute.

More recently, three researchers at the University of Chicago’s Graduate Business School - doctoral candidate Claire Tsai and behavioural scientists Joshua Klayman and Reid Hastie - came up with similar results after testing the ability of American football fans to accurately forecast the winners and point spreads of collegiate football games.

TAKING STOCK
‘Too much time is spent trying to find out more and more about less and less, until we know everything about nothing. Rarely, if ever, do we stop and ask what do we actually need to know.’ MR JAMES MONTIER, chief global equity strategist at SG Securities in London.
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