Investing for Retirement - The New Way

One of the biggest myths in investing funds to your retirement portfolio is that the investor should stick to mainly conservative investments such as bonds and cash reserves. The idea is that as you grow older, you'll need money more readily, so playing it safe is the idea here. Interestingly, there's an old method of determining your asset allocation by subtracting your age from 100. The difference is the amount (percentage) that you should devote your assets to for stocks. So a 60 year old person would have 40% in stocks. Sounds like a plan? Not for many.

Today, the retirement investing may not have the same goals for various reasons. One, the age of retirement could vary dramatically. Individuals could retire in their 80s, or others may want to retire in their 60s, depending on their retirement assets.

There are also investors who have saved very little for retirement. Often they find themselves in a catch-up mode. This isn't the age-old pension plan that older generations relied on for their savings. More retirement plans are now defined benefit plans so the plan participant will have to provide how much they will contribute and how they will allocate their investments.

Sometimes, you'll find investors not willing to place part of their paychecks for retirement. It behoves individuals facing a close retirement to accelerate their contributions and place assets in more aggressive stocks. Since aggressive assets such as stocks can help you increase your returns, catch-up employees need to weigh investment risks and returns carefully.

Retirement participants also underestimate their longevity and as such, they assess their length of retirement incorrectly. As individuals live longer, retirement income may erode over time. Especially for the person that takes the conservative approach to investing, less money may be available during the later years of retirement. One must evaluate other sources of income and determine if these sources can contribute. Consider Social Security or income from a part time job. Such alternatives may allow the investor to rely less on the retirement accounts and allow the person to adjust the allocation accordingly.

The fact remains that the investor needs to assess time horizon, risk tolerance and retirement goals in today's environment, like any non-retirement portfolio. With people living longer, it makes sense to evaluate your investment portfolio for the long retirement. A 60 year old person thinking that he or she will retire soon may want to consider living in the 90s, a 30 year stretch for the retiree. How does one account this long duration? One would clearly have to account for the time horizon, which means allocate more to stock funds. Remember, stocks outperform bonds in the long run. A person at the age of 60 will be left out if their asset allocation is 40% in stocks. The long-term range may push the investor to take a more aggressive stance such as a 60% stock and 40% bond ratio.

Planning for retirement is not an easy step. One has to assess goals and other factors that will lead to proper asset allocation. More specifically, investors need to consider aggressive vehicles such as stocks, even at the beginning of retirement. There's still hope. Retirement asset allocation tools are available that can help you plan for retirement. Ask your investment company if they have online calculators, or, simply, go to one of the two largest mutual fund companies (vanguard.com or fidelity.com). Personal financial advisors are a good way to get professional help as well.

Michael Russell

Weekly Market View (September 1 - 5, 2008)

Economic
US: OECD revised US GDP08 up from 1.2% previously estimated to 1.8%, as growth in 2Q08 was stronger than expected. However, the OECD pointed out that the problem in housing sector would be a threat for growth.

Europe: The ECB kept its policy rate steady at 4.25% as expected, citing its concerns on economic slowdown. The Eurostat confirmed that the euro zone economy shrank 0.2% QoQ in 2Q08, as consumption and investment dropped. July’s producer price index (PPI) rose 1.1% MoM or upped 9.0% YoY, as oil prices hit its record high. Germany Economic Minister said that German economy probably slipped into recession as 2Q08 GDP contracted 0.5% QoQ. He expected a negative QoQ growth in 3Q08.

UK: The BoE hold its policy rate at 5.0% as expected. However, market worried about recession and expected the BoE would cut its policy rate before the end of this year.

Japan: Private capital spending fell 6.5% QoQ in 2Q08, confirming that Japanese economy was in trouble.

Thailand: A drop in oil prices and government measures help lowering August’s inflation compared to a month earlier. Headline inflation rose 6.4% YoY, but declined 3.0% MoM. Core inflation (excluding fresh food and energy prices) increased 2.7% YoY, but dropped 0.9% MoM. The BoT governor said that the central bank might change inflation targeting from core inflation to headline inflation as higher oil prices caused the gap between core and headline inflation much wider than before. The governor also commented that the Thailand economic fundamental remained strong, and she believed if political situation was back to normal, everything should move on smoothly. However, as direction of oil prices remained in doubt and government measures would give benefit for short-term only, the BoT suggested that inflation risks could not be completely sidelined, and the bank would keep a close monitor on it.

Fixed Income Market
Government bond yield edged up 0 - 0.10% with the steepening trend, short term yield (1 - 3 year) stayed still while long end (7 - 10 years) increased approximately 0.10%. The key factors of market correction this week were expectation on significant higher supply in FY09 due to jumping government budget deficit from THB165bn in FY08 to THB249bn in FY09, and profit taking flow after market rally for the past few months.

Equity Market
SET Index plunged to the lowest level in 20 months amid political clash between Prime Minister and protestors as well as concerns on global economic slowdown. Selling pressure on Thai stocks intensified as State of Emergency in the Capital was declared right after battle between the pro and anti-government supporters broke out. S&P said to cut Thai rating outlook if violence worsened. Global sell-off persisted as signs pointed to further economic slowdown i.e. deteriorating US consumer spending and higher unemployment. Oil prices continued to drop this week largely as hurricane damage lesser than expected and as Euro hit its year-low. Hence, energy sector bore the brunt of selling this week. Whilst domestic names i.e. banks held up relatively well with much lower-than-expected CPI reported. Rate-hike talk ended with inflation falling sharply from 10-year high as a result of slide in commodity prices and government subsidies.

Start Your Tax-free Investment Early

Some local investments need time to get tax privileges

To protect your wealth, you need to find all legal avenues for enhancing your investment return. The key to success is to spend sensibly, use all the tax-deductible items that you are given, and invest prudently in tax-free vehicles.

The Thai government has given individual investors some tax incentives when investing in a number of instruments. The most common are contractual bank deposits, stocks listed on the SET and mutual funds.

Contractual bank deposit accounts

While the Revenue Department takes away 15% of your interest earned from normal bank deposit accounts as withholding tax, it gives a break on some accounts.

Interests earned from contractual bank deposit accounts are tax-free. These require you to place deposits equally every month for 24 months and prohibit you from withdrawing early. A number of local banks offer this type of accounts and even give you a higher interest than normal fixed deposit rates.

Its only drawback is that the maximum you can deposit is 25,000 Baht per month or 600,000 Baht for the whole program. That is, you save only a few thousand Baht per year on taxes. Clearly, the government simply does not want to give the rich all the tax benefits.

Stocks

When you invest in stocks listed on the SET, profits from sales of those stocks are tax-free. However, this does not apply to unlisted stocks or listed stocks that you do not trade on the SET. So, when you actually sell or transfer shares to someone else, you have to be careful with the price you declare as the selling price.

In addition to the capital gains, dividends that you receive from stocks can also be used as tax credits. That is, when you include the dividends as part of your taxable income, you may use three-seventh of them as tax credits, which will subsequently reduce your overall tax burden.

While most people think that investments in the Thai stock market are risky, they tend to overlook some companies that continue to be profitable and pay high dividends. These stocks, if held for a medium-to-long term, can provide yields that outperform the bank deposit rates, and give you a tax break as well. You should also know that most listed companies pay dividends in April and May.

Note that you will only reap this benefit if your overall disposable income is below the 37% tax bracket. If you belong to the top-most bracket, you will be indifferent whether you include the dividend income as part of your taxable income or you don’t.

Mutual funds

Mutual funds are forms of indirect investment. That is, you may put your money in a bank or buy government bonds and corporate bonds directly. However, such direct investments don’t give you any tax breaks – you still have to pay 15% withholding tax on the interests and discounts that you receive from those instruments.

Investment in those assets through mutual funds gives you a tax-free status. Mutual funds in Thailand can transfer the tax-free interests that they receive into a rise in their prices, or NAVs, which is also tax-free for individual investors.

This is why fixed income mutual funds have become more popular in the past one year, even though it carries higher risks than bank deposits. Most high-net-worth individuals find that they can save a lot of taxes by investing in bonds and other money market instruments through these funds.

It is quite ironic that such investment vehicle, which is originally created for small, inexperienced investors to pool their money together to become a large, diversified investment portfolio, is now owned mostly by wealthy, experienced investors. The first group often lacks understanding of the product and neglects its advantages whilst the latter has used it to maximize benefits.

Whether you are a small-time investor or a wealthy investor, it is important to always realize the importance of well-planned investment strategies. Remember that you have to always evaluate your risk profile and investment goals before deciding on your asset allocation. While investment in Thailand is still limited, there are a few tax-free possibilities for you.

Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat, former managing director of AYF, for the Bangkok Post.

January 10, 2001

Weekly Market View (August 25 - 29, 2008)

Economic
US: The US economy grew by 3.3% in 2Q08, higher than the first report of a 1.9% growth, as consumer spending and exports were stronger than previously estimated. However, the FOMC minute showed that the committee acknowledged that a downside risks remained, while weak housing sector, higher energy prices, and weak labour market would put pressure on the economic outlook.

Europe: The European statistic office reported the euro zone inflation rose 3.8% in August, eased from 4.0% in July, as oil prices slipped. Germany reported unemployment rate fall to 16-year low, implying that its labour market remained strong amid a weakening economy.

Japan: Core inflation (excluding fresh fruit, vegetable and seafood, but including energy) hit 10-year high at 2.4% in July.

Thailand: The Office of the National Economic and Social Development Board (NESDB) reported that high inflation dragged the Thai economic growth downed to 5.3% in 2Q08, below consensus of 5.7%. The NESDB expected the Thai economy would expand 5.2 – 5.7% this year, while inflation was expected to be around 6.5 – 7.0% in the third and fourth quarters this year. For July’s economy, the BoT reported the economy continued to expand from June. Private consumption expanded by 9.3% YoY, or +3.4% MoM. Private investment grew by 3.9% YoY, or +0.4% MoM. Exports rose 43.9%, while imports rose 53.4%, recorded a trade deficit of USD762mn. On the monetary policy, the BoT raise its policy rate by 0.25% as inflation and its anticipation remained high, while the direction of oil prices remained dubious. The central bank believed that a rate hike to 3.75% would not have much affect to the economic growth, but it would help delaying another hike.

Fixed Income Market
Government bond yield tumbled 10 - 40 bps for tenor 2-year onwards while short-term yield moved up toward a 3.75% policy rate. 2QGDP announced on August 25, weighed down market by negative surprise 5.3% YoY compared with 5.8% consensus. Demand for long duration bond was boosted by foreign investors and interbank after GDP results, and remained in a bullish mode after MPC decided to raise 1-day RP rate from 3.50% to 3.75% with a dovish statement hinted no more hike for the rest of the year.

Inflation peaked out on July and expected to ease from August onwards. GDP was forecasted to slow in 2H08 and some banks' analyst expected rate cut in the next year after core inflation start to decline.

Equity Market
Market plunged at the beginning of the week on escalating political tension after anti-government group vowed to stage their last attempt to overthrow the government as well as slower-than-expected 2Q08’s GDP growth. SET index hit its lowest level this week on Tuesday as protestors stormed into government’s TV station and laid siege of Premier’s Offices. However, the broader index managed to close higher this week as bargain hunters stepped. On brighter side, monthly economic numbers of July showed sustained strength in domestic consumption. Market turnover remained very light with local institutions leading the buying spree. Oil price is near unchanged level from last week, earlier gains from hurricane fears were pared as US authority ensured the supply from their strategic reserves.

http://stockmarketforbeginners.co.cc/for-the-beginners/weekly-market-view-august-25-29-2008.html

Weekly Market View (August 18 - 22, 2008)

Economic
US: Producer Price Index (PPI) rose 1.2% in July, whereas housing starts and construction permits decreased by 11%, and 17.7% respectively. Market was concerned about the inflation which stayed at the high level, while housing market continued to slow down.

Europe: The Euro zone economy recorded a trade deficit of EUR0.1bn in June due to higher oil import, but the export to the US reduced. In Germany, Producer Price Index (PPI) increased 8.9% in July, the highest increase in 27 years, due to soared energy prices.

UK: British retail sales unexpectedly jumped by 0.8% MoM in July (market expected a 0.3% drop) even as retail prices hit 10-year high at 1.6% YoY.

Japan: BoJ maintained its policy rate at 0.5% as expected.

Thailand: The Finance Minister said that the MoF were preparing to propose new economic stimulus measures to the economic policy committees meeting, which would be held on 27th August. The objective of the measures was to support 6.0% economic growth target. Reuter’s poll reported that analysts expected the NESDB to report an economic growth of 5.7% YoY in 2Q08, shrank by 1.0% QoQ, and they further expected the MPC to hike rate by 0.25% to 3.75% during the meeting. For July’s external sector, total exports rose 43.9% YoY, a value of USD16,957mn as exports to new markets expanded by 56.1%, resulting in increasing the proportion of new market to 50.7%. Imports, increased by 55.1%, accounted for USD17,984.3mn. Thailand imported more energy (98.2%), capital goods (36.3%), and raw materials (52.9%) causing July’s trade deficit of USD1,026.9mn.

Fixed Income Market
THB bonds retreated after six-week rally. Bonds tumbled as yields rose 15-20bps by end of the week as market expected the BoT would hike rate to fight with rising inflation. THB/USD strengthened back to 33.90 after the BoT intervention.

Equity Market
SET plunged this week with renewed worries about trouble at major US mortgage backers and more related write-downs to come. Baht weakness, which was in line with regional currencies, has partly led to foreign selling this week, though trading turnover pared to very low level. Political uncertainties at home also weighed down buying interest. Optimism driven by relatively strong 2Q08 results was over. Also, satisfactory banks loan growth could not encourage heavy buying interest. Meanwhile, commodities stroked back this week with oil price gaining as much as 7% to two weeks high on weakening USD as well as rising geopolitical tension between US and Russia.

Sources to Learn about Investing Basics

Thai investors need to learn more about investing in different assets, now

In the past one year, I have run into a number of my parents’ friends and relatives who have been affected by our government’s policy of low interest rates. These elders are suffering greatly as their interest income from bank deposits diminishes swiftly. What they receive now – at their retirement age – is only a fraction of what they used to get a few years ago.

I have sympathy for them, and a lot of other fellow Thais, who never had a chance to learn much about investing. They put most of their life-long savings in bank deposits and jewelleries or antiques, which have low liquidity.

Our government has shielded our economy from the global economic environment for so long that we never needed to learn about how to invest properly. For us, bank deposits were the only means to save and grow our money.

For those of you who still have time to study and make a difference to your personal wealth, I would recommend that you spend some time learning about investment. You will find that the sooner you know about it, the better off your future will be.

If you have access to the internet, the websites below are excellent starting points.

www.fool.com

www.money.com

www.schwab.com

www.thestreet.com

www.ici.org

Since these are all American sites, you will find that some of the terms and topics are irrelevant in Thailand. You may also notice that all of them discuss at length about investing in stocks, college planning and retirement planning, the concepts of which are quite alien to most of us here.

Locally, there are not many sites that provide basic lessons. The best one I have found so far is www.thaibdc.or.th, which gives basics on bonds. Others that either provide statistics or some original articles are:

www.bot.or.th (The Bank of Thailand)

www.sec.or.th (The Securities & Exchange Commission)

www.mof.go.th (The Ministry of Finance)

www.thaifin.com (personal finance site)

www.silkspan.com (financial superstore)

www.qthai.com (financial news and information)

If you don’t have access to internet, you can also find the following (English) books worth reading. (You should be able to find them in bookstores specialising in foreign publications.)

‘Investing for Dummies’, by Eric Tyson

‘Rich Dad’s Guide to Investing: What the Rich Invest in That the Poor and Middle Class Do Not!’, by Robert T. Kiyosaki and Sharon L. Lechter

‘The Wall Street Journal Guide to Understanding Money & Investing’ by Kenneth M. Morris, Alan M. Siegel and Virginia B. Morris

‘Mutual Funds for Dummies’ by Eric Tyson

Again, these books are written in the American context, but you can still learn a lot of basic investment practices from them.

You will find that the above-mentioned websites and books have some similar lessons and concepts:

Before investing in anything, always set your investment objectives and evaluate your own risk profiles first

Diversify your investments in various asset classes such as bank deposits, bonds, stocks, gold and properties

Invest some of your assets for longer term to reduce short-term fluctuations

By learning about proper investing, you will be better prepared for cyclical economic downturns that will most likely hit Thailand again in the future. The sooner you start, the better. As I have read somewhere that “the best time to invest your money was yesterday!”

Becoming a wise investor in the SET

An introductory insight to creating a long-term wealth

Many people have asked me whether it is the right time to jump into the stock market. My usual answer is, “I don’t know”.

This is based on my having no information about the individual who has sought my opinion. I don’t know what he/she likes, what he/she expects from investing in the stock market, what his/her long-term financial goals are, and most importantly, to what degree of risk this person can withstand.

Investing in stocks is riskier than putting money in a bank or buying a bond. You may get richer, gaining a profit of over 50%, in a week, or you may become poorer, seeing your stock value tumbling down by 50%, in a week as well. So, unless you can ensure that such potential loss, if it happens, will not give you a heart attack or make you commit a suicide, you’d better stay away from the stock market.

I believe that wise investing in the stock market can contribute to everyone’s wealth creation in the long term. Amongst the different asset classes, stocks typically offer the best way to beat inflation. Earnings of most listed companies will keep increasing when their businesses expand. These will be reflected in higher stock prices and more dividends.

Many people would disagree with me and say that investing in stocks is similar to gambling. In fact, they are alike in many ways.

First of all, they both involve risks. That is, gamblers and stock investors cannot accurately predict the outcome with great confidence. If it turns out to be a profit, they would claim that they have done their homework well. However, if it turns out to be a loss, they would blame it on the stars and fate!

Secondly, you rarely hear the “bad news” or losses. When was the last time you heard people say they lost their money in a bet, be it a football pool, a state lottery or an underground one? Similarly, stock investors normally brag about their profits, but always keep mute about their losses. They often say their stocks are for long-term hold when the prices move south.

Thirdly, both gamblers and stock investors are addictive to their activities, which they claim to be their main source of income. They often spend time discussing about them with friends in hope for getting to hear more “predictions” from well-known astrologers.

To me, stock investment can be considered gambling or full-fledge speculation when investors buy only on hope and not on sound knowledge of the underlying stocks. Once they randomly commit their money into something based only on instincts, they are immediately engaging in taking unnecessary risks.

In Thailand, it is unfortunate that there are more stock speculators than investors. As reported by the Stock Exchange of Thailand (SET), over 60% of market participants are retail investors who seek quick profits. They rely very little on fundamentals of stocks and depend more on the “hot tips” that they receive from their brokers. We often hear about investors who trade a single stock 2-3 times in a day – they buy on rumours and sell on facts!

I doubt that these speculators can achieve their financial goals, either short-term or long-term, by trading stocks in the SET. Quick profits, if any, can entice them to go into the market more often. However, just like gambling, it is more likely that their luck will run out someday. In addition, few speculators would factor the brokerage fees into the calculation of net profits.

Having said all that, I find that speculation is not all bad if it is in the right proportion. In your stock portfolio, there can be a few stocks that you can hold for more than three years, a few that you hold for a year, and a few that you plan to sell in a month. As long as you know exactly why you buy or sell each stock, and the proportion of speculative stocks is less than 25% of your portfolio, you can consider yourself an investor.

Some of the basic knowledge you should have before investing in a stock:

• What does this company do? Why is it a good business to be in?

• How is the competition, locally and internationally?

• What is its earnings forecast? What has been its track record?

• What will impact its earnings; i.e. oil prices, exchange rates? To what extent?

• How is its management? How transparent and effective are its policies?

• How liquid is this stock?

• Is the current price attractive? Why?

• When will you sell the stock? Why?

If you have all the answers to the above questions, you can be certain that you are becoming more of an investor than a speculator. Prudent investing will reduce risks and give you a better chance of winning the war – or achieving your financial goals – instead of just winning a battle – or gaining short-term profits.

Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat, former managing director of AYF, for the Bangkok Post.

December 6, 2000

Investing: ETF And CEF

By Michael Russell

If you're looking for a more cost-effective instrument, you may want to consider exchange-traded funds (ETFs), which have been described by US supporters as revolutionizing the world of investing, with their low expense ratios and ease of transaction. Another pooled-investment tool that shares cost-effective similarities with ETFs is closed-end funds (CEFs).

ETFs are baskets of stocks or bonds that trade on a stock exchange, just like shares. ETFs are unique because of their indexing feature. Just like an index unit trust fund, ETFs aim to track the performance of a benchmark.

ETFs are also unique in that they have market makers. Usually, investment banks work behind the scenes to create or redeem ETF units. So, don't look at the average trading volume as a reflection of liquidity. Market makers are there to create or redeem units based on demand.

A lower expense ratio is most commonly cited as the ETF's greatest advantage. Another positive feature is flexibility. Like stocks, ETFs can be bought and sold at on-the-spot prices. It's a very transparent investment. Even if there is a premium or discount, it will be very small and will quickly narrow.

However, ETFs don't necessarily provide better returns. As it tracks an index, ETFs will only do well when the underlying stocks or bonds perform well. When the reverse happens, the ETFs will do just as badly. Thus, investors are still subject to market risk and volatility.

What is considered as the biggest benefit can also be a drawback. As the investor incurs a trading fee each time he buys or sells units, the costs add up when more transactions are made, eventually eroding any cost benefits. Therefore, investors are not advised to trade ETFs frequently.

A CEF is essentially a fund that has a fixed number of shares and trades on the stock exchange. However, it is a company and is governed by company law. Investors are regarded as shareholders. Because they are listed on the stock exchange, like shares, the price and liquidity of CEFs are determined by market demand and supply.

CEFs have a fund management team that works towards the funds' objectives. As CEFs are normally smaller than unit trust funds, some believe 'active management' of the fund is easier, thus allowing them to perform better.

As a listed entity, the buying and selling of CEF units are done between investors on the stock market. This way, the base capital of a CEF is fixed and management can focus on investing without worrying about investors leaving or coming into the fund with large sums of money.

CEF investors also enjoy the same price flexibility as ETFs as CEF units are traded at whatever price it happens to be at during the day. Unlike ETFs, CEFs can invest in foreign-listed securities with the approval of shareholders and the Securities Commission. CEFs don't need to market or distribute their funds and cost savings on these expenses can be quite hefty.

However, as a listed security, the price of a CEF is determined by market sentiment. So, there is no assurance that CEFs will trade at their NAVs. In contrast, ETFs have fund houses and market makers respectively, to ensure that their units trade close to their NAVs. As with ETFs, CEFs are subject to market volatility and risk. Price changes may be temporary or extended and these changes can impact the CEF's NAV.

While there are risks and benefits, the existence of these investing instruments provides investors with a choice.

Michael Russell

Foreign Investment Fund

It’s no secret that many ‘well-to-do’ Thais have bank accounts offshore. However, it’s a taboo subject because, as part of the Bank of Thailand’s exchange control regime, cash remittances for overseas investment are prohibited. Even to send money abroad for other matters such as your child’s education, you need a lot of supporting documents. So, how do people buy houses, condos, stocks or other assets offshore?

A number of wealthy Thais have found ways to get around the ban. Surely, it is not perfectly legal. Once there, the money can be taken care of by private bankers. It is thus a common apparition to find these nice-looking executives discussing investment alternatives with their high-net-worth clients over lunches and dinners at leading hotels in Bangkok, particularly after the de facto devaluation of the Baht in 1997.

So, what do the ‘normal’ Thais, who don’t have access to these foreign private bankers, do with their investments? Unfortunately, they have to stick to those offered locally – plain-vanilla bank deposits, bonds, stocks and mutual funds.

Things will change soon. For the first time, ordinary local investors will have a chance to legally take the money out to invest in foreign capital markets. This is through the Foreign Investment Fund (FIF), a local mutual fund whose investment policy is to invest all of its assets overseas.

Initially, the Bank of Thailand and the Securities and Exchange Commission (SEC) approved five asset management companies to set up and manage five FIFs. Each has a quota of US$ 40 million to remit by the end of 2002.

The five investment programs

The asset management companies will launch funds with different underlying assets in May 2002 as follows:

Asset Mgmt. Company	Ayudhya JF Asset Mgmt.	ING Mutual Funds	MFC Asset Mgmt. PCL	One Asset Mgmt.	K-Asset Mgmt.
Investment assets	Global convertible bonds	Asian bonds	Global equities	Global Balanced	Global Balanced
Structure	Feeder fund	Direct investment	Direct investment	Fund of funds	Feeder fund
Foreign partner/advisor	JPMorgan Fleming Asset Management	ING Group	Wellington Management	Frank Russell Investment, Deutsche Asset Management and Morgan Stanley	Merrill Lynch Investment Managers
Minimum investment	Bt. 100,000	Bt. 2,000	Bt. 10,000	Bt. 50,000	Bt. 100,000
Subscription dates	8-9 May	7-14 May	8-24 May	2-9 May	15-17 May
Redemptions	Semi-annually on 1st business day of Jan. & Jul., starting Jul. 03	Semi-annually on last business day of Jan. & Jul., starting Jan. 03	Every 3 years, starting 2nd quarter of the 4th year after the IPO	Monthly, starting 1 year from the Fund’s registration date	Annually, on last business day of Jun., starting Jun. 2007
Dividend policy	No dividend	No dividend	At least once a year at the rate no less than 30% of profit	No dividend	No dividend

Source: Five asset management companies

Terminology

Convertible bonds	Bonds that give the holder the right to convert or exchange the par amount of the bond for stocks of the issuer at some fixed ratio during a particular period.
Asian bonds	Bonds whose issuers are governments or companies in Asia
Global balanced	A portfolio of both equities and bonds
Feeder fund	A fund that invests in another fund
Direct investment	Investment into underlying stocks or bonds directly
Fund of funds	A fund that invests in other funds; i.e. equity fund(s) and bond fund(s)

After the funds are offered to the investors during the initial subscription period (IPO), all the five fund units will be listed on the Stock Exchange of Thailand. So, investors who need to sell the units can do so via their brokers.

Who should invest in these funds?

You should also seek and understand the details of how each fund will provide you with returns. For example, you should look at how much the fund is charged by the local asset management company, its foreign partner(s), the overseas custodians, the trustees and the administrators. These will affect the underlying performance of the fund.

Conclusion

Upon acceptance of all the fine details given in the respective prospectuses, you should understand that these new products will allow you to diversify your risks and at the same time enhance your profit potential. But, like other local products, there are risks involved, and you must understand them before committing any money in them. In any case, only a portion of your savings should be invested in these funds.

If you would like to have exposure in foreign capital markets like the wealthy ones, the FIFs will be your chance to do it legally.

Weekly Market View (August 4 - 8, 2008)

Economic
US: The Federal Reserve (Fed) kept it policy rates unchanged at 2.00% as expected, and signaled that it would not raise rates in the near future. Reuters’ poll reported that market expected the Fed would keep its policy rates steady for the rest of the year.

Europe: The ECB left its policy rate on hold at 4.25% as expected. The ECB President expected euro zone growth to weaken this year, while inflation was expected to stay above its target. Rising oil prices pushed euro zone producer price index (PPI) up by 8.0% YoY in June, while pulled retail sales down 3.1% YoY, as high oil and food prices squeezed consumers’ purchasing power.

UK: The BoE held its benchmark rates at 5.0% as expected and signaled that it would leave rate on hold for a while.

Japan: Government monthly report showed that Japanese economy might get into recession. Reuters’ poll pointed out that market expected economy to shrink by 0.6% in 2Q08.

China: The State Information Centre expected the China economy to expand 10.2% in the third quarter, after expanding 10.6% and 10.1% in the first and second quarters respectively. The growth would be supported by the government policy, which heading toward sustaining growth.

Thailand: The Finance Minister Surapong Suebwonglee said that he expected August and September inflation would be closing to July’s, which was at 9.2%. He expected the inflation would be gradually declined in the fourth quarter of this year. He also kept his projected GDP08 at 6.0%. However, the BoT Deputy Governor Atchana Waiquamdee commented that its fight with inflation was not over yet, while the latest government economic stimulus package might not help supporting growth as expected, as oil price remained at high level. The Finance Minister commented that the policy difference would not lead to firing the BoT Governor or intervention of the Monetary Policy Committee (MPC). However, if the difference is so wide, one policy must stay, and the other must be off. He also commented that it is difficult to move the rate up as he did not expect inflation to hit double digits. The Center for Economic and Business Forecasting, University of the Thai Chamber of Commerce raise its GDP08 forecast up from 5.1% to 5.6%, as exports was expected to grow robustly.

Fixed Income Market
Yield dropped 3 - 15 basis point across the curve during the week due to substantial declined in oil prices which help easing the inflation concerns over 2008. Thai Finance Minister Surapong commented on Friday that he saw low possibility of rate hike in August. If the BoT still raises rate, it would intensify conflicts with the Finance Ministry, which wants growth-accommodative monetary policy. On other hand, if the BoT keeps rate steady, it could raise questions about its independency and credibility. Whether or not the MPC raises rate at August 27 meeting, most economists still expect further tightening of 25-50 basis points by year-end.

Equity Market
Market commenced the week with retreat to the low at 660 points on selling energy sector as oil price dropped and record US unemployment. However, the sentiment has improved considerably as the Fed held rates unchanged as expected with easing inflation outlook and signaled no rate increase soon. Speculation for return of political normalcy also drove the market up. Thaksin and his wife were expected to go into exile after the wife found guilty on tax evasion case and Thaksin's land graft case verdict approaching.

Fixed Income Mutual Funds

An Alternative for Retail Investors

By constructing a simple portfolio of bank deposits and various bonds, investors could increase their overall investment return to outperform the yields earned from their bank deposits. However, direct investments in bonds were not readily accessible to everyone – most retail investors cannot afford to participate in the bond market. A purchase of government or state enterprise bonds, via banks and financial institutions, requires at least 100,000 Baht for a single bond issue. Worse, most corporate bond issues require at least ten million Baht per investment.

Even if investors have more than ten million Baht to invest, should they invest in only one corporate bond? I do not recommend so. Holding one bond of any issue is extremely risky because, if the bond issuer runs into a financial difficulty and cannot repay either principal and/or interest, the investors would lose all the investment there. Thus, it is always a safer strategy to hold at least few bonds in your portfolio just to spread the risk.

So what is the alternative for retail investors who are not millionaires and seek higher returns generally offered by bonds while limiting the risks?

My answer is fixed income mutual funds. They can be purchased for as little as 2,000 to 10,000 Baht, depending on the minimum purchase policy set by each asset management company.

A mutual fund is an investment vehicle established by an asset management company and sold to the public. When individual investors purchase ‘units’ of the fund, it means that they have agreed to the investment guidelines of that fund and are entrusting the asset management firm to manage their pool of money for them. The firm’s team of experienced fund managers will determine where the money is to be invested, and monitor the risks and performance of all investments for investors.

In the case of a fixed income mutual fund, the fund manager will invest the pool of money in bank deposits, bonds and other fixed income instruments. The fund will receive interests and gains from these investments, and in turn give the investors returns in the form of dividends and capital gains. That is, when the investor buys a fixed income mutual fund, he/she will expect to see its unit price, or Net Asset Value (NAV), go up. The rate at which it rises can be compared to the yield that he/she gets from bank deposits or bonds in the same period of time.

Owing to the large size of money that the funds have (i.e. from 100 million to 30 billion Baht), the fund managers can shop around for the highest deposit rates; can buy many different bond issues therefore spreading the risk; can get the best deal on new bond issues; and, can reduce the transaction costs as they trade in large lots. Furthermore, they have access to instant news, enabling them to respond immediately to market situations.

In Thailand, fixed income mutual funds also enjoy tax privileges that retail investors do not have. While banks and bond issuers deduct 15% withholding tax when paying interests to individual depositors/investors, they give the whole amount to the funds. The funds then turn these tax-free income into capital gains, which are also tax-free for individual investors.

The disadvantages? For investors who enjoy managing their own investments, their investment in mutual funds will exclude them from direct investment decisions and the ability to buy and sell their investments actively. They also have to acknowledge that this investment vehicle, the fund, does not only belong to them – they belong to all ‘unit-holders’. Their rights are therefore limited to the portion in which they invest.

Another disadvantage is that the future return from mutual funds is not accurately predictable whereas the direct investment in bonds is. This is because the funds invest in various bonds and assets whose prices and yields change frequently.

There are two main types of fixed income mutual funds, open-ended and closed-end. Their features can be summarized as follows:

eature	Closed-end funds	Open-ended funds
Fund size	Fixed. If investors do not invest during the initial period, they need to buy the units from existing unit-holders.	Flexible. Size grows when there is demand for units and shrinks when investors sell.
Life	Usually fixed for 2-10 years	Indefinite
Liquidity	Low; cannot be bought and sold frequently	High; can be easily bought and sold
Where to buy and sell?	Secondary market; i.e. the SET	Asset management company and their agents who are mainly banks and brokers

Nowadays, open-ended funds are more popular because investors can buy or sell the units from and to the asset management companies and bank branches. A number of the funds are available everyday, making them very liquid.

Through fixed income mutual funds, retail investors can participate in the bond market more efficiently without using a large sum of money. The funds can also help reduce their risk exposure of holding only a few securities while enhancing the possibility of higher returns. However, do not forget that the funds are not bank deposits, and all other risks associated with investment in bonds, which I have mentioned in the previous articles, are applicable here.

Investing: Top-down Or Bottom-up

When it comes to investing in good companies, there has been much debate on the top-down and bottom-up approaches. Most fund management companies use the top-down approach and recommend that investors examine the economic and industry outlooks first before deciding on which stocks to purchase.

On the other hand, investment experts like Warren Buffet and Peter Lynch favor the bottom-up approach. They say that macroeconomic forecasts are actually major distractions for investors as the projections might turn out to be wrong. Instead, investors' efforts should be placed more on detecting the quality of earnings and asset value of the company.

Both approaches have their strengths and weaknesses, but they share a common goal, which is identifying good fundamental companies to invest in.

With the top-down approach, investors study the economic trends and then determine the industries and companies that are likely to benefit the most from them. Say, for instance, the reduction in prices of imported paper will contribute to lower operating costs for media companies and increase their earnings. Investors will then search for more efficient and cheaply priced media companies. On the other hand, negative events like high interest and inflation rates or currency depreciation, can affect a country's economy and definitely cause stock prices to tumble.

Top-down investors will first look at the entire forest instead of specific trees and try to identify the main market theme ahead of the market in general. They believe that picking individual companies comes second because if the economic conditions are not right for the industry that a company operates in, it will be difficult for the company to generate profits, regardless of how efficient it is. However, such investors may sometimes miss good companies that are still performing well, even in a depressed sector.

Conversely, bottom-up investors conduct extensive research on individual companies. As long as the company's future prospects look strong, the economic, market or industry cycles are of no concern. In fact, the downturn in the stock market may provide investors with a good margin of safety to buy stocks at depressed levels and ride them up to big gains.

So, bottom-up managers will buy stocks even though the macroeconomic and industry outlooks look uncertain. When the industry may be out of favor and most investors are ignoring the true earnings of companies, bottom-up managers can detect good and well-managed ones selling at prices that are far lower than the intrinsic value.

However, to top-down managers, bottom-up managers may be attempting to catch a 'falling knife' (a stock whose price has fallen tremendously in a short period of time) in a down market. Unless bottom-up managers have plenty of bullets to average down on their purchase prices, they may run out of cash if the stock prices continue to lower. Moreover, they may sometimes fail to see the wood for the trees; they may identify certain companies but miss the overall industry trend.

The top-down and bottom-up approaches are two distinct and fundamentally very different approaches to investing. Investors can combine the top-down and bottom-up approaches by applying top-down analysis on asset allocation decisions while using a bottom-up approach to select the individual securities in the portfolio.

Michael Russell

Weekly Market View (July 28 – August 1, 2008)

Economic
US: The Conference Board consumer confidence index rose for the first time in the last 6 months, as oil prices decreased. However, economic data released later this week showed poor results i.e. GDP grew weaker than expected in 2Q08 at 1.9% and unemployment rate climbed up from 5.5% in June to 5.7% in July as 51,000 jobs were cut.

Europe: Euro zone economic confidence retreated to 89.5, the lowest level since May 2003. Inflation hit a new record high at 4.1% in July, while market expected the ECB would raise its policy rates in September meeting to curb inflation. In Germany, unemployment dropped by 20,000 on the month in July to 3.250 million, the lowest figure in 16 years. However, a 3.7% YoY decreasing in retail sales added nervous to the German and economic gloom.

Japan: Unemployment rose 4.1% in June, the highest level in 2 years, and household spending decreased for the fourth consecutive month by 1.8%. Industrial output dropped a slightly lower than expected, added worry on a weak economy.

China: President Hu Jintao said sustaining economic growth is its economic priority. The central bank also authorized commercial banks to increase their lending by 5%, which supported the president Hu’s word.

Thailand: The BoT revised its 2008 headline inflation up to 7.5 – 8.8% from 4.0 – 5.0% previously estimated, while core inflation was revised up to 2.8 – 3.8% from 1.5 – 2.5% earlier estimated. The central bank also revised GDP08 down from 4.8 – 6.0% previously projected to 4.8 -5.8%. For June economic data released on the last day of July, private consumption index rose 1.2% MoM, while private investment index upped 0.7% MoM. Trade account showed USD926mn surplus, where exports rose 28.5% and imports increased 31.5%. July’s inflation rose 9.2% as oil prices stayed at high level. However, the BoT said that July’s inflation was not too high as it came out as expected, and the number slightly changed from a month earlier. Market expected the central bank would raise its policy rate by 0.25% in 27th August meeting.

Fixed Income Market
This week Government bond rallied approximately 20-30 bps, especially for more than 2-year tenors. Oil retreated to around USD122 from its all-time high at USD147, together with lower commodity prices, reinforcing lower inflation expectation. Lower yields also reflected uncertainty of global economics, US hit by unexpected rose in jobless claims while Australian banks faced more provision on sub-prime related portfolios. All sentiments put cap on policy rates of every central bank, especially emerging market region, which headline inflation weight much more on foods relative to developed countries.

Equity Market
The week started with a move to the downside as Supreme Court accepted Digit lottery case against Finance Minister. BoT’s GDP downgrade as well as upward revision for CPI also added selling pressure. Yet, Thai stocks managed to gain ground toward the end of the week following regional markets as concerns over US slowdown and inflationary threat receded. July’s headline CPI of Thailand, which dialed in at 9.2%, was also lower than consensus forecast. Global oil prices, which continued to decline on worries of demand destruction, also helped relieve inflationary fear.

A Closer Look at Bonds

Bonds are safer than stocks, but they still have risks.

Among the most common forms of investment in Thailand: bank deposits, finance companies’ promissory notes and negotiable certificate of deposits (NCD), we should realize that they have the lowest investment risks and should not expect a high yield.

So what other products can we invest in if we are not satisfied with the current yield of 2-4% a year offered by those instruments? To most people, the reply would be “stocks”. But not everyone is comfortable with the wide fluctuation of stock prices, which can wipe out most of our principal in a few days if we pick the wrong stock(s).

A number of investment products have investment risks ranging bank those of bank deposits and stocks. Some retail investors in Thailand just started to be more familiar with is “fixed income securities”. There are IOUs which a borrower, or an “issuer”, promises to pay a lender, or a “holder”, the principal plus interests after a certain time – usually more than a year. Interests, or “coupons”, are mostly paid in a fixed amount every six months; hence the name “fixed income” securities.

Unlike the normal IOUs like bank loans, these instruments can be and are often traded among professional investors like banks, government agencies, insurance companies and mutual funds. That is, before these instruments reach their maturity dates, they can be bought and sold many times.

The most common fixed income securities in Thailand are bonds and debentures. Bonds are often referred to the instruments issued by the government or government agencies such as the Bank of Thailand, the Financial Institution Development Fund and state enterprises. Debentures are issued by well-known public companies and financial institutions. Almost all other features of bonds and debentures are the same, so in this article, I will use the word “bond” to mean both types of fixed income securities interchangeably.

What to look out for?

Prior to buying a bond, you should acknowledge and understand the investment risks associated with it. There are four major risk categories: default risk, interest rate or price risk, liquidity risk and event risk.

Since a bond is a form of an IOU, your most concern should be the borrower/issuer. Obviously, if the issuer is the government or government agency, you will feel safer to buy it than if the bond’s issuer is a company – you know that they will keep their promise to give you back the money when the bond matures. That is, the default risk is low for government bonds.

By comparison, the default risk for corporate bonds are higher. There have been cases where the companies ran into financial problems and could not repay the money to the bond investors. Some of you, unfortunate investors, may remember these bonds which were issued by various financial institutions and property companies in 1993-1995 and were defaulted. To date, investors have received very little back from such high-interest instruments.

Some defaulted corporate bonds

Issuer	Industry
Finance One CMIC Finance and Securities General Finance One Holding Property Perfect Modern Home Thai Petrochemical Industry	Finance Company Finance Company Finance Company Holding Company Property Development Property Development Chemicals and Plastic

Source: Thai Bond Dealing Centre’s web site

Since there are many companies issuing bonds now, a retail investor may find it difficult to evaluate how much default risk you are taking on for a particular issue. To help investors evaluate risks, the government and the public sector have jointly set up a company to evaluate the financial health of an issuer. The company, TRIS, rates most of the corporate bonds that are sold to the public. An issuer with an “A” rating is deemed to be financially stronger than one with a “B” rating.

A second category of risk, interest rate or price risk, is involved with a fluctuation of market interest rates. As I mentioned earlier, bonds can be traded before the maturity date. So, if you do not hold the bond until maturity, where you will receive the principal and the last interest payment, you will have to worry how much you can get from selling it.

As bond prices are dictated by the market interest rates, there is no guarantee that you will always sell the bonds with a profit. That is, the more volatile the interest rate is, the more volatile the bond prices are. As a general rule, bond prices rise when the interest rate declines, and vice versa.

So, when you need to sell the bond that you bought when the market interest rate was 8% per annum, it is likely that you will lose some money if the future market interest rate is 12% per annum. Please note that the coupon rate – the rate that gives you semi-annual interests – has nothing to do with the bond prices.

You may remember the liquidity risk from the last week’s issue. This is measured by the ability to turn the bond into cash when you need to sell it before its maturity. As you would expect, “high-quality” bonds (i.e. the government/state agency bonds) are more liquid than the lower-quality ones such as corporate bonds. This is because many investors, particularly banks and insurance companies, are required by law to hold government bonds as part of their reserves or investment. So, the “demand” always exceeds the “supply” for these types of bonds. Obviously, the bonds that have the highest liquidity risk are the ones that have defaulted or are “rumored” to become defaulted shortly.

The last risk category, the event risk, has to do with special circumstances that can affect the ability of the bond issuer to services the debt. The risk can strike suddenly. The closest example in Thailand is when the Bank of Thailand shut down finance companies in 1997. Overnight, their bondholders were left with the bonds with no value. Examples in other countries include a major accident for an oil-producing company or a sudden change in government policy relating to concession for a telecommunication company.

Conclusion

You may agree that fixed income securities can be another attractive investment alternative. They, especially the government bonds, can offer higher yield and provide you with more liquidity than banks’ fixed deposits. However, do not forget that this opportunity (to gain higher return) requires that you fully understand the characteristics of the bonds. Before you buy them, you should ask the distributor/seller to explain and compare the four major risk categories with other issues in the market.

Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat, former managing director of AYF, for the Bangkok Post.

September 6, 2000

The Move To Commodity Trading

By William McWilliams

Commodity trading is remarkable, especifically because it is possible to make large amounts of money in a short period of time. It is simply a means of trading any physical material that is exchangeable with another like item that investors buy or sell. Commodity trading is basically speculation on the future price actions of a basic raw material. Commodity trading is the one area of the financial markets where any individual with persistence, money to risk, and discipline can be extremely successful. Commodity Trading is also a way to make money fast, but carries considerable risk to your principal. Commodity trading is too risky to try without some sort of trading system or strategy.

Traders enter commodity trading with a view to making big money. Contrary to what many traders say, the mechanics of trading is uncomplicated. You can gain a thorough understanding of how the commodity markets work just by reading a basic guide to Commodity Trading. It should include how to place a trade, contract sizes, margin requirements, and more useful information for newbie traders. Short-term trading is how the majority of traders and would-be traders take part in the markets. Discover what professional commodity traders do that separates them from the losing masses. You will also want to find a firm that offers commodity traders low commissions, quick executions, charts and free quotes.

You should be advised that commodities trading is not for everybody, and if you decide to open a commodity trading account be sure you understand all the risks involved. You may make all of your own trading decisions. Or, for individuals who prefer to leave trading up to a professional commodity trading advisor, a managed account may be the better choice for them. Discuss your commodities trading plan with a commodity broker.

Commodity trading is one of the few remaining level playing fields available to traders. Commodity trading is certainly not for everyone because it can be one of the most volatile markets you can trade. If you are thinking about trading on the futures markets, please do your research and read a commodities trading guide to see if commodity trading is for you.

For more information on commodity trading visit Commodity Trading Strategy Be sure to sign up for their free commodity trading guide at www.commoditytradingstrategy.com

Ways to Invest for the Good Life

Low interest rates prompt a new approach to investing

So, who is not wounded by the low deposit rates in Thailand? Whether you are a millionaire, a farmer, an office worker, a merchant, a factory worker or a college student, chances are you have been very unhappy with the interests received from your bank deposits.

Most of us have been accustomed to earning a double-digit rate for the past twenty years. Today, the current 2-4% rates, hardly cover, if at all, the monthly bills. This has created problems for us who know no other way of earning income aside from the bank deposits. Even worse, many of us still believe that the high deposit rates will return as the economy improves. In my opinion, that day will never come – not in the next five years.

So the question is how can we protect, if not create more of, our wealth in Thailand?

The answer is to learn and understand the different investment products besides bank deposits, and to mix them in the appropriate proportion to give the most optimal outcome. The latter part is very important, and referred to as “asset allocation” in the investment world.

In Thailand, there are limited investment products. You are probably aware of bank deposits, government bonds, corporate bonds, fixed income funds, equity funds and stocks. (Notice the order – they range from lowest to highest risk level.) However, the most important, depending on your investor type, is the mixture of products into an investment portfolio that will enhance your total return whilst minimizing risks. To illustrate, I would like to give you some examples of the following investor types:

Retirees

Your investment goals should be to preserve the principal and receive a stable stream of income. You can only achieve this by investing in lower-risk products like bank deposits, government bonds, high-grade corporate bonds and fixed income funds. Under the current market rates, I would recommend the following allocation:

Bank deposits: 15%
Government bonds: 25%
High-grade corporate bonds: 20%
Fixed income funds: 40%

Newly graduates

As you are at the start of your working career, you probably have limited funds to invest. However, you must

be planning about your being financially independent and, someday, a marriage. In this case, you can probably assume higher risks in pursuit of higher gains in the medium to long term. My recommended portfolio is then:

Bank deposits: 10%
Fixed income funds: 40%
Equity funds: 50%

And as you gain more experience with the stock market, you can possibly reduce the portion in the equity funds and go directly to the stock market yourself. Of course, this will enhance your potential gain and increase your risks.

Managers

While you are between 35 and 50 years old, your concerns should be how you can support your children’s education and how you can retire comfortably. Your risk profile should then be in the middle: you can assume some high risks for long-term performance but you also need current income. Your portfolio should then be:

Bank deposits: 10%
High-grade corporate bonds: 20%
Fixed income funds: 30%
Equity funds: 30%
Stocks: 10%

Please note that the above allocation percentages are just indicative and should be changed according to different market conditions. They should be “tailor-made” to suit your exact financial needs, goals, risk profile and other constraints. If possible, you should consult your financial adviser to decide on your most appropriate asset allocation.

To summarize, it is prudent for you as investors/depositors in Thailand to diversify your money into other investment products in order to protect your wealth from further deterioration. Long gone are the days when you only rely on interests from your bank deposits to support expenses. To ensure you will enjoy ‘the good life’, you must plan your asset allocation well.

Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat, former managing director of AYF, for the Bangkok Post.
August 16, 2000

Weekly Market View (July 21-25, 2008)

Economic
US: Treasury Secretary Henry Paulson said a strong dollar is important to US interests and it would support long-term economic growth. Philadelphia Federal Reserve President Charles Plosser commented that despite weak labour and financial markets, the Fed might start raising interest rates to detect rising problem from rising inflation. However, in the Fed’s Beige Book, there is no signal for a rate hike in the next FOMC meeting.

Europe: Industrial orders declined more than expected by 4.4% YoY in May. In Germany, the Finance Minister said the economic growth declined considerably in 2Q08, but it would not completely grind to a halt. Recent Ifo business survey results showed that German business confidence dropped from 101.2 in June to 97.5 in July.

UK: The economy grew by 1.6% in 2Q08, the lowest level in 3 years, and decelerated from 2.3% in 1Q08. Retail sales rose 2.2% YoY in June, slowed from a 7.9% YoY in a month earlier.

Japan: Core inflation rose at the fastest pace at 1.9% in June as expected. Exports fall 1.7% in June, the first negative growth in the last 5 years. Analysts noted this might be a signal that weak US economy had began to impact the others. Market expected the BoJ would keep its policy rate at 0.5% until the end of this year.

Thailand: The BoT Deputy Governor Atchana Waiquamdee said that Thai economic growth in the second half would slow from the first half, but the BoT put more focus on economic stability rather than economic growth. She admitted that the interest rates are on an upward trend. The Fiscal Policy Office expected a 5.9% growth in 1H08, where 1Q08 and 2Q08 grew by 6.0% and 5.8% respectively. It expected the Thai economy would be expanded by 5.3 – 5.5% in the third and fourth quarter of this year, which would produce a growth of 5 – 6% for this year. The Finance Minister said that the government would release another economic stimulus package in the next 1 – 2 months. On the trade balance account, the Ministry of Commerce reported that exports growth hit a new record high at 27.4% in June, total value of USD16.27bn, as exports to Asian countries and China were robust. Imports rose 30.7%, total value of USD15.64bn. A trade surplus was reported at USD628mn. For the first 6 moths of this year, exports rose by 23.1% or value of USD87.21bn, imports increased 33.6% or value of USD88.28bn, generated a trade deficit of USD1.1bn.


Fixed Income Market
Local fuel price dropped as crude price lowered and government excise tax subsidy plan help easing July inflation expectation. The inflation figures are scheduled to be announced next week. Consequently, government bond yield dipped around 10 bp across the curve this week.

AYF expects the BOT to increase RP not more than 50 bp toward end of 2008 while yield curve already priced in another 2 hikes. Thus, the downside on bond price is less than few months before. AYF recommended diversifying part of investment to medium term bond (1 - 3 years maturity).


Equity Market
The week started on bullish tone, shot up nearly 5% WoW at peak, as credit market concern eased after results from major US financials were not as bad as feared and inflation concern receded with losses in energy commodities after USD strengthening and Hurricane worries fading. However, the optimism was short-lived, weekly gains were partly wiped out by week-end on US housing slump, ongoing street protests, and political uncertainties. Among the top gainers this week were banks and property developers on strong 2Q08 results and lower fuel prices.

Weekly Market View (July 14 - 18, 2008)

Economic
US: The Federal Reserve Chairman Ben Bernanke told the senate banking committee and the House of Representatives panel that tight credit, weak housing market, and soaring oil prices were vital factors threaten the US economic stability. He insisted that restoring financial market stability was his top priority. Market changed its expectation on interest rate from a hike to a hold at 2.0% after Bernanke’s testimony. The statement also dragged oil prices down sharply, as investors concerned that a slowdown in the US economy might bring demand for oil down.

Europe: Euro zone inflation rose 4.0% in June, the highest level since the economic union was settled, as food and energy prices soared. Germany producer price index (PPI) rose 6.7% YoY in the same month, hit the highest level in 26 years. Excluding oil, which rose 17.9% YoY, Germany PPI rose 3.0%.

UK: Producer Price Index rose 10%, while production costs surged 30% in June. Inflation rose 3.8% YoY in June compared to 3.3% YoY in May. Analysts believed that rising inflation would force the BoE to hike rate.

Japan: The BoJ kept its policy rate unchanged at 0.5% as expected and revised GDP for the fiscal year ended March 2009 down from 1.5% to 1.2%.

China: China economy grew by 10.1% in 2Q08, slowed from 10.6% in 1Q08, led by slower exports and the PBoC’s tightening policies. However, China growth remained robust, while inflation rose 7.1% in June. Analysts expected the central bank would keep its tightening stance for a while in order to keep inflation in check and avoid economic overheating.

Thailand: The Monetary Policy Committee (MPC) tried to curb inflation by raising the benchmark interest rate by 0.25% as expected. The MPC’s statement showed that the policymakers expected that rising oil prices would result in higher inflation, and the BoT would act as needed. Top management of large Thai commercial banks commented that current BoT’s action would not have much affect on loan growth. The Center for Economic and Business Forecasting, University of the Thai Chamber of Commerce reported that higher living costs, political instability, and depreciation of Thai baht dragged Thai consumer confidence down to 70.8 in June from 71.8 in May.

Fixed Income Market
Bank of Thailand raised RP 1 day interest rate by 0.25% with hawkish tone of statement. Most of the Asian countries are forced to hike rate in respond to the inflationary pressure. However, government bond yield dropped for 10 - 30 bps during the week led by sell-on-fact momentum and sharp dropped of crude oil price by ~ 10 USD. We believe that Thai yield curve still facing upward pressure by worsening inflation in 3Q08 and new supply to be announced in late September.

Equity Market
Market has plunged another 9% this week to lowest level in 15-month as US financial jitters over troubling mortgage backers span the globe. Risk aversion is mounting on concerns of widening credit-market losses and slowing global growth will hurt earnings. Growing unease about politics at home i.e. efforts to amend constitution also exacerbated selling pressure. Consumer confidence in June also dropped to lowest level of this year, while BoT decided to hike benchmark rate by 25bps to 3.50% to catch up with inflation as widely expected. Government has unveiled relief measures to help alleviate soaring living costs, but the handouts weren’t enough to overcome bearish sentiment. Oil prices slumped more than $10 a barrel from lifetime high as Fed Chief testified that US economy is facing significant risks to growth, which triggered fear of dampening oil demand and, therefore, a broad sell-off in energy counters.

The information contained herein is AYF's opinion at the time of its publication and subject to change without prior notice.

credit: www.ayfund.com

Weekly Market View (July 7- 11, 2008)

Economic

US: Kansas City Federal Reserve President Thomas Hoenig commented that the Fed should raise its policy rate to neutral level to prevent high inflation taking root.

Europe: Eurostat revised euro zone1Q08 GDP down to 0.7% QoQ (2.1% YoY) from 0.8% QoQ (2.2% YoY) in earlier report. On the Germany economy, German Finance Minister Peer Steinbrueck said that rising global inflation might hit domestic consumption in Germany. He agreed with the ECB that it should focus on preventing inflation problem. He believed that raising policy rate would have a small affect on the Germany economy.

UK: The BoE kept its policy rate unchanged at 5.0% as expected. Manufacturing output declined 0.8% MoM in May, the sharpest declining since December 2005, which might imply that UK economy had been slowing down. Moreover, UK consumer confidence dropped for the 6th consecutive month. There was no sign that consumers would slow their spending, however.

Japan: The BoJ governor said that profit margin of Japanese companies had been decreasing as oil and raw material prices rose, which pushed wholesales price index to its 27 years high at 5.6% in June. Consumer confidence dropped to 32.3 in 2Q08, the lowest level since the survey began in 1982. However, analysts expected the BoJ would keep its policy rate on hold at 0.5% through out this year.

China: Government source said that inflation rose by 7.1% in June, dropped from 7.7% in May.

Thailand: Reuters’ poll reported that market expected the MPC to raise its policy rate by 0.25% in the 16th July meeting to curb inflation. However, analysts did not expect an aggressive rate hike as it might hurt economic growth.

Fixed Income Market
During this week, Thai government bond yield was volatile and ended with declining by 5- 28 bps across the curve. These were led by a negative outlook on the US economy from deterioration of US banking crisis after Freddie Mac and Fannie Mae may face troublesome of huge capital raising ability. The second Iran's missile tests and supply concerns from Nigeria and Brazil push oil price back above 140 USD/barrel. The next MPC meeting will be held on 16 July 08, 11 out of 12 analysts expect 1-day repo to shift by 0.25%.

Equity Market
Market took a beating to lowest level of this year early in the week as specter of political instability was heightened after the Constitutional Court ruled that a Joint Communique Thai Foreign Minister signed with Cambodia over Preah Vihear Temple is unconstitutional and a key executive of People Power Party found guilty over electoral fraud by Supreme Court. Blue chippers in bank property and energy sectors were once again among the week’s worst casualties. However, market bounced off lows late in the week on expectation of strong 2Q08 results. Meanwhile, foreign selling continued its course this week. Oil price declined heavily to trade near two-week low as USD rose and Iran downplayed the possibility of war, before jumping back as Iran continued to test-fired missiles as part of war games.

The information contained herein is AYF's opinion at the time of its publication and subject to change without prior notice.

credit: www.ayfund.com