Sector Rotation chart

Ten FTSE ST All-Share Industry Indices:

FTSE ST Oil and Gas Sector Index
FTSE ST Basic Materials Sector Index
FTSE ST Industrials Sector Index
FTSE ST Consumer Goods Sector Index
FTSE ST Healthcare Sector Index
FTSE ST Consumer Services Sector Index
FTSE ST Telecommunications Sector Index
FTSE ST Utilities Index
FTSE ST Financials Sector Index
FTSE ST Technology Sector index

FTSE ST Real Estate

Chindia

Old itches are hard to scratch, since pulling statistics from Walpha is as easy as counting 123, I’m back to comparing india and china again.

This time focusing on population demographics. I’ve looked at the total population and age distribution as well as life expectancy

However from the median age, one can straight away deduce that india has a younger population than china. ie 25.1 years compared to china’s 33.6 years.

Population Distribution

India| child | adult | elderly | all
male | 16.48% | 32.59% | 2.464% | 51.54%
female | 15% | 30.74% | 2.725% | 48.46%
all | 31.48% | 63.33% | 5.188% | 100%

China | child | adult | elderly | all
male | 10.68% | 36.95% | 3.808% | 51.45%
female | 9.421% | 34.96% | 4.171% | 48.55%
all | 20.1% | 71.92% | 7.979% | 100%

31.48% of 1.17 billion indian children > 20.1% of 1.31 billion chinese children

We know that human captial is a economic resource, however young children needs to survive until they become economically productive adults.
and India’s life expectancy is much lower than that of china by 3.6 yrs. So the question remains , does india have more economic potential than china?

Review : Candlesticks Tactics day 1

I’m glad to see Collin and Rebekkah again. This time they have grow from a two person a year back double to 4 now, I noticed so has Rebekkah’s tummy as well. God bless her baby and her team. I think in this recession presents a good opportunity for start-up businesses. I must say they do give value for money , even stuff outside the candlestick syllabus are covered.

3 Ps of Trading

1. Price Management
   • E – Entry Price ( Trigger )
   • T – Target Price  ( Potential Profit )
   • E – Exit Price ( Stop loss)
   • T – Time Frame
2. Position Management
   • Risk Reward Ratio = Potential Profit/ (Stop loss – Trigger) > 3 : 1
   • Position sizing = Total amt willing to lose / ( Stop loss – Trigger )
3. Psychology Managment
   • Take Half Profit when hit Target Price or 10 % proft
   • Ride other half profit

Volume Vs Price action

1. Super Volume /\ + Price /\ = Reversal
2. Volume /\ + Price /\ = Bullish
3. Volume \/ + Price /\ = Bull Weakening
4. Volume /\ + Price \/ = Bearish
5. Volume \/ + Price \/ = Bear Weakening

Moving Averages

1. 200ma = Long Term Investors
2. 50ma = Banks / institutions
3. 20ma = Traders

Sequence of Stop loss tiggers

1. Initial Risk Stop
2. Break even stop
3. Trailing stop (from previous day low)
4. Time stop

Check Fibbonaci sequences.

Short break : Quick thoughts , CMT

FairPrice sub-underwrites CapitaMall rights issue CapitaMall Trust (CMT) – Singapore’s largest supermarket chain NTUC FairPrice has agreed to spend as much as $22.1 million to buy up to 27 million rights units in CMT if the issue is not fully subscribed. The sub-underwriter arrangement comes under a standby purchase agreement. The 27 million units represent about 1.8 per cent of the rights units that have been offered by CMT and, if fully allocated to NTUC FairPrice, will raise its substantial stake from 6.35 per cent to 7.3 per cent. This also assumes that the groceries retailer fully subscribes for its own entitled rights shares. As a sub-underwriter, NTUC FairPrice will receive a fee of $332,100, or 1.5 per cent of the price for the 27 million rights units. The standby purchase agreement was inked between NTUC FairPrice and the joint lead managers and underwriters.

Interesting development, smart move by NTUC to get value and suck some money from big rival likes cold-storage/carrefour through the dividends of trust units, and perhaps even out-perform their competitors,since technically buying into CMT will offset their own rents. Although I’m not a NTUC union member, I’ve a NTUC linkpoints subscription through the use of my Fairprice Plus Visa. Hope in the near future I will be able to exhange linkpoints for capitalmall shopping vouchers instead of the crappy metro ones presently. Provided their value is not inflated since capitaland is paying staff bonuses in terms of captialand vouchers. haha

Review: Fundamentals in Investing Seminar

The 6hr moneySENSE seminar I attended comprised of three separate lectures.

1. Investing in Securities- Back to Basics
   • Fiscal Policy – Government reducing taxes (more for tweaking internal economy )
   • Monetary Policy – MAS printing money , Central bank setting SIBOR interest rate, controlling exchange of SGD over a trade weighted basket ( for tweaking external ecnonomy)
   • Exchanges is a more liquid market with No counter party risk compared to OTC
   • 2 Different Investments Goals – a) Capital Gains : b) Yield
   • Capital Gain for longer investment horizon.
   • Sometimes Options come with Commercial Bond issues.
   • Business Cycles – Investment by Sectors
     Up cycle
     6> Transportation
     7> Technology
     8> Capital Goods
     9> Raw Materials ( commodities :- Dry Baltic Index )
     10> Energy & Resources
     Down cycle
     1> Consumer Non Cyclical ( perishables – luxury/food)
     2> healthcare
     3> utilities
     4> Consumer cycliclas
     5> Financials
2. Making SENSE of Technical Analysis & Risk Control
   • Different TA tools
   • Chart Patterns
3. Creating a MoneySensible Financial Plan
   • Ballpark Figure for Financial Independence
     Lifestyle $36,000
     Housing Loan $100,000
     2 Local uni education $300K
     + Total = $1.7M
   • Cash Flow Statement
   • Basic liquidity ratio
   • Saving ratio
   • Debt Service ratio
   • Non-mortgage debt service ratio
   • Budgeting
   • Undertanding a) Need b) Willingness c) Ability to take risk before making any investments
   • Create own recipe for % returns and % volatility
   • Medical Insurances
     • Term plan for loss of income
     • small 90/99 year critical illness term for AM
     • “shield” plan for medical expenses

All in all the 3 lectures refreshed my understanding of what I’ve already knew , especially on the credit crisis and TA charts. The last lecture was extremely useful to learn how to create a personal financial plan, as well as different stages in life to watch out for.

Looking ahead, my 2009 to Come

An obligatory last day post of 2008, for review and stock taking. However never a regressive person I’m, I will look for new grounds to cover and paths to navigate. I do not fear the unknown but only worry being stagnant and redundant.

So the new year brings new resolutions, despite the bleak economic outlook.

Investments wise irregardless of not doing well in my financial portfolio , I will continue investing in creative capital. Because it is the future currency in the coming knowledge economy.(unless the world follows china and becomes commie, then dah government owns you and your intellectual property)

Making critical choices.

Career wise,  after graduation I would prob be stuck working in the same industry for the next 5-10 years till the next business cycle. I’ll have to decide either to pursue my professional registration or not.

Relationship wise , I want to take time to start on the right foot. When work starts, it is difficult to juggle a reasonable work-life balance especially in the building line with deadlines aplenty. Making decisions are tough,nonetheless critical choices have to made.

‘C’ this post refers to you, despite trying my darn best to understand you and from your writings, the feeling is non-congruent with I get in our communications. I don’t seem to get across. No point throwing my good time after bad, and I shall mention this again , it’s all about give and take.

‘J’ with you I think I’m out of my league, not sure you’ll be able to tolerate my humour haha. If I do ever get you to laugh

And on the same note, I came across this hilarious story as told from a female perspective.

A man wanted to get married. He was having trouble choosing among three
likely candidates. He gives each woman a present of $5,000 and watches
to see what they do with the money.

The first does a total make-over. She goes to a fancy beauty salon,
gets her hair done, new make-up and buys several new outfits,
then dresses up very nicely for the man. She
tells him that she has done this to be more attractive for him because
she loves him so much. The man was impressed.

The second goes shopping to buy the man gifts. She gets him a new set of golf clubs,
some new gizmos for his computer, and some expensive clothes. As she
presents these gifts, she tells him that she has spent all the money on
him because she loves him so much. Again, the man is impressed.

The third invests the money in the stock market. She earns several times
the $5,000. She gives him back his $5,000 and reinvests the remainder
in a joint account. She tells him that she wants to save for their
future because she loves him so much.
Obviously, the man was impressed.

The man thought for a long time about what each woman had done with the
money he'd given her. Then, he married the one with the biggest boobs.
Men are like that, you know.

Knowing men are from mars like myself, I tend to agree as well. However I would choose a bride with the biggest asset, (not necessary boobs) A bigger ‘heart’ is more important

RMI: Financial Globalization causes and consequences

Last lecture of the series. Basically a final summary lecture of the causes and remedies for the global financial crisis.

Impacts on individual Asian countries was discussed, which was very informative. Will shall share them as follows.

• Asian region’s financial institutions have relatively small exposure to toxic assets
• Asia’s major trading partners other than US continue to do well
• Asian economies have large FOREX reserves
• The 1998 financial crisis forced governments in this region to introduce regulation, risk management and checks and balances in financial instruments.
• Domestic trade within region is 50% of total trade
• Asia will weather the storm

SINGAPORE

1. Little change in value of Sing Dollar versus US Dollar
2. GDP may shrink by 1%
3. Tourism down by 6%
4. IRR project viability in focus

JAPAN

1. Japanese banks have relatively small exposure to toxic assets in relation to equity
2. Export earnings to US and Europe hit
3. SONY, PANASONIC, NISSAN and HONDA announce profit warnings
4. Carry Trade in Yen unravels

KOREA

1. Korean banks have relatively small exposure to toxic assets in relation to equity
2. Economy dependent on export to US and Europe
3. There is a liquidity crunch for availability of US$ to service forex deposits and foreign debt
4. KOSPI down by 40%
5. Korean won has depreciated by 50% versus USD-1998 level
6. Real estate prices are down
7. 11 $ bn package announced to stimulate domestic industry
8. 30 $ bn credit swap arranged with US federal reserve

CHINA

1. Chinese banks have relatively small exposure to toxic assets in relation to equity
2. Stock market has been badly affected
3. Export earnings to US and Europe hit and factories closed down
4. Industrial growth will grow at < 10% down from 17%
5. Unemployment will swell along with possible social unrest.
6. Policy changes will be made to boost domestic consumption especially in rural areas.
7. Worldwide demand for raw materials will come down.
8. GDP growth may go down to 8% from 11.9%

INDIA

1. No information on Indian banks exposure to toxic assets – likely to be minimal.
2. Stock market has been badly affected.
3. Software export earnings to US and Europe hit and layoffs expected.
4. Industrial growth will not change much as it is driven by domestic demand.
5. Flight of investment capital to safe destinations and Rupee depreciating against USD
6. Real estate bubble set to burst.
7. Policy changes will be made to boost domestic consumption especially in rural areas.
8. GDP growth will go down to 7- 7.5% from 8.9% last year

Asian Countries Loan-Deposit Ratio

For Korea is significantly high

Other Notes:

• Bank debt restructuring by resetting loans if the capital lost in the asset side cannot be balanced by injected liquidity (either gov or private)
• With low interest rate, USD might be the next currecy for carry trade. Perhaps like Japan , American will experience the lost decade.
• Comparing India and China’s economy which I’ve blogged about earlier

Chartered Financial Analyst

I’ve been deliberating whether take the CFA certification for sometime, it’s really painfully boring to plough through 5 volumes of financial french. Foremost I’m convincing myself I have to understand financial analysis despite knowing nuts about accounting except for calculating tax deductibles for the annual income tax assessments due. The following reasons why it is important to me.

1. Damn bloody gahment that singaporeans voted for is pro-business(banks & esp MNCs with FDIs) rather being pro-singaporeans. Learning from the mini-bomb fiasco it’s caveat emptor for the rest of us.
2. For my future family planning, I’m glad my dad did that for me and I will pay it forward for my children. ( It’s rather difficult now because I dont have a SO to start with)
3. Possible alternative for a mid-career change into the finance related line (real-estate development )
4. A additional skill which might be necessary  when I attain senior management levels in my career.

Why I’m not going to do this for,

• Cause all kiasu singaporeans taking CFA as well
• Certification Paper chase
• Bragging rights to put on the name card
• Being a Pro Bono tuition teacher for my sister

For the former reasons mentioned 1 & 2 I can get by just mugging a copy of the past exams and study guide. If I wanted to achieve 3 or 4 I will have to invest time and money for the exam certification. The deadline for the CFA registrations is around mid-feb,I’m stuck in a quandary and I detest asking for any holy divine intervention. Or I could use the money to do some badly procrastinated travelling instead.

RMI: Why did subprime mortgages cause a global crisis

Off the top of my head:

The sub-prime crisis really was not the root cause that gave the global financial markets diarrhea, it was the financial engineering ( read obfuscation ) that poisoned the US banks and killed the eldest brother ( lehman ).Sub-prime loans were used as collateral for CDOs which were then rehashed into synthethic CDOs packaged as securities for CLNs and CDS, doubling the risk exponentially.These products were then sold all over the world to banks and investors looking for high yield. What the sub-prime crisis did was to trigger the repricing of the risks for such financial innovations (securitisation of loans) by banks and investors, because the risks were initially underestimated by the credit rating agencies. This process started the de-leveraging and unwinding of various structured products sold by the banks. Causing the banks to liquidate their assets in order to shore up their tier-1 capital requirement to meet the risk level of their holdings. When everyone sells at the same time will make the market tank. At one point , the interbank interest rate shot up because banks didnt trust one another.

New concepts learnt:

• Securitisation : Turning illiquid assets into marketable assets
  

  Rating	Tranche	Returns	Risk
  AAA “Senior”	6 Million	$10,000	0.167%
  BBB “Mezzanine”	3 Million	$90,000	3%
  DD “Junior”	1 Million	$400,000	40%
  	10 Million	$500,000	5%

• Intermedation VS Dis-intermedation of Banks
• Originate-to-hold model VS Originate-to-distribute
• De-coupling of asian economy does not work, even thou sg export to US is only 30%, indirect exposure to US thru the China market which buys machines from singapore to manufacture goods for US consumption. US slows , everyone in the world slows because US is the largest consumer in the world as well the the biggest debtor. Living on borrowed money
• Low interest rate environment due to trade surplus of US trading partners who accumulate foreign exchange which are then used to buy US bonds.
• Moving riskier assets to SPV utilised by banks to lower capital requirement. Banks loaned money to SPV to take this high risk assets off the balance sheet. Capital requirements for commercial loans are lower compared to the former.

Lessons learnt from crisis

• Sub-prime mortgage lenders
  • Poor underwriting and fraudulent practices “liar’s loans”
  • Worsened by “originate-to-distribute” model
• Investment Bankers /  Structurers
  • Compensation schemes encouraged disproportionate risk-taking
  • shortcoming in risk management eg poor assessment oand management of
    1. market/ funding liquidity
    2. reputational risks associated with off-balance sheet vehicles (conduits & SIVs)
    3. tail risks
• Credit Rating Agencies (CRA)
  • Poor evaluation of complex instruments such as mortgage backed securities and CDO
  • inadequate assessment and modeling of dependence structure reflected by sudden sharp rating downgrades
  • conflict of interest. to provide advisory service in structuring a security issue and to rate the security issue. Serve investors or investment bankers
• Investors
  • lured by higher yields and not pushing hard for greater disclosure
  • limited understanding of complex instruments
  • over-reliance on CRA ratings

2 types of impact on Asia : Financial and trade
Reits might be the next to go belly up due to borrowing limit tagged to their portfolio. With higher scrutiny, REITS might find it difficult to refinance their loans.

RMI: Risk and Return for Different Asset Classes

Three Major Asset Classes introduced namely,

1. Primary Assets (Stuff that generate direct cashflow from trading) : Equities(common&preferred stock),bonds and currencies
2. Derived Assets : Derivatives, market indices, mutual funds, hedge funds, ETFs, REITs,Options,Swaps
3. Physical Assets ( most illiquid ) : Real Estate, housings,land buildings, precious metals, energies, commodities

Risk and Returns for US wealth indices for different asset classes : 1926-99

Asset Types	Return	Risk
Small Stocks	13.3%	20.1%
Large Stocks	12.6%	17.6%
LT Gov Bonds	5.5%	9.3%
T-Bills	3.8%	3.2%

Source : Francis and Ibbotson (2002)

Risk is due to fluctuations in the returns over different time periods
2 measures of riskiness include
- Variance
- Standard deviation

Risks can be reduced by diversification over multiple asset class.
Thus the magic question is what constitutes an optimal asset allocation that diversifies risk.

Homework to do on my own : lookup 1. Sharpe Ratio 2. Markowitz theory

Key takeaways from the lecture

• Past studies have shown Historical volatility = implied volatility, thus in order to measure forward risks, one can study the options market rather than relying on historic information. Depending of the current volatility. I think the VIX index applies this theory.
• Study the asset location of mutual funds or composite indices to benchmark performance for portfolio diversification
• Short term US T-bills are assumed to be risk-free , but in reality is associated with interest rate risk.