Financial IQ: How NOT to spend life insurance proceeds

Chauncey Billups of the Detroit Pistons attempts a shot over Lorenzen Wright of the Memphis Grizzlies. {| class="messagebox" style="margin: 0.5em auto; width: 100%; background-color: #f8f8f8; border: 2px solid #e0e0e0; padding: 5px; direction: ltr;" |align="center"| link=|25px → link=|25px | : File:File:Billups vs Memphis Grizzlies.jpg. |align="center"| 100x100px|original file |colspan="3"| |} Category:Extracted images (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

Do you know of anyone who received life insurance proceeds?  How did he/she utilize the proceeds?  Insurance are protection for our family... hence, it is best to avoid spending on unnecessary/luxury items.


When money rolls in, tragedy soon follows.

Over the course of his NBA career, Lorenzen Wright earned an estimated $55.2 million in salary. He died in 2010, shot to death, his body left to decompose in the woods southeast of Memphis.

But the battle over what remains of his estate continues. Sherra Robinson Wright, whose divorce from Wright was finalized only a few months before his death, received a $1 million life insurance settlement 14 months after his passing. And according to the Memphis Commercial Appeal, it took her only 10 months to spend $973,000 of that.

Spending, as documented by the Commercial Appeal, included:
• $32,000 for a Cadillac Escalade
• $26,000 for a Lexus
• $69,000 on furniture
• $11,750 for a New York trip
• $339,000 for purchase and improvement to a new home
• $7,100 for a pool deposit
• $5,000 for lawn equipment
• $34,000 on legal fees

At issue, other family members contend, is that the proceeds were designated to support the couple's six children. The spending report, filed in September but only just now disclosed publicly, caused a judge to begin investigation of the living conditions of Wright's children. The judge also routed other money, the NBA's $184,000 in death benefits, to Lorenzen Wright's father Herb to benefit the children. Those assets are, at present, frozen.

However, Sherra Wright says the family remains financially sound, with $1.4 million in "assets on hand." Much of that is tied up in the new house and three Arkansas investment properties.

There is also significant discord, according to the court filings, between Herb Wright and Sherra Wright, who "testified Lorenzen Wright distrusted his father and as a result removed his father from any control over his accounts and finances."

At the time of his death, Wright was operating under a child support order requiring him to pay $16,650 a month in child support and another $10,000 a month in alimony, for a total of $319,000 a year. That plan was concocted in 2009, in what would be the last year of Wright's NBA career. There was no amended plan filed after Wright left the NBA and his income dramatically declined.

http://sports.yahoo.com/blogs/nba-ball-dont-lie/lorenzen-wright-ex-wife-spent-most-1-million-231424234--nba.html

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Financial IQ: Are you planning to buy the latest gadget?

English: The logo for Apple Computer, now Apple Inc.. The design of the logo started in 1977 designed by Rob Janoff with the rainbow color theme used until 1999 when Apple stopped using the rainbow color theme and used a few different color themes for the same design. (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

What is your spending habit when it comes to keeping up with electronic gadgets?  Do you keep up with the latest trend?  Do you know that those with good earnings do not typically splurge on the latest technological devices?


Is Apple losing its mojo?

A significant majority of Affluent households do not intend to buy Apple’s signature products this year, according to a new survey conducted by Millionaire Corner. Only 13 percent of respondents said they plan to buy a new iPhone, while 7 percent said they plan to purchase the newest iPad.

This week, Apple stock dropped 11 percent even though it posted a $13.1 billion profit for the quarter that ended last Dec. 29. It also reported a 28 percent sales increase of its iPhones and iPads. On Friday, On Exxon became the world's most valuable company.

But analysts are saying that Apple could be a victim of its own success. “With sales of more than $160 billion in the last 12 months, keeping up its heady growth rate is becoming harder and harder,” The New York Times observed. In addition, Apple is also facing fiercer competition in an increasingly saturated market that grew a reported 39 percent year-to-year.

Apple stock reached a record high of $701.10 last September. It is now down 34 percent from its peak. Gizmodo writer Jesus Diaz writes that Apple’s biggest challenge is moving forward without the vision and stewardship of the late Steve Jobs. Without him, he writes, Apple “may end like Sony. A great company, with good products and good design, but just another company fighting to sell phones, tablets and computers.”

Others have more confidence in Apple’s ability to reinvent itself and create new markets. And in a conference call with analysts, Timothy Cook, Apple’s chief executive, teased that the company’s pipeline was “chock-full” with new products.

http://www.millionairecorner.com/article/affluent-not-mood-spend-high-end-or-high-tech-products?utm_source=taboola

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Financial IQ: Philippine International Airport

English: The Philippine International Convention Center in Pasay City, Metro Manila, Philippines. (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

Upgrading the Philippine International Airport is one way to show that Philippines is serious in becoming one of the upcoming tigers in Asia.


With aviation rules being broken with ease, another government big shot soon could perish in an air accident. There again would be an air crash investigation, with pilot error and poor aircraft maintenance as the causes. Then, as with last August’s fatal crash of Cabinet member Jesse Robredo, the public outcry would subside. No action would be taken  — till the next crash.

All this is because of fixers at the Civil Aviation Authority of the Philippines. Example:

The other week, I reported that the Swiss personal pilot of a Filipino billionaire was caught doctoring the flight logbook. He committed the offense in September, and CAAP enforcers refused to renew his domestic pilot’s license. Still, the Swiss flew his boss’ jet from Basel via Italy, and landed in Manila without a valid license — a second violation. The CAAP investigated further and discovered a third breach. The Swiss had lied in stating in official filings that he was rated to fly a long-range modern executive jet.

With three strikes, he should have been banned forever from flying to, from, and in the Philippines. Yet the fixers issued him a validation, so that he could fly his boss to Europe from Manila before the Christmas holidays.

Not only that, there’s word that he then piloted back to Manila. And last Dec. 30, he flew a Philippine senator from Balesin Island resort to Manila — on precisely the executive jet he wasn’t rated to fly.

Who was his co-pilot? None other than the CAAP fixer. And that fixer was linked to the faulty issuance of pilot, aircraft, and chartering licenses related to Robredo’s fatal crash. Three other CAAP personnel frequently moonlight flying the billionaire’s jet and smaller aircraft.

The smallness of the Manila International Airport is an edge over its gigantic counterparts in other lands, Tourism Assistant Sec. Benito Bengzon Jr. brags. For, passengers can get out of it in a jiffy.

Time it, Bengzon gushes. It takes only 25 minutes from touchdown for a passenger to meet well-wishers or hail a cab outside. With the short runway, taxiing to the terminal is only four minutes. Follows a short walk to the computerized Immigration counters, baggage carousels, and Customs clearance. The lines are quick and efficient.

That may be so. But the gateway to the country’s capital still isn’t something its 14.2 million international travelers last year can rate highly. For, through no fault of the tourism office really, the airport’s facilities and policies are shabby. And so:

• Airplanes circle the air 20 to 120 minutes before being cleared to land. Same with departing aircraft. That’s because of long rows of international, domestic, and chartered flights waiting to land or take off. There are only two runways, and they happen to intersect, making only one useable at a time. They get flooded during heavy rains, forcing flight cancellations.

The Department of Transportation and Communications has not thought to make the underused Clark International Airport in Pampanga an extension of Manila’s. It has nothing to do with labels, hopefully: Manila’s is named after Ninoy Aquino, father of President Noynoy. Clark’s is after Diosdado Macapagal, father of Noynoy’s hated predecessor President Gloria Arroyo. The DOTC says it’s more because there is yet no fast-train system between the two airfields.

Yet passengers don’t care about such rail connector. Residents of north Metro Manila, Central Luzon and Ilocos would rather fly out of Clark than plow through traffic in Quezon, Mandaluyong, Makati and Pasay cities to the Manila terminal. All they need, if not own vehicles, are reliable, regular shuttles. Buses that depart 15 or 20 minutes apart on the dot to and from designated highway points would suffice for them.

• Toilets are few and tiny in Manila’s four international and domestic terminals. There are only two urinals and cubicles — often only one when the other is out-of-order. So lines are long when hundreds of passengers disembark per plane, or thousands throng at departure halls.

Wash sinks get crowded at noontime. That’s when dozens of airport personnel rinse out lunchboxes, brush teeth, and touch up makeups. They don’t have their own toilets. Passengers have to stand aside.

• Terminal fee is exacted from passengers: P550 for international, P200 for domestic. Presumably the P12 billion or so annual collection is for facility upgrade. Yet the airport managers can’t even install drinking fountains for the passengers. It’s as if they’re protecting the food kiosks that sell one-fourth-liter water bottles for P50, four times the usual retail price.

There’s worse. Outside the terminals are thuggish cabbies, who overcharge unsuspecting passengers with nonstop running meters. Goonier still are the Pasay City cops, who extort money from motorists to and from, or protect armed robbers around, the terminals.

At international departure halls are crooked Immigration men. Provincials, stereotyped as flat-nosed, dark-skinned, unfashionably dressed, thickly accented, and easily cowed, are detained at passport-check counters. Invariably they are interrogated on suspicion of being undocumented overseas workers with tourist visas. They are let off to catch flights departing in a few minutes only when they pay up.

If the country’s premiere airport is in such rotten state, what more the provincial terminals? And it’s tourism that suffers as a result.

http://www.philstar.com/opinion/2013/01/16/897429/naia-terminals-far-world-class

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Financial IQ: Feast or Famine

http://www.marxists.org/ - MIA Income & Expenses 1999-2006 (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

If all else fails... maybe the person earns just not enough even with proper money management.  If this is such the case, it would help if the person looks for another income source to supplement what he/she currently has.


Question: As a full-time real estate broker, I am always on a feast-and-famine cycle. No matter how much I budget, I can’t seem to stretch my income until the next sale. I managed to invest in a taxi that’s now fully paid, but the daily income is not enough to pay bills, especially with two kids to send to school. Do you know of a financial program or investment scheme I can avail myself of where there is feast so that I avoid famine—something like a salary or regular income from investment?—Submitted via Facebook

Answer: There are investment schemes that can provide guaranteed income.  But let me also tell you that “feast,” like beauty, is in the eye of the beholder. Whether a particular level of income is seen as “feast” varies from household to household. So here is what you should do first to find out if these investment schemes can be classified as a “feast” for your household.

Simulate the filing of your income tax return (ITR) using your current level of gross annual income. You can get the MS Excel file of BIR Form 1701 from www.bir.gov.ph/birforms/form_itr.htm#1701 (i.e. the annual ITR for self-employed individuals) and use it as a guide. When you have computed your tax liability, add that to whatever tax-deductible expenses you have indicated in your simulated ITR. For instance, you may want to use as a tax-deductible expense the optional standard deduction of 40 percent of gross sales/receipts/revenues/fees.

Your gross annual income minus your computed tax liability and minus your tax-deductible expenses (let’s call the answer your net take-home earnings) should be equal to your total annual personal (non-tax deductible) expenses. These personal expenses would include, among others, your cash flow needs for children’s education, food, clothing, shelter, utilities, entertainment, debt repayments, healthcare and your estimated required annual savings to fund future financial goals/obligations.

If your net take-home earnings are equal to or higher than your annual personal expenses, then you should be OK. But judging from your question, it looks like your annual personal expenses are higher. By doing trial-and-error computations, you can find out the level of gross annual income you will need to break even (i.e. your net take-home earnings will equal your annual personal expenses).

The difference then between your required and actual gross annual incomes is the additional income you need to earn to make ends meet. The target additional income, while significant, is oftentimes not taken into consideration when people look for ways to augment their income. That is why many will find out to their dismay that the business they entered into, even after doing their best, does not have the capacity to generate the additional income needed. Other times, they will find that the required investment (in time, money and effort) to break even is way beyond their reach.

Put a pin on target additional income first and let’s go back to investment schemes with guaranteed income. Since you probably want not only guaranteed income but also guaranteed repayment of principal, you are looking at no other than government securities (i.e. treasury bills and bonds). Government securities possess the lowest risk among investment instruments.

Based on the Jan. 14, 2013, results on www.pdex.com.ph, current interest rates on government securities range from 0.125 percent a year for a one-month maturity to 5.53 percent a year for a 25-year paper, and that’s gross of the 20 percent final withholding tax. With such low interest rates, you will be required to put up a huge amount of capital to produce your needed additional income.

If you need to earn say P200,000 more in a year, you will need to buy, depending on the maturity, anywhere from P4.5 million to P200 million in government securities. Why, with even just P4.5 million, you would probably have enough to invest in a business that could potentially bring you much more than the additional P200,000, and with risk-mitigating measures already installed.

Putting it all together, all businesses bear risk, real estate brokering included. The risk with investing in a business is oftentimes higher than that of investing in shares of stock. But you are on the right track in looking for another business that would mitigate the risk in being a real estate broker. This is called diversification or what farmers call inter-cropping. You just have to determine first what you need to earn more.

Once you have determined your target additional income, compare that to what you can invest with. If your target additional income is P200,000 and you can invest P1 million, then you would have to find an investment that can earn an average of 20 percent return a year (i.e. P200,000 divided by P1 million). Don’t forget that the higher the potential return, the higher the risk.

Looking at potential returns is not enough even if they are guaranteed.  One should also relate such returns to your target additional income and weigh in the risks. For example, a guaranteed gross return of even 5.539 percent per year on an investment of P1 million will not be a feast for someone who needs to earn P200,000 yearly; it will be, though, for someone who has a target additional income of only P55,000.

http://business.inquirer.net/103011/the-guaranteed-feast

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Financial IQ: Saving and Eco-friendly

English: Swiss chard (Beta vulgaris) with variously colored stems on sale at an outdoor farmers' market in Rochester, Minnesota (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

Talk about finding ways to save additional money.  This applies actually to all, as any family can plant vegetables on their backyard.


It's not a typical sight for an urban backyard, but pet chickens are just one eco-friendly way the Tetreault family is saving money - to the tune of $5,000 a year.

"We wanted to really know where our eggs came from and to buy organic eggs in the grocery store is a lot of money," says Sara Tetreault, mother and blogger at GoGingham.com. "We probably now have broken even on having hens in our backyard, but there's nothing better than going out to the chicken coop and getting a fresh, warm egg." She says the family likes to call them their "pets with benefits."

In addition to raising hens, mom Sara doesn't machine dry their clothes, the family generates only one barrel of trash per month, and they bicycle as often as they can -- all eco-friendly measures that provide more breathing room in the family's budget. "I love saving money. And it just so happens that what's good for my wallet equals good for the environment," Sara says.

Along with their backyard chicken coup, the Tetreaults keep a small kitchen garden that yields most of their produce needs during the summer. "We grow green beans, Swiss chard, spinach, arugula and a lot of tomatoes," Sara says. "Every summer we go berry picking. We pick over 50 pounds of berries and then we freeze them. We're saving over a dollar per pound on the berries."

Sure, all this takes a little extra work, but the Tetreaults estimate they shave a couple hundred dollars off their annual food budget this way and, with all that cultivated food to use up, Sara makes sure to plan ahead.

"Once a week, I sit down and make out a meal plan so I know exactly what I'm going to buy and that way I'm not wasting any food," she says. To further avoid waste, they buy almost exclusively from the supermarket bulk bins. "Buying dried beans alone, we've saved over $500 a year. This helps with our sanitation bill because we're only generating one trashcan full of garbage a month." Husband Brad says while the sanitation bill is only around $6 per month, it all adds up.

Energy is another expenditure the family watches very closely. They signed up for a "time of use" program with their utility company, meaning they only use their washer, dryer and dishwasher only at night to save about 10%. And, thanks to a decision to hang dry all their laundry, they've recently reduced their drying costs by 50%. "We realized how much we were saving on our electric bill by hanging laundry," Sara says. "So then we thought we should probably figure out a way to hang dry our laundry year round. We've cut our electric bill by about a third."

When the Tetreaults drive, they do so in older, more reliable vehicles, which they choose to repair instead of trading in for new. But mostly, Sara says, the family gets around by foot or biking - whether it's to school, the grocery store or the library.

Buying used is actually a savings theme for the Tetreaults -- whether for cars, clothes or furniture. And, most cost-effectively, they buy used building supplies. Sara says they installed second-hand kitchen cabinets themselves and saved nearly $8,000 on labor and materials. In addition the Tetreaults have repaired their bathtub, installed a sink and redid their garage - all with salvaged materials. If you count these one-time renovations, along with their monthly ongoing savings, the Tetreaults figure they've saved well over $100,000 so far.

Sara and Brad say what began with an effort to be more environmentally responsible turned into an incredible savings opportunity. "We're not giving up anything by going green," Sara says. "We travel. We enjoy good food, including meat. By doing smart things with our money, we've found a way to live well on less."

http://shine.yahoo.com/author-blog-posts/save-5k-being-green-012000074.html

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Financial IQ: PSE drafts ETF listing rules

English: The U.S. Securities and Exchange Commission headquarters located at 100 F Street, NE in the Near Northeast neighborhood of Washington, D.C. (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

This is definitely good news to our Philippine Stock Market as ETF is long overdue in our country.  Whereas most established countries have a number of ETFs traded... we still have none available.  Hopefully, it will be established as planned within this year, 2013.


The Philippine Stock Exchange has drafted the listing rules for exchange traded funds (ETFs), taking another step closer to the introduction of this new asset class to the local market early this year.

The PSE board recently approved the release of the proposed ETF rules for public comments on or before Jan. 18.

“We encourage all concerned parties to give their comments to the proposed ETF rules that will govern the listing and trading of ETFs. The introduction of ETFs is timely given the current bullish trend in the market and is in line with the PSE’s vision to expand the market’s product offerings,” PSE president Hans Sicat said in a press statement.

An ETF is an investment fund that is similar to a mutual fund that tracks a basket of assets but is traded on a stock exchange similar to stocks. Often, an ETF can track the main index and replicate its performance.

An ETF could also track specific industry sectors. It is an open-end investment company that continuously issues and redeems its shares of stock in creation units in exchange for the delivery of a basket of securities representing an index whose performance the ETF endeavors to track.  A creation unit is the smallest block of ETF shares that can be created or redeemed by an authorized participant as disclosed by the ETF.

The rules drafted by the PSE are in line with the ETF rules issued by the Securities and Exchange Commission. These aim to provide prospective ETF issuers with flexibility for their pioneering efforts, examples of which are lower fees, longer compliance periods, shorter timeframe for listing and allowance for errors and deficiencies.

The proposed rules also provide for transparency and investor protection and are adherent to the International Organization of Securities Commissions (IOSCO) principles for regulation of ETFs.

Under the proposed rules, an ETF applying to list on the exchange should have a minimum paid-up capital of at least P250 million. The ETF company may undertake an offering of its securities when the registration of such securities becomes effective and its listing application is approved by the PSE. Such offering will not be covered by the initial public offering (IPO) distribution rules under its listing rules. Likewise, the lock-up and track record requirements in the listing rules will not apply.

The underlying securities comprising the index which the applicant ETF intends to track must be listed and traded in a registered exchange and should have sufficient liquidity. The ETF shall disclose the liquidity criteria and methodology in its prospectus.

As part of continuing listing requirements, the ETF is required to maintain a public ownership of 10 percent of its issued and outstanding shares. It should maintain all applicable regulatory licenses and accreditation. It must ensure that all necessary facilities and information are available to enable ETF shares holders to exercise their rights.

http://business.inquirer.net/102211/pse-drafts-etf-listing-rules

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Financial IQ: Is the Philippine stock market going to crash soon?

Parallel graphs of the S&P index and price-to-earnings ratio in the S&P index for the same period (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

Since most people are bullish... it's about time to give the stock market a different thinking perspective.  You need to see it from the valuation point of view... particularly, as our stock market rose a lot with the help of foreign investments.  If foreign investments pull out, we may experience market correction.


Question: Many are optimistic that the stock market will continue to be bullish this year with the index likely to reach an all-time high of 6,500. While this is definitely good news, I am beginning to feel uncomfortable as share prices are already very high. I am not sure if I should buy more or start selling at the current level. Can you advise me?—Gigi F. by e-mail

Answer: If you want to take advantage of the current bullish momentum, you can trade for short-term gain by buying one of the most active stocks and sell it immediately as soon it makes a profit.

This is actually fun but it be can be risky. If the stock fails to move up as expected, you may have to sell it at a loss to recover your cash at once. If you choose to hold on to it in the hope that the stock will improve later, you may risk losing more if the stock suddenly takes a sharp fall.

While it is true that the market enjoys strong economic fundamentals and liquidity flows, the potential for further upside at the moment may be limited as stocks have become expensive by Price-to-Earnings (P/E) valuation.

In fact, the Philippine market, which has market P/E of 19x is relatively more expensive than Singapore or Hong Kong, which has market P/E of only about 12x. To justify the current share prices, corporate earnings must demonstrate exceptional earnings growth to bring down P/E valuations.

If you are deciding whether to buy or sell, consider analyzing this from a risk and reward ratio. Let’s assume the market falls from its current level of 6,055, the immediate support would be 5,866, which gives a 3.1-percent loss. If, on the other hand, the market continues its uptrend and the first resistance is 6,130, you will get 1.2 percent return.

If the probability is high that the market will stop at 6,130, it may not be a good idea to buy at this point because you will risk more in order to gain. It will be wise to start taking profits on some stocks, especially those that have become expensive and invest the cash proceeds to cheaper stocks or simply keep it at the bank until another opportunity arises.

If the prospect of further upside is limited, does this mean that the market may crash soon?

Not necessarily. It only means that the current uptrend may be reaching its terminal phase because share prices are trading well above their underlying values caused by market traders who are bidding shares based on overly optimistic earnings assumptions.

The index must eventually correct itself by falling to levels acceptable to the market. It can fall by as much as 10 percent over a period of time.  Corrections are inevitable. What goes up must come down.

In a bull market scenario, any price dip is considered temporary because you expect the stock to recover again. In fact, it is during this time when you take the opportunity to buy back stocks at a lower price for another market run-up. However, if the trend has reversed, any share price rally will be minimal and the selling will continue and possibly accelerate the market downwards.

Do you know that a bull market lasts for three to four years? Our current bull run actually started last March 2009 and it will be celebrating its 4th anniversary this March 2013. Could the end of the bull market be near?

No one knows when this will happen but there are signs that the market is ripe for massive correction. Do you see more of your friends now talking about stock market than in the previous years? Do you see people discussing about stocks more than usual at Facebook, Twitter or online forums? Do you hear radio and TV shows discussing about opportunities in stock market more often than before? Are newspapers featuring stock market news or stories on the front page? Are brokers and fund managers making bold forecast that the index may reach 7,000 level this year?

As more people talk about making money from stocks, more people will get into the market hoping that they will also make a fortune. As buying of stocks increases, people will be chasing stocks and drive share prices above their intrinsic values. Market psychology will tell you that this could be a sign that the party will be over soon.

This is the best time for you to assess your portfolio and evaluate your positions. You may have to reallocate some of your stock investments into other assets for the moment as you wait for the market to correct.

Yes, you will probably feel some regrets as you say goodbye to your favorite stocks for now especially if you see the stock continue rising after you have sold it. There is no way you can catch the market top and maximize your profit. Start selling gradually. Sell while it feels good.

Do not wait for the market to fall before you start selling. You may not be able to sell it at the price you want because you will be rushing to sell down for fear that the share prices may go lower.

http://business.inquirer.net/101969/is-the-ph-stock-market-going-to-crash-soon

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Financial IQ: US deal could spell trouble for Asia’s investment winners

Image via CrunchBase

Financial IQ Philippines Quick Hit(s):

Something we have been mentioning for the past few months.  Keep an eye on the market... as it can decline as quickly as it rose, if foreign investments decide to transfer "money" to a cheaper valuated market.


A resolution to the US fiscal cliff crisis, messy and protracted as it was, provided an immediate boost for financial markets but longer term could spell trouble for some Asian assets that are coming off a stellar 2012.

Investors could start to shift some money out of overpriced or crowded Asian investments in favor of the United States on the view that the fiscal deal manages to avert a US recession and so boosts the prospects for American stocks.

A fall in US equities as funds pulled out some money in the fourth quarter, in contrast to a rally in Asia as funds funneled money into the region, suggest conditions are ripe for some reversal.

“In the short term, US risk premium will come down now that a deal has been struck and might trigger some reversal of flows from Asia back to the US,” said Hong Hao, chief equity strategist at Bank of Communication International Securities.

Analysts do not expect a major reversal of funds, but more of a subtle shift as some money managers rebalance their portfolios by taking profits on Asian positions and moving those funds into prospective bets in the United States.

The Standard & Poor’s 500 fell 1% from September through December last year in the build up to the presidential election and the so-called fiscal cliff. Markets had worried that in the absence of Congressional action, $600 billion in scheduled tax increases and spending plans would tip the world’s biggest economy into a recession.

At the same time, Asian markets rallied. Japan’s Nikkei rose 17.2% and the MSCI Asia-Pacific ex-Japan index rose 5.6%.

To be sure, the fiscal deal has done nothing to resolve other political showdowns that loom in coming months such as raising the government debt ceiling and more spending cuts.

However, in the 12 months following August 2011’s equally chaotic political wrangling over raising the U.S. borrowing limit during which the country lost its ‘AAA’ credit rating, the S&P 500 rose 9.5% compared with a 14.2% drop for Asia ex-Japan markets.

Southeast Asian markets such as Thailand and the Philippines were top performers last year, but a flood of funds has pushed valuations to levels that look less appealing now on a relative basis.

“There are a lot of great companies in ASEAN. But as a market, the region is looking pretty fairly valued,” said Bill Maldonado, who oversees about $80 billion as the chief investment officer in Asia-Pacific for HSBC Global Asset Management.

Both Thailand and Philippines, for example, trade at a price-to-book multiple of 2.5 times and Indonesia trades at 3.1 times, all well ahead of 1.5 times for the Asia Pacific overall, Thomson Reuters Starmine data shows. The US trades at about 2.1 times book value.

Similarly, defensive sectors in Asia Pacific such as healthcare and utilities that are currently trading at expensive valuations could come under pressure.

The healthcare sector in Asia Pacific trades at 18 times forward earnings making it the most expensive in the region followed by utilities that trade at 15.9 times and consumer staples at 15.7 times.

All are well above the 11.5 times forward earnings multiple at which the region trades and no longer offer the relative safety of above-average dividend yields.

Data from fund tracker Lipper, a Thomson Reuters company, shows that $35 billion left US equity funds in the fourth quarter last year compared to a net inflow of about $1 billion for funds with mandates to invest throughout Asia ex-Japan.

Uncertainly over the outcome of the fiscal cliff debate as well as elections had resulted in net outflows in nine of the 11 weeks from mid-September through to the end of last year from US equity funds, data from another fund tracker, EPFR, shows.

Meanwhile emerging market equity funds rounded off a 16-week streak of inflows as a combination of global central bank easing and receding risks of a Chinese hard-landing or a euro zone blow-up combined for an unexpectedly strong year for Asia.

In Asian fixed income markets, corporate bond issuance in Asia hit a record $133.4 billion 2012, dwarfing the previous record of $84.6 billion in 2010, as demand from yield-hungry investors soared.

This year, if US growth stabilizes and companies start investing again, money could start trickling out of Asia from assets where valuations are expensive or positioning is extreme.

“You’d see hot money flows out of Asia if you saw a growth risk in Asia. Hot money flows into and out of Asia tends to be quite cyclical. It’s more of an Asian-centric issue,” said Atul Lele, a strategist at Credit Suisse in Sydney.

http://www.bworldonline.com/content.php?section=TopStory&title=US-deal-could-spell-trouble-for-Asia%E2%80%99s-investment-winners&id=63762

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Financial IQ: Interest rates to stay low

Financial IQ Philippines Quick Hit(s):

More reasons to find alternate investment vehicles aside from typical bank products (such as savings, time, money market, etc).


Monetary authorities will likely keep interest rates low this year and growth should remain on a solid footing, aided by strong domestic consumption and higher government spending, the Bangko Sentral ng Pilipinas (BSP) chief yesterday said.

Any adjustment to interest rates would depend on the outlook for inflation and the economy’s performance, central bank Governor Amando M. Tetangco, Jr. added.

“Businesses could expect BSP to keep interest rates at the low level in 2013,” Mr. Tetangco told a business forum.

“In 2013, we foresee continued solid economic growth and stable prices, a relatively stable exchange rate and a responsive banking system that is stable to withstand external shocks.”

The central bank’s policymaking Monetary Board cut key rates by 25 basis points four times -- twice in the first quarter, another in July and then in October. Policy rates -- the reference for interest rates -- currently stand at record lows of 3.5% and 5.5%, respectively, for overnight borrowing and lending.

Central bank officials have said that monetary policy was designed to boost economic growth and to manage strong capital inflows. Last year, the peso was emerging Asia’s second-best performing currency after the South Korean won.

Foreign investors have been attracted to the Philippines, due to strong domestic demand and higher state spending that have keep the Southeast Asian economy resilient despite slowdowns in key export markets in China, Europe and the United States.

In the third quarter of 2012, the Philippines had annual economic growth of 7.1%, the second fastest in Asia after China. The rapid expansion makes it likely that growth will surpass the Philippine government’s 5-6% full-year target.

Mr. Tetangco said policy makers would continue to watch global developments to assess their impact on domestic growth and consumer prices.

“We will sharpen our economic surveillance of shifts in domestic and global dynamics, including any brewing asset price pressures,” he said.

Monetary authorities will meet on Jan. 24 to review policy.

Based on a schedule released yesterday, this month’s meeting will be followed by one on March 14. Succeeding policy meetings will be on April 25, June 13, July 25, Sept. 12, Oct. 24 and Dec. 12.

The Monetary Board meets every six weeks to set policy rates, primarily to manage price stability. Inflation is expected to ease to 3.1% in 2013, well within the target of 3-5%.

Mr. Tetangco reiterated that the central bank would keep a market-determined exchange rate, adding that the peso has been moving in step with other regional currencies.

The BSP will maintain a market-determined exchange rate and comfortable level of reserves while continuing to keep external debt at sustainable levels, he said.

http://www.bworldonline.com/content.php?section=TopStory&title=Interest-rates-to-stay-low&id=63764

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Financial IQ: Philippines Stock Picks for 2013

English: logo of Banco de Oro (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

The 2013 stock picks from some of the industry analysts can be found below.  Will you follow their recommendations?


The Philippine Stock Exchange ended 2012 at 5,812.73, up 33% from 2011, after setting record highs 38 times, the most ever in a single year.

The question is: will the gains last?

Jovis Vistan, director of research at AB Capital, says it likely won't.

"We've been growing too fast. It's hard to sustain growth of 30% primarily because of the concern in valuation. But there will be some sectors that will continue to grow 30%. Certain sectors like consumer, construction and services will continue to show strong growth prospects in 2013," Vistan said.

For 2013, Vistan recommends JG Summit Holdings of the Gokongweis, Lucio Co's grocery giant Puregold, and one of the best performing banks of 2012, Security Bank.

Security Bank helped the financials sub-index outperform the rest of the market this year, alongside property, both rising over 50%, better than the index. The primary reason for that, low interest rates, with four rate cuts by the Bangko Sentral lowering financing costs to a record low of 3.5%.

Developers like Robinsons Land and Ayala Land benefited as their customers could access cheap loans to buy more condos and homes.

Banks like Security Bank, Banco de Oro and BPI also benefited as they too had access to cheap funds, which they could lend out to grow their interest earnings.

Also pushing the banks up, mergers and acquisitions mania, after BPI revealed it was in talks for a possible acquisition of Lucio Tan's PNB.

Will these stocks be stars again next year?

Jomar Lacson of Campos Lanuza says both sectors have the potential to continue to grow next year, with demand still strong for real estate, and investors betting banks may be in play.

But he says the key to the market will be monetary policy.

"What's critical is we need to understand monetary policy, where the direction is, that will dictate the performance of the entire market, whether you are in property or banking or otherwise. At this point there is no indication that the central bank is going to reverse or tighten monetary policy, in fact, chances are they will relax it to manage the strong currency," Lacson said.

Lacson recommends companies with strong potential to see good news next year. He picked Philex Mining, which should benefit from progress in its exploration activities and mining legislation, and Holcim, as both government and the private sector plans to continue to build infrastructure next year.

April Lee Tan, head of research at COL Financial, also says the likelihood of a rate hike next year is very small, but agrees the BSP's policy will be critical for the market.

"Admittedly inflation could pick up, but if ever it is going to be externally driven. But that said, knowing the central bank, if inflation goes up just because of higher commodity prices, they won't hike rates because that wouldn't help the economy," Tan said.

Tan picked two banks, Metrobank and Banco de Oro, as must haves for 2013, as well as Meralco, a good barometer for economic activity given it supplies power to the nation's capital.

Another challenge to overcome - high prices. Nobody is denying that Philippine shares are expensive with investors having to pay more for what they earn per share here than anywhere else in Southeast Asia.

But Mark Angeles, head of research at First Metro Securities, says investors didn't mind prices this year, especially foreign investors who can borrow cheaply as their governments lower interest rates to spur their economies, and will be looking for high yielding assets in emerging and healthier economies.

The peso's strength, which will give foreigners an added forex gain when they buy local stocks with the local currency will also help.

"We see growth continuing in 2013 but its priced in. Flows will likely continue due to QE3 and QE4 and the projected appreciation of the peso, and bond yields will remain low as well too. So we have all those things going on for Philippine equity markets, and that, assuming they stay that way in 2013, we can tolerate higher P/ES," Angeles said.

Angeles picked the nation's biggest conglomerates for 2013, SM Investments and Ayala Corp. and the most valuable Filipino company at the stock market - PLDT. He says it's all about picking stocks best positioned to benefit from the strong economy.

http://www.abs-cbnnews.com/business/01/01/13/analysts-top-ph-stock-picks-2013

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