Financial IQ Philippines

Why is Financial IQ important in Philippines? Financial IQ is extremely important not only in the Philippines, but in the entire world. With solid Financial IQ, better financial choices are made. With good Financial IQ, money works for us. With excellent Financial IQ, we can easily find business opportunities in Philippines. With excellent Financial IQ, we can ride the growth of Philippines stock market. With great Financial IQ, we can gain Financial Independence.

Thursday, September 27, 2012

Financial IQ: Do you want to marry for money?

The Chinese characters for "Hong Kong". (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

You want to be a billionaire? Here is your chance... by marriage. That is, if you can successfully marry HK billionaire's daughter, you can get $65 million. :)

The newly married lesbian daughter of a Hong Kong tycoon who offered a $65 million "marriage bounty" to any man able to win her love, on Thursday said she'd been flooded by marriage proposals but harbored no animosity towards her father.

Since Hong Kong property billionaire Cecil Chao, known in the tabloid media for his prolific womanizing, dangled a $65 million reward for any man able to lead his daughter, Gigi Chao, down the aisle, she says she's been bombarded by marriage proposals from strangers, date requests, and even an offer from a Hollywood film producer to buy her story.

"War veterans from the U.S., someone from Addis Ababa in Ethiopia, from Istanbul, South America, Portugal, really just from all over the world," said Chao, sifting through emails on a white Apple laptop in her father's high-rise office tower.

One suitor from the United States wrote: "I'm interested in your offer to wed your daughter, who also happens to be gay. I am a male person, who also happens to be gay."

Another put up his brother, a body double to George Clooney in the 2008 sports flick "Leatherheads" as a potential mate: "He could be the picture perfect date that your father craves."

"I've tried my best to respond to well-meaning ones ... but most of them I just try not to open," added the frizzy-haired Chao, who was wearing a silver ring after what she called a "church blessing" with her girlfriend in a Paris church.

Gigi said her billionaire father, who drives a Rolls Royce and flies a helicopter but had a poor early childhood in Shanghai, had been upset when his daughter's longtime lover revealed the couple had wed in Paris in April, leading to his impromptu HK$500 million "marriage bounty" offer to any man able to set her straight.

"I wasn't angry at all. I was really quite touched, very touched and very ... how should I say? moved, by Daddy's announcement," said the 33-year-old.

"I mean, it's really his way of saying 'baby girl, I love you. You deserve more,' basically," added Chau who works as an executive director in the family firm Cheuk Nang Holdings.

Her 76-year-old father, rarely seen without sunglasses and brand-name clothes, has never married but has boasted of bedding over 10,000 women including models and starlets.

Hong Kong, a freewheeling city that reverted from British to Chinese rule in 1997, retains a traditional Chinese social fabric but is considered relatively tolerant of alternative lifestyles compared with the rest of Asia. It decriminalized homosexuality in 1991.

It has gay social venues, film festivals and gay pride parades, making it a bastion of liberalism compared with China, where homosexuality was defined as a mental disorder until 2001.

"I'm not able to generalize about the experiences of all people in the gay community, but I think we in Hong Kong at the moment, are in the middle, we're not punishable by death for being gay, but it's not celebrated and obviously never encouraged," said Chao. "I think change is overdue."

Some hope the comedy value of the whole high-profile father daughter drama could help start a constructive dialogue about gay attitudes in the region.

http://news.yahoo.com/suitors-bombard-hong-kong-tycoons-gay-daughter-dowry-155419846--finance.html

Wednesday, September 19, 2012

Financial IQ: What are bonds?

"Fight or Buy Bonds. Third Liberty Loan." - NARA - 512621 (Photo credit: Wikipedia)
Financial IQ Philippines Quick Hit(s):

Here is a helpful article about bonds, written by one of the industry's personal finance guru, Randell Tiongson. In summary, bonds is a fixed income instrument that can serve to diversify your holdings (i.e. equities, bonds, etc).

What are bonds? Bonds are contracts in which an investor lends money to a borrower. As compensation for receiving the money, the borrower agrees to pay interest, often twice a year and generally of a fixed amount. The borrower also agrees to repay a stated sum at the end of a fixed period. The date that the loan is to be repaid is called the maturity date.

Bonds issued by a sovereign state are known as Government Securities. It is usually considered zero or minimal risk because the government backs the indebtedness. In the Philippines investment scenarios, majority of fixed income investments are done through government securities. However, there are some investment grade bonds issued by top corporations such as PLDT, Ayala Corp., San Miguel Corp., SM, etc. Obviously, the risk associated with corporate bonds are higher than those issued by the government, hence one can expect higher yields from corporate bonds.

Bonds of high-quality companies are considered safer than most of investments for the following reasons:

1. The annual income to be received is generally fixed in advance

2. The contracted – for loan principal is likely to be repaid in full at the stated due. In the even financial difficulties, the borrower will have to comply with the terms of the contract. Interest and principal will be repaid on time or the company will be faced with bankruptcy. Should bankruptcy occur, bondholders have priority in receiving the proceeds from liquidation of business assets and are therefore repaid before stockholders receive any material proceeds.

http://www.randelltiongson.com

Monday, September 17, 2012

Financial IQ: Philippine Index near all-time high

English: Phillippine stock market board (Photo credit: Wikipedia)
Financial IQ Philippines Quick Hit(s):

Philippine share prices have been going up this year.

Just remember to always exercise due diligence and avoid following the "pack". For buyers who cost-average, just keep on buying shares of stocks/funds at the regular interval you have been doing.

Philippine share prices climbed yesterday, buoyed largely by US Federal Reserve’s announcement last week of new measures to energize the US economy.

At the Philippine Stock Exchange (PSE), the main composite index climbed 28.43 points to close at 5,350.90, near its all-time high of 5,369.98 last seen in July 5, 2012.

All sectoral indices reflected gains and closed in positive territory, led by property that climbed 24.23 points to 2,055.72. The industrial sector rose 27.75 points to 8,051.08, while services climbed 5.93 points to 1,832.32.

Mining and oil advanced by 53.68 points to 21,476.58, while financials went up by 2.88 points to 1,350.56. Holding firms edged up 5.30 points to 4,493.90.

Market breadth was positive with advancers outnumbering decliners 85 to 65, while 56 stocks were unchanged.

Among actively-traded stocks, Ayala Land, Inc. soared by 60 centavos to P23.90, while First Gen Corp. surged 40 centavos to P19.02. Metro Pacific Investments Corp. rose eight centavos to P4.29.

Across Asia, Hong Kong’s Hang Seng was flat at 20,658.11 and South Korea’s Kospi slipped 0.4 percent to 2,000.03. Australia’s S&P/ASX 200 edged 0.2 percent higher to 4,399.00. Mainland China’s Shanghai Composite Index fell 1.3 percent to 2,095.70.

Benchmarks in Singapore, Taiwan, New Zealand, Thailand, and Indonesia rose. Markets in Japan were closed for a holiday.

Global stock markets rallied late last week after the Fed announced it planned to buy $40 billion of mortgage bonds a month for as long as necessary as part of a strategy known as quantitative easing aimed at encouraging people to borrow money and spend it. The Fed also extended its pledge to keep short-term interest rates low until 2015, a year longer than its previous target.

http://www.philstar.com/Article.aspx?articleId=850016&publicationSubCategoryId=66

Sunday, September 16, 2012

Financial IQ: Are preferred shares good buy?

Philip Arthur Fisher (Photo credit: Wikipedia)Financial IQ Philippines Quick Hit(s):

This article is written by a good friend of mine. It provides detailed information regarding preferred shares and how it differs from common shares.

Question: My broker recently asked me if I wanted to subscribe to the preferred shares of San Miguel. I was told that the preferred shares would pay me a guaranteed return of 8 percent a year. It is my first time to invest in preferred stocks and I am a little confused on the mechanics. Can you advise me?—Elisa Sagre by email

Answer: Preferred stocks are similar to common stocks in the sense that they also give you partial ownership in a company, except that you enjoy certain advantages over the common stockholders when it comes to receiving dividends. When you buy preferred stocks, you are guaranteed dividends on a regular basis, say quarterly or semi-annually. If the company fails to pay dividends on time, for example, the dividends will simply accumulate and you will still receive them all once the company is ready to pay.

This differs from common stocks where the amount of dividends and frequency of payment depend largely on the company’s board of directors. The company may or may not pay any dividends at all. In the event that the listed company goes bankrupt and liquidates all its assets to pay its creditors and suppliers, any excess cash will not be returned to common stockholders until all preferred shareholders are fully paid.

This sounds like a good deal, isn’t it? Well, buying preferred stocks is like investing in bonds. The dividends are like the interest income you receive regularly, except that in bonds, payment of interest income on time is assured. Companies who borrow money by issuing bonds are obligated to pay interest regardless of their financial situation. Payment of dividends for preferred shares, although the amount is guaranteed, may be suspended if the company has cash-flow problems.

Companies can also buy back preferred shares from you at the original offer price after certain number of years similar to the maturity period of bonds when you get back your principal. However, in preferred shares, there is no assurance that they will be redeemed on time. If the company is encountering financial problems, they may defer the redemption and make you wait indefinitely.

Preferred shares give companies the flexibility to delay payments of interest and principal when they experience financial distress. If these were bonds and they were unable to pay on time, they would be considered in default and this would seriously affect their credit rating. Companies who have already put in huge debt in their balance sheets normally use preferred shares to raise funds to avoid getting a credit risk downgrade.

Before you buy preferred stocks, make sure that the company is financially capable of paying its dividends on time. You can do this by reviewing its financial performance and track record of management.

Based on this, ask yourself, what is the probability that it will fulfill its promise to pay dividends consistently? Can the company generate enough cash flow to cover the projected dividends aside from the existing interest expenses that it is contractually obligated to pay?

Preferred stocks are also traded on the stock market but the price is not as volatile as that of common stocks because the valuation of preferred shares is not directly driven by earnings but rather by interest rate. Similar to bonds, because dividends are fixed and paid at regular intervals, the market value of preferred shares is easily affected by movements in interest rates.

If the interest rate goes up, the price of preferred shares would need to fall in order to match a better yield to investors. The opposite happens, on the other hand, when interest rate goes down.

Consider the recent offering of preferred shares of San Miguel, which are offered at P75 each. Each share has a fixed rate of 8 percent, which pays P6 or P75 x 8 percent per share annually.

To value the share price of the preferred share, simply divide the P6 annual dividend by the current interest rate, say 5 percent, and this will give you a projected market value of P120. If the interest rate goes up to 10 percent, the projected market value of preferred shares will fall to P60. Bear in mind that we are assuming your opportunity cost to place your money elsewhere is only 5 percent.

San Miguel offers three types of preferred shares. The first subseries called 2-A offers fixed rate of 7.5 percent with redemption period of five years, meaning the company has the option to buy back the shares after five years. The second subseries called 2-B has a longer redemption period of seven years but offer a higher rate of 7.625 percent and the third one at 10 years with an interest rate of 8 percent a year. Which one should you choose?

If you are risk-averse and want to play safe, you can choose the shortest redemption period of five years but at a lower rate of 7.5 percent a year. Why? Five years is a foreseeable future and with the track record of the company, you can safely assume that dividends will be paid faithfully as promised. The risk of delay increases as the holding period increases. What if the economy goes into recession due to a global economic crisis in few years? What if the new investments will not turn out to be profitable as initially expected? Will San Miguel still have the same management team in 10 years?

Preferred shares are a good investment if you are looking for regular income and stability. This is very ideal for people who want to try the stock market but do not want to lose their money. With the declining interest rate environment, preferred shares offer a safe haven for fixed income because they offer a higher yield and at the same potential appreciation especially if interest rates continue to fall.
It will be wise to allocate a portion of your stock investments in preferred shares to balance the overall risk of your portfolio.

http://business.inquirer.net/?p=81668