Words
from Author
Dear Friends,
Year
2010 was a tricky year to navigate for the investment markets. The stock market
performance had been disappointing coming from a positive 2009. It was the year
when recovery supposed to take place but the real picture had been much trickier.
We have persistence high unemployment and slow growth in US, the second
European financial crisis and worries of high growth and inflation in Asia.
Trying to guess which market will perform well became increasingly difficult as
countries like China and India, which are performing too well in economic growth,
had their stock market bruised from fears of inflation, along countries with
abysmal growth rates. The big 4 BRIC nations (Brazil, Russia, China and India)
had some of the worse performing stock markets despite experiencing rapid
growth. The surprise comes from countries with relatively moderate growth rates
like Korea, Taiwan, Thailand, Indonesia and Thailand.
Year
2010 was also a year which I had 9 months of forced sabbatical, which allowed
me to catch up on my readings and
reflect on the experience of my past 7 years as a financial adviser. It was
also the time which I questioned the certain well known economic theories and
changed the philosophy how I manage investments. I will put in more detail on
the investment philosophy and how the philosophy is developed over time. It
also gave me time to travel to Thailand and Shanghai to take a look at the
growth and progress these nations made. The trip to Japan was a sharp contrast
to these 2 countries, with a feeling of stagnation and cultural exclusiveness.
However, I do like Japan’s advance seat warming, jet spitting and self flushing
toilet bowls!
The
Financial report will touch on the following areas:
1.The Investment Philosophy
2. World Economic Events of 2010
3. Reflection of 2010 Strategies
4. Prospect & Strategy for 2011
Year 2011 will be a good year, but the work of predicting best performing markets will get even more difficult as inflation gets heated up around the globe. Given with the prospect of Portugal and Spain possible credit woes and uneven growth around the world, we will see many sharp drops and turns in the market. Barring any economic disasters, we should be able have tidy profits for year 2011.
1.The Investment Philosophy
2. World Economic Events of 2010
3. Reflection of 2010 Strategies
4. Prospect & Strategy for 2011
Year 2011 will be a good year, but the work of predicting best performing markets will get even more difficult as inflation gets heated up around the globe. Given with the prospect of Portugal and Spain possible credit woes and uneven growth around the world, we will see many sharp drops and turns in the market. Barring any economic disasters, we should be able have tidy profits for year 2011.
Yours
Sincerely,
Lye
Wen Song Xeo
The Investment
Philosophy
“My peculiarity is that I don't have a particular style of investing or, more exactly, I try to change my style to fit the conditions.”
~George
Soros
This part of
the report is a compilation of my investing experience and how I arrived at my
current Investment Philosophy. It is quite long and takes up 5 pages of the
report. Skip it if you want to get to the meat of the financial report. For
those who are learning about investment, this portion may be an interesting
read.
The development of an investment philosophy and strategy is an important aspect of any investment journey. Many a times, it is through trial and error and persistency despite tremendous setbacks to realize the true meaning of investing. The truth of investing: There is no real strategy that works all the time. There is only one principle, buy low sell high and don’t lose money. My journey with investment started with Warren Buffet principles of Value Investing. Who doesn’t want to be like the world’s richest investor! I tried and tested the strategy in Singapore stock market and various Asian markets. The results: Not so positive. The reason is because despite after one market cycle has passed, some of the undervalued investments remain undervalued, in a bad way…. Just to give an example: Korea was persistently most undervalued market in Asia while India was persistently the most expensive and overvalued market during the 2003-2007 cycle. The result? India out- performed Korea by a larger margin of 100% over a period of 5 years. Many fund managers emphasis on market valuation while investing. Doesn’t seem to work so well…
The development of an investment philosophy and strategy is an important aspect of any investment journey. Many a times, it is through trial and error and persistency despite tremendous setbacks to realize the true meaning of investing. The truth of investing: There is no real strategy that works all the time. There is only one principle, buy low sell high and don’t lose money. My journey with investment started with Warren Buffet principles of Value Investing. Who doesn’t want to be like the world’s richest investor! I tried and tested the strategy in Singapore stock market and various Asian markets. The results: Not so positive. The reason is because despite after one market cycle has passed, some of the undervalued investments remain undervalued, in a bad way…. Just to give an example: Korea was persistently most undervalued market in Asia while India was persistently the most expensive and overvalued market during the 2003-2007 cycle. The result? India out- performed Korea by a larger margin of 100% over a period of 5 years. Many fund managers emphasis on market valuation while investing. Doesn’t seem to work so well…
 |
| India outperforming Korea despite having much more expensive vaulations |
A strong contestant to the Value Investing strategy is Technical Analysis
(TA), also known as Sentiments Analysis. Essentially, it is the theory of
reading the pattern of the price over a period of time. This strategy is very
popular with traders around the world and it is taught in many expensive
workshops & courses. The reason why it is so popular is because it is easy
to apply and you can use it on anything as long as there is a price and time. I
myself paid many thousands on courses and books to learn the “Secret of a
Millionaire Trader”. When I applied this theory to investment management, I
began to learn about its weakness and why it is not that compatible with fund
management.
When the transaction process is applied to one of
the scenario that took place in year 2004, the result was totally undesirable.
What happened during 2004 was that there was a major correction of 10% within 1
week. Based on TA theory, you are support to cut loss. Let’s take a look at the
result. Follow the sequence from 1 to 4.
In short, TA is not suitable for fund management as the transaction time of the funds switches are too slow to react to market situation. We all know the story from 2004 onwards. The market had a bull run all the way till 2007 when STI reached 3800 point. If the strategy of TA is used strictly, the client will always be selling low and buying high over the course of the next 4 years and is worse than someone who buys and hold. The strategy of fund management must be managed on a longer basis when the advisor should ignore all the short corrections and bumps along the way and get out before the big crash. Hopefully, the next theory will work better….
When I was first introduced into the financial advisory industry, I was taught about the modern portfolio theory (MPT). MPT is the government endorsed investment training for financial advisers in Singapore and around the world. Several of its creators won the Nobel memorial prize. Who is to argue with the top brains of the world and the government? The principle of MPT is to get the maximum returns with the minimal amount of risk based on the risk taken. Therefore, 2 important concepts of MPT are diversification to minimize risk, and risk profiling of investors to get the maximum return per risk for that risk band. The loopholes of MPT became glaring during financial crisis, also now known as “The Great Recession”.
Loophole 1: Diversification
In short, TA is not suitable for fund management as the transaction time of the funds switches are too slow to react to market situation. We all know the story from 2004 onwards. The market had a bull run all the way till 2007 when STI reached 3800 point. If the strategy of TA is used strictly, the client will always be selling low and buying high over the course of the next 4 years and is worse than someone who buys and hold. The strategy of fund management must be managed on a longer basis when the advisor should ignore all the short corrections and bumps along the way and get out before the big crash. Hopefully, the next theory will work better….
When I was first introduced into the financial advisory industry, I was taught about the modern portfolio theory (MPT). MPT is the government endorsed investment training for financial advisers in Singapore and around the world. Several of its creators won the Nobel memorial prize. Who is to argue with the top brains of the world and the government? The principle of MPT is to get the maximum returns with the minimal amount of risk based on the risk taken. Therefore, 2 important concepts of MPT are diversification to minimize risk, and risk profiling of investors to get the maximum return per risk for that risk band. The loopholes of MPT became glaring during financial crisis, also now known as “The Great Recession”.
Loophole 1: Diversification
During the Asian
Financial Crisis, Asian markets collapsed as much as 70% during the 1997-1998
period while the US and European markets remained unscathed. MPT gained a lot
of support during that period of time because diversification did saved a lot
of portfolio from the disastrous drop for Asian equities. As the world entered
into the internet era, globalization became a household word and productivity
skyrocketed as the world becomes a smaller place. And so did the financial
markets. The world was surprised and shocked, when the China Shanghai stock
index nose-dived for a couple of time and the world markets followed suit, when
the Shanghai Ecxhange was still considered too small to have a global impact at
that time. The Great Recession further highlighted how closely knitted the
world markets were and no matter which country you allocate by using
diversification, you will still be hurt badly by the markets. Globalization has
effectively diminished the effect of diversification by a huge margin. Loophole 2: Risk Profiling
After dealing with people over the
period of one economic cycle, I realized the key to investment management
success: Human are irrational when it comes to money. MPT does not take
irrationality into account and that’s where the greatest failure of MPT lies,
and why most of the investors, who invest relaying on the advice of financial
advisors and relationship managers will lose money. Let me illustrate why:
A typical investor walks into a bank and wants to setup an investment portfolio during times of recession. A risk profile is done for the investor by the consultant and a conservative portfolio of 20% equities and 80% bonds is prescribed for the investor. Two years later, the investor is angry with the fact that the portfolio is making 2% per annum while the market has been making 20% pa. Again, the consultant wipes out the risk profile and this time, the risk appetite of the investor is moderate. A 50/50 equity bond portfolio is constructed for the investor. 2 years later, the client stomped into the bank and asked angrily, “The market has been moving at 20% pa. Why am I only making 8% pa? Can you do better?!?” Another risk profile is completed and this time round, the investor is extremely confident of the booming market and is rated very aggressive. A 100% equity portfolio is created for the investor. A few months later, the market crashed and the investor lost 50% of the portfolio.
Is the investor at fault for being irrational? Is the adviser at fault for following the risk profile as required by regulators for a needs based recommendations? The main culprit lies with MPT on the assumption that an investor risk appetite remains the same throughout the whole market cycle, and nobody questions about the convention wisdom behind.
A typical investor walks into a bank and wants to setup an investment portfolio during times of recession. A risk profile is done for the investor by the consultant and a conservative portfolio of 20% equities and 80% bonds is prescribed for the investor. Two years later, the investor is angry with the fact that the portfolio is making 2% per annum while the market has been making 20% pa. Again, the consultant wipes out the risk profile and this time, the risk appetite of the investor is moderate. A 50/50 equity bond portfolio is constructed for the investor. 2 years later, the client stomped into the bank and asked angrily, “The market has been moving at 20% pa. Why am I only making 8% pa? Can you do better?!?” Another risk profile is completed and this time round, the investor is extremely confident of the booming market and is rated very aggressive. A 100% equity portfolio is created for the investor. A few months later, the market crashed and the investor lost 50% of the portfolio.
Is the investor at fault for being irrational? Is the adviser at fault for following the risk profile as required by regulators for a needs based recommendations? The main culprit lies with MPT on the assumption that an investor risk appetite remains the same throughout the whole market cycle, and nobody questions about the convention wisdom behind.
The
Reconstructed Investment Philosophy
After much trial and error using all
the conventional strategies, coupled with poor directions and training from the
firm’s investment division, I realized that I must do things differently in
order to make a difference in the investors’ portfolios. I set about developing
my own theory and strategy. The real breakthrough came when I was developing an
investment game which I was developing for my talks and seminars. The financial
game Capital Gains© puts an investor in a time period of 20 years between 1940
to 2007 and the investor must decide where to invest in based on a set of
important economic data. While I was developing this game, I acquired a huge
amount of data covering 5 asset classes namely, US stocks, US bonds, US
property, Gold and Oil, and 70 years of economic data like GDP, interest rates,
inflation, and unemployment. As I was going through these data, I realized that
there is a pattern occurring and I was forced to take a lesson on the history
of financial market. By understanding these patterns, I came to understand macroeconomics
investing made famous by George Soros & Jim Rogers, the infamous fund
managers of Quantum fund.
"Those who cannot adjust to change will be swept aside by
it. Those who recognize change and react accordingly will benefit."
~
Jim Rogers
The theory of
macroeconomics theory in short can be summed up as the cause and effect theory.
When there is an event happening at one part of the world, the event will cause
a chain effect leading to booms or busts. This strategy is about understanding
what to do when a significant “cause” has occurred and react accordingly to
make profit or cut loss. The challenge of the strategy is that you need to have
a wide range of knowledge over almost every asset class, every significant
country and how they interact with each other. It takes a lot of reading and real
life experience to get a grasp of how the world works. My strategy for my
clients can basically be summed up in the following points:
1. Ignore small fluctuations and focus on the trend cycle of the market which can take from 2 – 5 years.
2. Invest based on economic risk profile rather than the investors’ risk profile and take profit when certain trigger events occur.
3.Move to where the hot money is going, even the market is overvalued.
4. Be willing to hold 100% Cash and Bonds should all the conditions ripe for a recession takes place, even if the markets are still charging up.
5. Move in tranches into the market as the Bear market is raging.
In short, the whole strategy can be summed up in the graph below:
1. Ignore small fluctuations and focus on the trend cycle of the market which can take from 2 – 5 years.
2. Invest based on economic risk profile rather than the investors’ risk profile and take profit when certain trigger events occur.
3.Move to where the hot money is going, even the market is overvalued.
4. Be willing to hold 100% Cash and Bonds should all the conditions ripe for a recession takes place, even if the markets are still charging up.
5. Move in tranches into the market as the Bear market is raging.
In short, the whole strategy can be summed up in the graph below:
A simplified way of
deciding what and when can be easily chart out. The challenge is deciding when
the cycle has turned. In general, equities are the most forward looking of all
the asset class and typically is the first to react when a recession is about to
end. Property typically follow next as there is a need for personal income to
rise before investors can afford the more expensive property investment. The
current cycle is exceptional due to an artificially high foreign inflow of
funds in property investment from China and Indonesia. The high immigration
rate of Singapore also contributed to the sharp rise. If we turn to look at
larger countries like US and Europe, their stock market has recovered quite
significantly while property prices are lagging behind. Commodities prices
typically spike when global growth kicks in and demand soars. As we reach the
point when the economy is in risk of a down turn, well rated government bonds
will do well as hot money will flee to safer asset classes. Hedge funds will
typically start to shine when the recession kicks in. A hedge fund is a fund
that uses a variety of financial instruments including derivatives which allow
them to long and short the market, making big profits due to the market
turmoil. Some of the top hedge funds in Singapore during 2007 – 2008 gained
150% for a period of 2 years. The weakness of hedge fund is also due to its
ability to invest on both sides of the market. They can make mistakes and short
into a roaring bull market and lead to tremendous losses. So in short, hedge
fund is an instrument that can make or lose money whether in good times or bad
times. And yes, they are available to
Singaporean and I do give advice on hedge funds.
Final Words
What I have
elaborated is a short summary of my 10 years of investing experience. I can’t
say that 10 years is sufficient to understand the world better but I guess the
intensity of which I try to understand how the world works and the trust
involved helped me in developing faster than my peers. The Great Recession has
been a valuable experience and it has helped to enlightened many unclear aspect
of the financial world. What is left to do is to test the philosophy and
strategy against the markets and emerge as a winner, as what Warren Buffet and
George Soros have done.
World
Economic Events of 2010
The stock market had been pretty boring for year of
2010. Singapore Stock Index gave a measly return of 14% despite coming on a
strong recovery with one of the world highest GDP achieved for year 2010. What
an irony. However, there were quite a number of significant events that led to
a shift in the medium term investing strategy and will impact the markets for
days to come. Below is a chart that sums up the important events in relation to
Singapore STI Index:
Here are some of the significant events of 2010 and their implications:
1. China
property hit record high. The China government implemented a series of
austerity measures to curb potential property bubble. The Chinese stock market
was adversely affected and became the worse performing stock market in Asia for
year 2010. China overtook Japan as the world’s second largest economy.
2. Persistent
high unemployment in US leads to a fall in the support of President Obama and
the Democratic Party. The president changed his focus back on the economy and
is actively engaging various factions of the country to help the country get
back on its feet. The result is that US is able to maintain a loose monetary
and fiscal policy.
3. Europe
had a bout of bad luck in 2010. First the Icelandic volcano ash cloud led to
major transport disruption in Europe and European airline stocks were hammered
as a result. Secondly, BP had a massive oil spill in the gulf of Mexico which
lead to a massive tremor in the UK stock market, with some predicting that it
would be the downfall of BP. The Greece bailout came next which sent the Euros
to record new lows and sent the world stock markets tumbling. Europe ended the
year with another bailout with Ireland, once the wonder kid of the EU economy.
The European stock markets became the worst performing market in 2010.
4. South
East Asia had a bumper year in 2010 with the stock markets of Thailand,
Indonesia and Philippines closing with an average of 40% return. While
Singapore and Malaysia ended with a more modest return of 15%.
5. Japan
ended the year with a loss due to the high yen which made exports from Japan
less profitable. Some car makers were even making a loss despite rising sales
volume. Corporations in Japan started looking for base of manufacturing outside
of Japan with SEA one of the main area of consideration.
6. Latin
America had a relatively quiet year with the Brazilian stock exchange ending
2010 almost unchanged. Overall, nothing exciting happened in that part of the
world. The Latin America is still very dependent on US for its export revenue.
A stagnant US economy and a troubled Europe are not helping Latin America stock
market. There is an argument that Latin America should benefit as China will
need the commodities it produce. However, you have to consider the distance between
the 2 continent and the transport cost involved. Sourcing from SEA and
Australia for its immediate resource needs make more economic sense at this
moment of time.
7. Gold,
Oil and most resource and material related theme did well. The failure of Euro
and the massive debt which US is shouldering is not inspiring confidence in
paper money. Currently, as there is no other currency that can replace these 2
currencies as the primary trade currency, investors are asking if it more sense
to hold on to the physical commodities if USD and Euro are depreciating at such
an alarming rate.
8. Government
Bonds did not do well in 2010 and the worst hit were the European bonds funds,
all thanks to the PIIGS economies. The PIIGS members are Portugal, Italy,
Ireland, Greece and Spain.
9. BRIC
funds did not fare well in 2010. Brazil was flat. Russia was hit by the
European crisis, China performed horribly. The only bright star was India with
a performance of 16%. Investors were disappointed that the 4 largest developing
nations were not delivering in times of growth. Some suggested adding
Indonesia, an emerging economic powerhouse forming BRIIC.
Here
is the table of performance for year 2010 of the common funds that I use. The
first and last funds are the best and worst performing funds for the year:
Reflection of 2010 Strategies
2010 was a challenge to me operationally wise as I was in-between companies. It had been difficult to do any switching due to the amount of coordination needed. Here is the gist of last year strategy.
2010 was a challenge to me operationally wise as I was in-between companies. It had been difficult to do any switching due to the amount of coordination needed. Here is the gist of last year strategy.
1) All out investment strategy as the world is recovering from a recession unseen in our generation. The risk of losing money is minimal on a 2 – 5 years basis.
2) Stay out of US and Europe as there may be more troubles and ripples from the financial industry there were still unsolved. Focus on Asia and emerging market.
3) Stay invested with 20-30% of portfolio in Gold and resource. Foresee that these asset classes would do well.
4) Moved out of non performing countries or asset class if they are not going to perform well in the near future.
Adjusting The Portfolio in 2010
Essentially, I made 3 main positioning last year.
1) March 2010 – Switched all the bonds to equity to form a 100% equity portfolio, mainly to Schroder BRIC and Aberdeen Emerging Markets.
Rationale:
There was no reason to be conservative as the economic scenario at that time
was clearer with a relatively low chance of a double dip recession, which was a
strong concern at that time. Although there are still many economists worried
about a possible double dip, I decide that the risk was low and advised
investors to move all out. BRIC was picked as these countries’ stock markets
had a higher chance of leading the run of the recovery process
2) April 2010 – Reduced the weightage on BRIC and moved 15 – 30% of the portfolio to South East Asia.
Rationale: BRIC did not perform as well as I thought it should. However, the performance of SEA caught my eye. Since most of the Asia Pacific funds lacked any exposure to SEA, I moved a portion of the BRIC segment to SEA to take advantage of the rapid inflow of funds.
3) Nov 2010 – Reduced the weightage of BRIC further to less than 30% of the portfolio and moved the allocation to SEA or Asia Ex- Japan in General.
Rationale: All
the funds in the portfolio were performing well except for the disappointing
BRIC. The rationale I was still holding on to BRIC was the China factor. At
that point of time, the market was surprised by the rapid growth of China and
its property market despite severe tightening policies implemented by the
government. Generally, stock market will do extremely well when a government
stopped their tightening policies. I was betting that China would stop the
tightening as too much tightening will stifle growth. At this moment in time,
the inflation and property market are still resisting the cooling measures and
there is no deadline to the end of the cooling measures yet.
2) April 2010 – Reduced the weightage on BRIC and moved 15 – 30% of the portfolio to South East Asia.
Rationale: BRIC did not perform as well as I thought it should. However, the performance of SEA caught my eye. Since most of the Asia Pacific funds lacked any exposure to SEA, I moved a portion of the BRIC segment to SEA to take advantage of the rapid inflow of funds.
3) Nov 2010 – Reduced the weightage of BRIC further to less than 30% of the portfolio and moved the allocation to SEA or Asia Ex- Japan in General.
 |
| The Soaring Office Towers of Shanghai |
In short, I did not execute too many changes but the strategy worked
well for last year. In short, the portfolios of the investors have appreciated
by at least 15% for the year of
2010. The reason why I did not do better was the assumption that the BRIC
nations would lead the stock market rally. The underperformance of BRIC diluted
the superior performance of gold, resource and South East Asia. So I ended up
matching the returns of the STI index. I wasn’t that satisfied with my
performance for year 2010 and would strife to generate better returns for year
2011.
Prospect & Strategy for 2011
“The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market.” ~ George Soros
I have read many reports on the prospect of 2011. Most of them are positive about the market in general which I tend to agree. I disagree strongly which the way many of them are phrased that the journey will be smooth sailing in the year of 2011. From the way I see it; the risks have actually increased compared to last year. Here is a list of what are the potential risks which I see will plague us in 2011.
“The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market.” ~ George Soros
I have read many reports on the prospect of 2011. Most of them are positive about the market in general which I tend to agree. I disagree strongly which the way many of them are phrased that the journey will be smooth sailing in the year of 2011. From the way I see it; the risks have actually increased compared to last year. Here is a list of what are the potential risks which I see will plague us in 2011.
1) The China property bubble burst due to the over
tightening of Chinese government. If the Chinese government does not manage this properly, it may lead to a technical recession in North and South East Asia as property and stock market around the region crashed due to a massive pull out of Chinese money. The property market will probably get hit much worse than the stock market a big chunk of the Chinese hot money is invested into the Singapore property market. This is of course the worst case scenario. The more plausible scenario is a big correction in the market and having a tepid stock market for a year or two.
2) Spain and Portugal received a bailout from the EU and the IMF.
The risk is lower right now as compared to last year when Greece first got into trouble and threatened to spread the credit crisis flu to the rest of the EU nations. When that happens, the global stock market will probably receive a nasty correction of more than 10% with Asia the least affected. Gold will also do well in the event of such a scenario.
3) US raise interest rates in an effort to combat rising inflation.
This scenario probably will be more applicable in the second half of 2010. Gold and oil prices will be severely restricted in the event of such an event and probably will undergo a correction before prices stabilizes. It may result in hot money flowing back to US as the USD becomes stronger and international fund managers try to lock in on the rising USD.
The Game Plan for Year 2011
Year
2011 will be tricky as some of the economies are heading into the over-heating
phrase while other economies are recovery or still in a stumble. The trick is
to always invest in economies which are in the recovery phrase as the monetary
and fiscal policies are usually very accommodative during this period of time. We
have to exit countries which have just started on their cooling measures as
their stock market will be very volatile and unpredictable. Countries which are
at the end of their cooling measures can be considered as potential candidates
to move the funds in. Let me list down the countries in their various cycles.
Recession Stage - Consider to buy in future
-Western Europe with the exception of Germany
Recovery Stage -Buy
-USA
Recession Stage - Consider to buy in future
-Western Europe with the exception of Germany
Recovery Stage -Buy
-USA
-Eastern Europe
-Latin America
-Middle East
Growth Tightening Stage – Reduce exposure
-Latin America
-Middle East
Growth Tightening Stage – Reduce exposure
-China
-Hong Kong
-S. Korea
-South East Asia
-India
Exceptional Sectors with Exceptional Conditions
-Hong Kong
-S. Korea
-South East Asia
-India
Exceptional Sectors with Exceptional Conditions
-Australia
- Gold
- Oil/ Resource
- Japan
- Gold
- Oil/ Resource
- Japan
The year 2011 will be a fluid year for investor as the winds of fortune will move quickly from one nation to another. It will be difficult to predict which country will do exceptionally well next year. The main strategy for 2011 is to spread the bets around emerging markets until a clearer picture emerge. US equities will be in an interesting phrase and I believe some exposure to the US market will benefit the portfolio and reduce shocks in case the China property market does implode.
Some
investors are asking me why I am still sticking to China despite the negative
outlook. I will say that I am doing some contrarian investing here. Typically,
before any big bubble burst, there is a big surge of the stock market as the
government will have stopped their cooling measures and the investors gain
confidence at a more predictable economic environment. There is a big surge in
1999 – 2000 before the great technology bubble burst, so did 2006 – 2007 of the
Great Recession. Here is the portfolio strategy for the first half of the year.
Here
is the allocation of the current strategy:
Middle East funds are mainly focused in Dubai. Dubai has just had their version of subprime crisis as the property market crashed and the “city of cranes” had over built, thanks to the oil money they profited from during the years of record oil prices of $140. Upward pressure on oil can be felt in the market again and Dubai has picked up the pieces of its ruin. The market has underperformed the rest of Asia for the last 2 years and may be a black horse in making.
I will probably have a profit taking exercise in the latter half of the year and move 10-20% of the portfolio into cash holdings. The risk gets higher every day the market gets higher. On a more positive note, we will probably have a good year for 2011. Let’s enjoy the ride!
Epilogue
As I was preparing this report, SEA is undergoing a good correction after their massive run-up. Indonesia, Thailand and Philippines have corrected around 8-10%. Singapore and Malaysia markets are underperforming compared to North Asia and US. The reason for the fall has little got to do with fundamentals. It is probably hot money taking profits and moving the money elsewhere. It is time for us to leave also. I will be waiting for a nice rally before exiting SEA and move the money to where the hot money is flowing to. Oil and gold are having a correction as investors are worried that the slow-down in China due to the cooling measures will have a dampening effect on commodity price. That is absolute rubbish. The main consumer of commodities in the world is still US which consume for resources than the combine volume of the BRIC nations. Once US recovery is in full steam, oil and gold will do well again.
As I was preparing this report, SEA is undergoing a good correction after their massive run-up. Indonesia, Thailand and Philippines have corrected around 8-10%. Singapore and Malaysia markets are underperforming compared to North Asia and US. The reason for the fall has little got to do with fundamentals. It is probably hot money taking profits and moving the money elsewhere. It is time for us to leave also. I will be waiting for a nice rally before exiting SEA and move the money to where the hot money is flowing to. Oil and gold are having a correction as investors are worried that the slow-down in China due to the cooling measures will have a dampening effect on commodity price. That is absolute rubbish. The main consumer of commodities in the world is still US which consume for resources than the combine volume of the BRIC nations. Once US recovery is in full steam, oil and gold will do well again.
I hope you have enjoyed reading the annual report. Do give me some feedbacks on where to improve and I will do a better job next year. Cheers!
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