This is the first article I wrote for My Paper in a fortnightly column for them as published on 8 Jan 2008. As requested by Trebla, I have translated the article from Chinese to English.
Cheers!
Dennis Ng, http://www.HousingLoanSG.com
What Investments are Likely to Shine in Year 2008?
What is the economic outlook for year 2008 and how best to position yourself for year 2008? What are the likely trends in year 2008 and what investments are likely to do well and what other investments are likely to do badly?
These might be some of the questions on your mind. Fret not, I will share with you my personal opinion on above and hopefully, this article will help you position yourself well for year 2008.
One thing that even the average Singaporean cannot help but notice is the trend of rising inflation. In year 2005, inflation was 0.5%. In year 2006, it doubled to 1% and year 2007’s inflation numbers are likely to be about 2%. Look out for higher inflation in year 2008 as the government official forecast for inflation in year 2008 is 3.5% to 4.5%.
Thus, if most of your money is put in bank deposits, here’s the bad news. If you earn 2% returns from Bank Fixed Deposits and inflation is 4.5%, it means that your money is going to “shrink”, not grow.
How do they measure inflation in Singapore?
Inflation is the increase in the consumer price index (CPI). It is a weighted average of 5,170 goods sold at 3,000 outlets in Singapore. However, please note that averages can be misleading sometimes.
For instance, I had ice coffee at a food court recently. This particular food court adjusted the price of ice coffee from S$1 in Jun 2007, to S$1.30 currently, or a 30% increase. Recently, taxi companies also adjusted taxi fares. On average, I found that I ended up paying about 10% to 20% more in taxi fares. So we need to know that inflation of 4.5% is an average figure and might not be representative of specific situations.
On the other hand, Singapore’s economic growth rate is likely to slow down in year 2008. Economic growth for year 2007 is about 7.5%. Year 2008 is likely to have slower economic growth of 4% to 6% instead.
However, higher inflation and slower economic growth for year 2008 is not unique to Singapore, but likely to be the situation for the rest of the world, including U.S., China and Europe as well.
With the Sub-prime crisis in U.S. and with U.S. Fed likely to cut interest rates further, the U.S. economy is likely to slow down with even possibility of a recession and the U.S. dollar might also drop further if investors’ confidence in U.S. economy dips further.
Thus, with the above “big picture” scenario in mind, how can you prepare and position yourself so that you can try to get financially ahead in year 2008?
Based on past experience, “paper assets” such as equity unit trusts and stocks typically do not perform well in period of high inflation and slower economic growth.
The logic is simple as inflation and slower economic growth typically would lead to lower corporate profits and thus, lower share prices.
Stock markets might be near the end of bull market in year 2008.
I think one should reduce one's risk by investing less and less money into stocks as markets move higher. (not the other way round). Prices of financial stocks, such as CITBANK and other banks, are also likely to be beaten down due to the concern of higher loan losses when adjustable rate mortgages are re-priced upwards in year 2008.
What are the assets that would do well in an inflationary environment?
Real Assets, such as commodities and property typically rise in inflationary times.
With higher inflation and with central banks rushing to printing more paper money, gold is likely to break the US$850 record price and even possibly surpassing US$1,000. Oil prices are also likely to remain high due to increased consumption by fast growing countries such as China and India.
How do you invest in Gold? Retail investors can invest in Gold conveniently through Gold ETF and Gold Fund.
With inflation rate going up, properties in Singapore should continue to stay firm in year 2008 and rise a further 10%, barring unforeseen circumstances. Of course, one needs to take note that property prices are already quite high compared to say, 2 years ago. Thus, if you choose to buy a property, it is very important to ensure that you have not over-borrowed and that the total monthly debt repayments including Housing Loan instalments, do not exceed 35% of your monthly income.
It might also be advisable to shift part of your money to invest in stable investments that are not too volatile and subject to market fluctuations. One such investment available in Singapore is UK Traded Endowments.
UK Traded Endowments enjoy the “smoothening of returns” benefit. Because during good times when the insurer is making high returns on their investments, insurers do not give out all of the returns to customers in the form of bonuses. Insurers, for prudency sake, would typically “save” part of their returns in “reserves”. Thus during bad times when their investments returns suffer, they are able to draw down on their reserves to continue to pay a stable bonus (smoothening of returns) on their Endowment plans.
Based on past record, UK Traded Endowments should be able to give average annual returns of 6% to 8% even during times of market uncertainty.
Furthermore, from past experience, “substitute currencies” such as Euro and Sterling Pounds typically strengthens whenever US dollar weakens.
To prepare for increased uncertainties, it might also be wise to conserve precious Cash and raise cash level. I personally think people should consider building up cash in “Opportunity Fund”. My current Opportunity Fund is 30% of my total investible fund/assets.
What else can you invest in? You can invest in yourself. I personally have a "invest in myself fund", whereby every year I spend S$5,000 to S$10,000 on seminars, books, courses to invest in myself. I always find that investment in knowledge gives the best returns (provided one APPLY what one learns). Remember that knowledge is only potential power. Knowledge is only power when APPLIED.
Last but not least, here’s wishing you a Happy New Year and many happy returns on your investments. Please note that I do not have a “crystal ball”. Whatever I shared above is my personal opinion and you can definitely have a different opinion from mine.
About the Author
Dennis Ng is a Certified Financial Planner with 15 years of Bank Lending experience, who set up http://www.HousingLoanSG.com, a Mortgage Consultancy Portal in year 2003.
What Investments are Likely to Shine in year 2008?
Moderators: alvin, learner, Dennis Ng
What Investments are Likely to Shine in year 2008?
Cheers!
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Gold prices might hit US$2,000...
I think both Fun_chua and myself have mentioned that if we factor in inflation, Historical High price of Gold in 1980 at US$850 would be easily over US$2,000 in year 2008's dollars.
Cheers!
Dennis Ng
Gold: the precious laggard that will hit $2,000
By Ian Williams, Charteris Treasury Portfolio Managers
Last Updated: 11:38pm BST 04/07/2008
In 1999 when oil was $10 a barrel, I suggested that the price would ride fivefold to $50 a barrel in real terms over the next few years. This forecast was dismissed with incredulity at the time. Almost 10 years later with the price over $130 a barrel, my original forecast turned out to be rather timid - with mainstream commentators now forecasting $200 a barrel.
Soaring oil costs have pushed the gold/oil ratio to the lowest levels in decades
My forecast was based on an analysis of long term future supply-demand trends, combined with a study of ultra-long term commodity cycles.
What is striking about ultra-long term commodity cycles is how seemingly unrelated commodities appear to rise and fall together.
Price data shows that around 1999-2000, virtually every single commodity hit a significant low before turning up sharply. Nickel hit a low before proceeding to rise ten-fold in the period up to April 2007. Similarly copper also bottomed around this time before an eight-fold rise up to May 2006. Copper is once again challenging its all-time high and looks set to move into new high ground.
The reasons for this stellar performance are now well-trodden - the emergence of China, India and Russia - as major consumers of scarce and in some cases increasingly finite resources.
This commodity super-cycle phenomenon shows no signs of abating. But to profit from it, investors need an understanding of the leads and lags within the commodity family to avoid being caught buying a particular commodity at a short-term peak in its price. I would be very wary about buying oil assets at present - simply because the price of oil in relationship to other raw materials is becoming very stretched.
Instead a study of the laggards in the raw material family is likely to prove more profitable and carry less risk.
Gold is one of the biggest laggards and the one that confuses investors most. Like other commodities it made its super-cycle low in 1999 at $250 an ounce - a level now etched on the record of Gordon Brown who made the calamitous decision to sell half the UK's gold reserves at the absolute bottom of the market. Unlike oil, copper, nickel and a host of other commodities which have seen rises of between eight and thirteen fold increases in the last ten years, gold has risen a mere three and a half times from its low. This puts gold and gold mining shares very firmly in the laggard category.
The sharp rise in oil and the relatively low rise in gold has pushed the gold/oil ratio to the lowest levels seen for decades. Either gold is incredibly cheap or oil is incredibly expensive on a relative basis.
Even if oil were to succumb to short term profit-taking, very few commentators think that it would fall back much below $80 a barrel - a level still eight times its low in 1999. (Gold hit a peak of $850 in 1980 and to equate that in real terms, ie adjusted for inflation, gold today would have to rise to around $2,500 an ounce at present. A rise of that magnitude would also restore the gold/oil ratio to its historic norm.)
A common reason offered for gold's relative underperformance is that it other commodities are driven solely by industrial demand whereas gold is subject to investor demand. This is only partially correct. Currently global jewellery demand of around 2,400 tonnes a year, roughly equates to global mine output so that this market is in balance. (Unlike oil, where a surplus of supply over consumption - as distinct from demand - has existed for several years.)
The swing factor that will affect the gold market is investor demand. Global investors can now buy exchange traded certificates (ETCs) and exchange traded funds (ETF) which alleviate the need to hold physical bullion in a bank vault.
The demand from this source has to be set against supply from the central banks who have been consistent sellers over the last few years. The balance between these two holds the key to if and when gold will catch up with the other commodities.
On a two to three year view the outlook looks increasingly bullish. Rising inflationary expectations around the world will lead to greater investor demand for inflation protected assets of which gold's 2000-year history in this space is unrivalled.
Previously it was the sale of gold by central banks that supplied the market and helped keep a lid on the gold price.
Gold jewellery demand is in balance
But this strategy is looking more and more like a busted flush. It is unlikely that the UK will be in a rush to sell any more of the Bank of England's gold, not that it has much left to sell. The same applies to many other central banks such as Holland, Belgium and Canada who have been long-term sellers of gold. They have run out of gold to sell. At the same time the central banks of the emergent economies, have become buyers.
Recent evidence shows that the central banks of Russia and Argentina are buyers. It is also rumoured but not confirmed that the central bank of China and other sovereign wealth funds are also buyers. As these possible central bank buyers have trillions more cash than the Western central banks have gold, it is very easy to envisage a scenario where the central banks in aggregate turn into net buyers - even if certain western central banks continue to sell.
And it is difficult to see where the extra supply would come from as mine output struggles to grow.
The gold market would then suffer a severe price squeeze similar to that already seen in other raw materials. Investors who subscribe to this view should look to either buying gold direct (via ETFs or ETCs ) or to possibly make even more money in the gold mining sector. It is our belief at Charteris that in the current environment every portfolio should have an exposure to gold.
We favour certain selected mining stocks over ETCs or ETFs as they traditionally provide a geared play on the metal itself. If our view is correct that gold will more than double then we would expect several of our favourite mining shares to rise five or tenfold in the years ahead.
Ian Williams is chief executive of Charteris Treasury Portfolio Managers
Cheers!
Dennis Ng
Gold: the precious laggard that will hit $2,000
By Ian Williams, Charteris Treasury Portfolio Managers
Last Updated: 11:38pm BST 04/07/2008
In 1999 when oil was $10 a barrel, I suggested that the price would ride fivefold to $50 a barrel in real terms over the next few years. This forecast was dismissed with incredulity at the time. Almost 10 years later with the price over $130 a barrel, my original forecast turned out to be rather timid - with mainstream commentators now forecasting $200 a barrel.
Soaring oil costs have pushed the gold/oil ratio to the lowest levels in decades
My forecast was based on an analysis of long term future supply-demand trends, combined with a study of ultra-long term commodity cycles.
What is striking about ultra-long term commodity cycles is how seemingly unrelated commodities appear to rise and fall together.
Price data shows that around 1999-2000, virtually every single commodity hit a significant low before turning up sharply. Nickel hit a low before proceeding to rise ten-fold in the period up to April 2007. Similarly copper also bottomed around this time before an eight-fold rise up to May 2006. Copper is once again challenging its all-time high and looks set to move into new high ground.
The reasons for this stellar performance are now well-trodden - the emergence of China, India and Russia - as major consumers of scarce and in some cases increasingly finite resources.
This commodity super-cycle phenomenon shows no signs of abating. But to profit from it, investors need an understanding of the leads and lags within the commodity family to avoid being caught buying a particular commodity at a short-term peak in its price. I would be very wary about buying oil assets at present - simply because the price of oil in relationship to other raw materials is becoming very stretched.
Instead a study of the laggards in the raw material family is likely to prove more profitable and carry less risk.
Gold is one of the biggest laggards and the one that confuses investors most. Like other commodities it made its super-cycle low in 1999 at $250 an ounce - a level now etched on the record of Gordon Brown who made the calamitous decision to sell half the UK's gold reserves at the absolute bottom of the market. Unlike oil, copper, nickel and a host of other commodities which have seen rises of between eight and thirteen fold increases in the last ten years, gold has risen a mere three and a half times from its low. This puts gold and gold mining shares very firmly in the laggard category.
The sharp rise in oil and the relatively low rise in gold has pushed the gold/oil ratio to the lowest levels seen for decades. Either gold is incredibly cheap or oil is incredibly expensive on a relative basis.
Even if oil were to succumb to short term profit-taking, very few commentators think that it would fall back much below $80 a barrel - a level still eight times its low in 1999. (Gold hit a peak of $850 in 1980 and to equate that in real terms, ie adjusted for inflation, gold today would have to rise to around $2,500 an ounce at present. A rise of that magnitude would also restore the gold/oil ratio to its historic norm.)
A common reason offered for gold's relative underperformance is that it other commodities are driven solely by industrial demand whereas gold is subject to investor demand. This is only partially correct. Currently global jewellery demand of around 2,400 tonnes a year, roughly equates to global mine output so that this market is in balance. (Unlike oil, where a surplus of supply over consumption - as distinct from demand - has existed for several years.)
The swing factor that will affect the gold market is investor demand. Global investors can now buy exchange traded certificates (ETCs) and exchange traded funds (ETF) which alleviate the need to hold physical bullion in a bank vault.
The demand from this source has to be set against supply from the central banks who have been consistent sellers over the last few years. The balance between these two holds the key to if and when gold will catch up with the other commodities.
On a two to three year view the outlook looks increasingly bullish. Rising inflationary expectations around the world will lead to greater investor demand for inflation protected assets of which gold's 2000-year history in this space is unrivalled.
Previously it was the sale of gold by central banks that supplied the market and helped keep a lid on the gold price.
Gold jewellery demand is in balance
But this strategy is looking more and more like a busted flush. It is unlikely that the UK will be in a rush to sell any more of the Bank of England's gold, not that it has much left to sell. The same applies to many other central banks such as Holland, Belgium and Canada who have been long-term sellers of gold. They have run out of gold to sell. At the same time the central banks of the emergent economies, have become buyers.
Recent evidence shows that the central banks of Russia and Argentina are buyers. It is also rumoured but not confirmed that the central bank of China and other sovereign wealth funds are also buyers. As these possible central bank buyers have trillions more cash than the Western central banks have gold, it is very easy to envisage a scenario where the central banks in aggregate turn into net buyers - even if certain western central banks continue to sell.
And it is difficult to see where the extra supply would come from as mine output struggles to grow.
The gold market would then suffer a severe price squeeze similar to that already seen in other raw materials. Investors who subscribe to this view should look to either buying gold direct (via ETFs or ETCs ) or to possibly make even more money in the gold mining sector. It is our belief at Charteris that in the current environment every portfolio should have an exposure to gold.
We favour certain selected mining stocks over ETCs or ETFs as they traditionally provide a geared play on the metal itself. If our view is correct that gold will more than double then we would expect several of our favourite mining shares to rise five or tenfold in the years ahead.
Ian Williams is chief executive of Charteris Treasury Portfolio Managers
Cheers!
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.