Eurozone October Update

The Eurozone crisis may have been averted for the time being, but to be honest, they are yet to see the break of dawn. As the clock ticks and urgent decisions are needed to be made, Germany and France have given hopes to the rest of the Eurozone that they have an approach or in their words a “Bazooka” to “blow” the Eurozone problem out of the danger zone. Bazooka it may be… But the question is, what if they miss the target? And this would not be something you could brush off with a simple “oops!”

Germany and France are working  on (and claim to have)the approach to address the Eurozone mess. As much as they have propagandized it, they have not let the rest of the world into their approach. I mean, it’s a good sign that Angela Merkel and Nicolas Sarkozy are meeting to discuss the issue… But investors are going to need to see a layout (at least a general one) as soon as possible. Things may seem hunky-dory right about now but if no hints are going to be shared soon, investors may become restless and the market may become very choppy. This may actually become true as Germany and France have stated that their lips are zipped on this issue till the end of the month where they will make the idea public by announcing it in the Cannes Summit. 

Even then, France and Germany are having two different views on this whole debt issue. France wants to recapitalize banks in order to have more money circulating. But this would work to favour the nation as France is having fears of a possible downgrade of their AAA-rated bonds if money becomes tight. The 440 billion Euro bailout has already had some cash flowing through the region but in order to have it running without the possibility of falling flat on its face, the Eurozone would need at least 1.5 trillion Euro; which at this point may be impossible to raise upfront as it might be a major strain on the member states. So the alternative might be to leverage the European Financial Stability Facilities (EFSF), which investors are less enthusiastic about. 

Germany on the other hand feels that national governments should take care of their own dirty laundry. And since Germany is Ra-Ra about the private sector sharing into the crisis, it is very possible that they are planning on recapitalizing banks but may not be on board with the same reason as France as France should learn to do its own laundry (from Germany’s point of view). Having said that, it is clear that the focus is currently shifted to the banking sector as there are fears of a banking crisis waiting to take place… So for those who said banks were safe and didn’t quite believe that they could become messed up… well, this is the point is go “I TOLD YOU SO” (plus, where do you think the word BANKrupt comes from?)

So, recapitalizing banks… is this good or bad? There are two ways that they might be looking at recapitalizing the banks. 

1) Drop in share price with dividend payouts or 2) Create new shares. But what do they have in store? If they choose to

1.       Drop share price with dividend payouts

a.       Shareholders would not be very happy as their shares would be significantly devalued.

b.      Banks would not be exposing themselves to (much) new investors and would only be answerable to current shareholders.

       2.      Create new shares

a.       Shareholders would be able to buy into these without having to trade-off of their previous investments.

b.      Banks would be exposing themselves to a new pool or investors creating more market exposure. 

If there is a choice that is to be made, the second option would be the lesser of two evils.

While that is happening to the banks, Greece’s problems are still evolving (I think Darwin was studying the wrong subject to prove his theory). As Greece is ironing out (or trying) it’s creases, things look like it may not work out too well or as what is being expected. If you ask me, it might be wise for Greece to think of defaulting on its debts simply because it is evolving into a Debt-a-saur (trying to make this dry article a little humorous… so work with me here).  But this decision should not be made until the banks in the Eurozone are prepared to absorb the HUGE losses that would be incurred by the default. To put it into perspective, think of it this way, you have loaned a million dollars to someone and are waiting for that person to pay back. If the person can’t payback and is on the verge of declaring bankruptcy, you might want to make sure that you are in a position where the million dollars in not that significant to be  written-off by you. 

By,

Ashveen Chakravarthy Sekaran

October 11^th, 2011

FinTips October

When I was just a little boy,

I asked my mother, what will I be,

Will I be handsome, will I be rich,

Here’s what she said to me,

Oh Ashveen, Ashveen,

Whatever would be, would be,

The future’s not ours to see,

Oh Ashveen, Ashveen,

What will be, will be.

For which I went… But mom, you are supposed to know the answer to EVERYTHING!  Well, I was 3 then. So naturally, my parents were THE smartest people to walk the earth. The age where my father was the strongest man, stronger than superman, my mom was the most beautifulest (it was a completely acceptable adjective when I was 3) person and nobody was as beautiful as her! And living with my sister was the worst nightmare (for her at least). 

Well, eventually I grew up. And today, when I see what my mom told me when I was 3 years old, it makes perfect sense! The future’s not ours to see! Especially, when we look at the current market. Looking at the global indices may make any investor pretty nauseous right about now and things don’t seem to be aiding this as Bursa just announced that the roller coaster ride might be continuing for a while.

With the Eurozone crisis insatiable and US problems becoming grotesque, things aren’t going to be financially safe for a while. My last e-mail had mentioned about the German problem and what it may lead to. Well, let’s just say that the plot has thickened and now the suspense is killing (literally). With the aids given to Greece to flush the debt issue down the drain, Greece better be able to settle their debts and most importantly, find methods of regenerating their stagnant economy. With people protesting the Eurozone aid pouring into Greece, much work is being left undone. What I don’t understand is this: (See if you can follow)

1.       Greece is in deep… trouble. (well, it’s a public article… so I have to mark my language, right?)
2.       People don’t want to work coz there is risk of not being paid.
3.       People start protesting against the government for bad planning.
4.       Eurozone takes into account the happenings and takes steps to correct the errors of Greece from affecting the whole of the EU.
5.      11 of the 17 Countries in the EU (as at this moment) decide to fund Greece. Might be increasing as they are meeting today to further discuss.
6.       Representatives go to Greece to help with the economic and financial plans.
7.       Greeks get angry that their financial system is being monitored by other members of the EU.
8.       Greeks protest against the “others” to get out of their country and leave them be.
9.       Greeks also protests against government for letting “others” come in.
10.    Greeks don’t want funds from others and are saying that they can solve their own problems.
11.    BUT they do not want to have an increase in tax, pricing, and do not want to contribute more than what they already are to the work force.
12.    And they are still protesting…

That’s just part of the story. Now, another fear that has started to gloom the scene is the amount Germany has invested into Greece. With a significant sum (based on this economic climate) that has been pumped into Greece, Germany is only hoping that nothing disastrous happens to it or Greece. If something like that were to happen, Germany will be hitting the wall. And if that happens, there will be a huge global display of fireworks and not the pretty kind. 

Moving more to the west, we see that US has also started having quite a bit of an issue. The actions of America seem to be more like that of the school bully. The bully is bullied at home and can’t do anything about it. He cries and whines about it but nobody really cares. So to vent his frustration and demand power, he goes to school and starts bullying other kids. And when he finds that one kid who is the easy target, he starts treating the kid as his personal lunch money ATM. In America, protests (or how some might deem it as riots) are taking place in Wall Street and Boston where people are voicing against the high medical costs and prices of goods. So, the government is being battered by the people. With tuition costs sky rocketing, many are finding it hard to continue their education and even find jobs as unemployment is still climbing the limitless ladder. As much as I want to feel bad for the American government, I should say, they brought this on themselves. They had pampered their public to such an extent that now; they demand to be treated well, despite the dying economy. With slogans such as “fight the rich, not their wars” and “human need, not corporate greed”, I feel the focus of this protest is being channeled towards the wrong direction. Then again, there is not quite a foundation for this protest in the first place. There is no leader, no concrete ideology or philosophy. Is this the process in which a developed nation becomes undeveloped? 

That is why, America (the bully), has started ordering China (the kid) to re-asses its money and to listen to America’s way of managing their funds coz America has been doing such a splendid job at that. China is afraid to go against the wishes of America because of the heavy investment of America on Chinese soil. The slowdown of the Chinese monetary system has begun to threaten the American economy which has already slipped more than 12% in these few months. With China also being asked to buy into the Italian bonds/treasuries, the options shoved into its (China’s) face is really not giving it much room to breathe. So the current market in this (ASEAN) region is pretty much reflecting it. When would it cool off? There really is no sane answer to that question. So all we could do is tread carefully.

For those who had invested more than RM 100,000.00 , this current market movement has aided them well as they could switch in and out without fear of having to spend more after exhausting their 2 free switches. But for those who invested lesser than RM 100,000.00, I had to wait for quite a while to not spend the 2 free switches given and incur charges on the investment. And as scary as it may sound, get your checkbooks ready as this is an excellent time to reinvest… Think of it this way, the market wants money, they lower the prices of goods without compromising the quality… Who wouldn’t want it? Imagine getting a Rolls-Royce for RM10,000.00…. Who wouldn’t want it?!

By,

Ashveen Chakravarthy Sekaran

Oct 3^rd, 2011

FinTips August

Et tu, Germany?! If you are an avid reader, love history and historical plays, you might have linked the earlier sentence to the famous Shakespearean Quote “Et tu, Brute?!” It is the Latin phrase that was used to poetically represent the last words of the Roman dictator Julius Caesar to his best friend Marcus Brutus at the moment of his murder by stabbing. It can be translated into English as “You too, Brutus?!” and has been used to signify the utmost betrayal. So now the question… Why did I replace Brutus with Germany? Well, let’s go into the details! But before that (where are my manners?!), I hope that you had a wonderful Aidil Fitri and enjoyed the holidays that followed it.

As the global economic scene has been unveiling a distorted tapestry, by parts, for the past 3 years, the end of the tunnel is still not quite in sight; At least for the US and the EU (European Union). When we shift our focus to the EU, we see that the region was affected quite badly during the economic crash of the US due to the debt mortgage issue. But that’s another story for another time. Back to the EU… When Greece had to default on its bonds and technically declare bankruptcy, the countries in the EU chipped in to grease up the sticky situation. But the problem was that, the countries that helped Greece grease up, got a little too much grease onto themselves leaving them to slip and slide one by one. The domino effect started with Spain, then Portugal, Italy and now has come to Germany. The pumping of funds into Greece was to not just aid the country but to yield some returns to these countries. But when this once prominent star collapsed onto itself and became a black hole (where no amount of money is enough… and by the way, that is how a black hole is formed), these countries that went to its aid are being sucked into the vortex, slowly but surely. If the pattern continues, chances are that France might be the next target to be pulled into the vortex as they too have invested a large amount towards Greece’s recovery… But I COULD be wrong on that (hopefully).

How is that going to affect us? Well, if you have invested in Asia / ASEAN, you’re relatively safe. If you have invested in the EU… let’s just say that there is a long way to go till you see the light at the end of the tunnel. Now, before we start jumping for joy, caution has to be applied even when investing in the Asian and ASEAN region. Countries that are safe would include countries such as Malaysia, Indonesia, Thailand, Philippines and India as these countries have taken steps towards internalizing their markets.  Some countries that may not be performing well in the coming months would include countries like Singapore, China and UAE as they still have a high invested interest with the US and the EU. 

So for those who have invested during the market crash, your gains are already being noticed and should be pleasing in no time. For those who are still waiting… you may choose to invest now as there are signs of stability in the economy. If you still choose to wait, you would be choosing to marginalize your returns. As most funds have just declared their dividends (which range from 10% - 26% for a year), the funds are low in price, urging investors to pump in their investments. To put it into perspective, the Growth Fund which was at RM 0.4729/unit is now at RM 0.4130/unit. Commodity prices have been on the upward trend and are expected to be so for quite a while. The market, and many experts had predicted a sudden BOOM in commodity pricing and so, since the market was ready for it, it didn’t happen. Somehow, that seems to be the current market pattern. I guess it (the market) is putting the phrase “Expect the Unexpected” into perspective. But honestly, how do you expect something when you don’t know what to expect for? It is like saying “I’m seeing the thing that I can’t see”

FinTips June

I still remember the last day of one of my classes in the university. It was a physically painful day. Here is how it all went down… I was first asked to bring 4 of my 5 major text books to class, each weighing nothing less than 5kgs. So with approximately 25kgs in my backpack, I began my 2 mile walk to class. And to make the event all the more dramatic, the university was hit by an unexpected blizzard the night before, leaving behind 9 inches of snow. So after crossing the “arctic circle” and having reached my class and while defrosting myself, my professor walks in, with a garbage can in hand, while speaking the following ,“those who have brought your books may throw them into the trash can if you’d like, for they will hardly serve you in the real world”… It took me a while to understand this statement as my brain was still thawing, but once it hit me, IT HIT ME! 

                The truth of his statement can be seen in today’s financial market. Economic cycles are all over the place, the index charts look like the doodles of a 3 year old and  SUPER POWERS are becoming super powers… The knowledge that had been written in the books has started to lose their grounds in the current economic climate. With drastic changes, the system has evolved into something very new and very unpredictable. Market vigilance has become a ‘must’ for every individual. 

                At the beginning of the year, prices were maintained and then raised to keep inflation under control. However, with the turn of events that happened along the way, market predictions had to be done on a daily basis. That was how the first half of the year had been functioning. And now, ready or not, here comes the second half. 

                The second half is going to have both the good and the bad. Due to the lack of money circulating in the system, changes are bound to happen in the market. The good news would come from the corporate sector as it would look into new ways of acquiring money for their projects and would lead to a healthy performance of the equity market.  The bad news would come the property markets as prices of properties might start heading south (but nothing like the American housing bubble crisis) simply because people might start cutting back on their expenditures. And with the lack of liquid money in the system, loans are not going to be that easy to acquire for these buyers. Of course… this would be revamped a little when the next war happens, pandemic breaks out or natural disaster strikes…

                So as an investor, what are we to invest into for these coming months? My bets are on the equities, particularly the Asia Pacific region. As the American and European markets are walking a thin line and looking at a possible crash, the Asian/ASEAN region has become a (relatively) safe haven for investments. And looking at the strides the Asian/ASEAN region is making, it is only a matter of time until it becomes completely self sustaining. And this wave should be surfed while still young coz when it booms, there is really not much room for gain.   

FinTips May

  It has been a while since I had written my last article. Due to much traveling and potential new business ventures, let’s just say that time was stretched to its limits. However, I have come back to just keep you posted on the current market situation.

 When we look at the market since the beginning of the year, the one thing it has NOT been is PREDICTABLE. Everything that was predicted at the beginning of the year can be very well discarded as the world seems to be functioning on an ad-hoc system nowadays. Earth quakes, elections, economic crashes, Osama’s assassination (although I still have this deep feeling that it is a conspiracy), an almost nuclear holocaust and readjustment of prices, everything had never been predicted at any point in time. And basically what this does is that it makes the market severely VOLATILE.

 So, if you are a REGULAR INVESTOR, this is the chance to make gains simply because the prices of investment options would tend to readjust every now and then. But these gains can only be made if you were to have someone monitor your investment and buy into the investment when the price is low. If you were to make a standing instruction, you are as good as shooting a moving object with a blindfold on as you may not know if the price for that day would be a market high or low. 

 As for a ONE-TIME INVESTOR, it might be a risky venture to go into volatile investments as the price readjustment might make your money have a stunted growth. But like I have told many people, to make an individual lose all their money in regulated funds would take A LOT of effort. It may devalue their money but you would not lose all of it. However, just as how time mends all (or most) wounds, time would heal the “cut” on your investments. 

So, if you are a regular investor, get your cheque books out and get some postdated cheques ready and give them to an investment advisor who can do the job. If you are a one- time investor, you might want to reanalyze your strategy and think of becoming a regular investor as the trade off is much better.

By,

Ashveen Chakravarthy Sekaran

(B.A Actuarial Science, Statistics and Finance)

May 12^th, 2011