Why investors in Singapore should look forward to the year of the rooster
According to the Chinese zodiac, investors can look forward to a great year for Asia’s and Singapore’s stock markets. Based on past results – although> READ MORE
According to the Chinese zodiac, investors can look forward to a great year for Asia’s and Singapore’s stock markets. Based on past results – although> READ MORE
2016 was kind to investors. Most major stock markets saw positive returns – including Singapore’s STI. But positive performance in 2017 will be made more> READ MORE
Now that Donald Trump is the U.S. president, the world will now see if he was all rice and no chicken on the campaign trail. If he does follow through on everything> READ MORE
The Trans-Pacific Partnership (TPP) trade deal was supposed to be a boost for Singapore’s slowing economy. Instead, it’s American electoral roadkill, run over> READ MORE
By definition, being contrarian – both in life, and as an investor – is difficult. Going up when the rest of the world is going down, or going right when> READ MORE
Diversification is generally considered one of the basic tenets of investing and financial planning. Owning a mix of assets, ideally with a low correlation –> READ MORE
American politics usually have limited impact on the rest of the world. But what’s happening in the U.S. right now has the potential to affect Singapore – in> READ MORE
Many financial advisors, stock brokers and private bankers in Singapore are smart, hard-working people who want to build wealth for their clients. But not all> READ MORE
According to the Chinese zodiac, investors can look forward to a great year for Asia’s and Singapore’s stock markets. Based on past results – although admittedly the sample size is small – the year of the rooster is one of the best years for the region’s market performance.
We looked at the performance of Singapore’s Straits Times Index (STI) since 1975, and of the MSCI Asia ex Japan index (since 1988) to see the relationship between the animals of the Chinese zodiac, and stock market returns.
Since the Chinese zodiac moves in 12-year cycles, this means that the STI performance figures have yet to complete four 12-year cycles. And the MSCI Asia ex Japan Index’s performance numbers are still working through their third cycle. This means any results are based on a pretty small sample size for both markets.
However, even with this limited sample size, some years of the Chinese zodiac are already proving to be better for markets than others.
The STI and the Year of the Rooster
As shown below, Singapore’s STI has averaged an annual return of 21 percent during previous years of the rooster. That’s 10 percentage points higher than its average return of 11 percent since 1975. (All returns are total returns and include dividends.)
That’s not the best year, but it is in the top four. The only years with better performance have been the year of the tiger, rabbit and monkey (which was last year).
Asian markets and the Year of the Rooster
The MSCI Asia ex Japan Index reflects the performance of major Asian markets excluding Japan’s. As the table above shows, the year of the rooster has been the best year for these markets, by far.
Past years of the rooster have averaged returns of 52 percent for the index. That’s 19 percentage points higher than the next closest animal, the rabbit. And it’s well above the index’s average return of 13 percent a year.
Keep in mind that Asian markets had a great year in 1993, with the MSCI Asia ex Japan Index returning 75 percent (the same with 1999, a year of the rabbit). That was an early year of the “discovery” of emerging Asian markets and these markets went through the roof. So that does skew the results.
The MSCI Asia ex Japan Index’s performance during the year of the rooster only has a sample size of two – 1993 (up 75 percent) and 2005 (up 29 percent). So, take these results with heaps of salt.
The year to avoid
For both the STI and the MSCI Asia ex Japan Index, the year of the rat is the one to avoid. Average returns for the year of the rat have been negative 26 percent for the STI and negative 25 percent for the MSCI Asia index. Those are terrible results.
The next year of the rat will be 2020. So… mark that date on your investing calendar.
Of course there’s no scientific basis for the predictive powers of the Chinese zodiac. And as time goes on and the sample size for Asian markets grows, these results could change.
The past has no bearing on the present. But historical indicators like this can give investors some guidance about what markets have done before.
And to learn about our best ideas on where to invest in Asia and the rest of the world, regardless of what the Chinese zodiac says, please click here.
2016 was kind to investors. Most major stock markets saw positive returns – including Singapore’s STI. But positive performance in 2017 will be made more challenging with a new American president who claimed Singapore was stealing jobs from America during his campaign, and vows to cancel a trade agreement that would have boosted Singapore’s economy. With a cloud of uncertainty hanging over this year’s global markets – especially for Singapore – now is a good time to take stock and make sure your portfolio is protected.
Singapore’s STI climbed 4 percent last year. The S&P 500 was up 12 percent; the MSCI All Country World Index was up 8 percent; the MSCI Asia ex Japan Index gained 5 percent. Even troubled Europe’s markets had a positive year, up 5 percent.
In fact, one of the only major markets that had a negative year was China – the Shanghai Composite lost 10 percent in 2016.
After a relatively good run, it’s easy to think that next year will be more of the same. But this status quo bias is the enemy of portfolio performance. Investing is like driving: It’s best to be defensive.
So here are three steps you should take to ensure that you’re not caught off guard in 2017. (If you want to learn more, click here for our free special report about what President Trump means for you and your portfolio.)
It’s never a bad idea to diversify and hold uncorrelated assets. This involves investing in different asset classes (like stocks and bonds), and different sectors and companies – ideally ones that won’t all move in the same direction at the same time.
But it’s also important to diversify by geography. The problem is most investors invest way too much in their home country.
For instance, even though Singapore’s stock market is only 0.4 percent of the world total, Singaporeans invest about 39 percent in domestic equities.
One study showed that the average American with a stock portfolio has 79 percent of her money in U.S.-listed stocks – while U.S. stocks accounted for just slightly over half of the world’s total market capitalisation. Investors in Japan put about 55 percent of their money in Japan-listed stocks, although Japanese shares were just 7 percent of the total. And people in Australia have two-thirds of their portfolio in local stocks, which accounted for only 2 percent of the world’s shares.
So make sure to show your portfolio the world. It’s true that most of the world’s markets tend to move in the same direction at the same time – correlations have been climbing over the past decade. But the better reason to diversify globally is to help boost your returns.
For example, and as shown in an earlier chart, Singapore’s STI was only up 4 percent last year. But the MSCI All Country World Index grew by 9 percent. The S&P 500 was up 12 percent. And Thailand’s market saw excellent performance, gaining 16 percent.
Including these other markets in your portfolio would have boosted your portfolio’s returns in 2016.
You’d be smart to have more cash in your portfolio. Yes, it doesn’t pay much, its value erodes over time (thanks to long-term inflation), and if you lose it (or put it through the washing machine), it’s gone forever.
But, over the short term – like the next year or so – the value of your cash stays constant (unless you live in Venezuela or Zimbabwe). And the value of your cash won’t change if markets crash.
Holding cash is one of the easiest ways to hedge your portfolio. Hedging helps reduce investment losses when your investment strategy doesn’t work out as planned.
Here’s an example of how it works… Let’s say you have $50,000 in stocks and an equal sum in cash, for a total portfolio value of $100,000.
Then let’s say the stocks drop 5 percent, but the cash’s value stays the same. This means that you have a paper loss of $2,500 on a $100,000 portfolio – down 2.5 percent.
But if the entire portfolio was in stocks, the loss would be $5,000, or 5 percent. So, cash was the perfect hedge, cutting your losses in half.
Plus, having some cash on hand lets you take advantage of any great investment opportunities that may come up. It lets you pick up “money lying in the corner.”
So take some profits off the table to free up some cash.
Gold seems to have been forgotten by investors following Trump’s election win. But gold remains one of the best hedges against market volatility because it moves independently of other asset classes, like stocks or bonds.
For instance, about this time last year, markets were reeling due to worries over China’s economy and the devaluation of the renminbi. Many markets around the world entered bear market territory – meaning they were down 20 percent from their recent peaks. Singapore’s Straits Times Index lost 9 percent that month. And the MSCI World Index was down 6 percent.
But gold gained 5 percent last January… on its way to its best quarterly performance since 1986.
And even though gold prices fell towards the end of last year, are up about four percent so far in 2017. And there are a number of compelling reasons to own gold right now. (We outline the entire case for gold in a special report you can download here, for free.)
China and the Muslim world are gold buyers
China has been aggressively accumulating gold over the last few years. Look for China to accelerate buying into the current weakness in gold prices. Also, the new Sharia Gold Standard (approved on December 5, 2016) allows gold-based Sharia-compliant products to be offered throughout the Muslim world. This allows the world’s 1.6 billion Muslims to enter the gold market.
Brexit worries and global uncertainty
Gold’s recent highs, in the summer of 2016, came after the U.K.’s vote to withdraw from the EU. Since that spike in global fear and uncertainty, Brexit concerns have ebbed but could be ready for a resurgence. However, Britain’s withdrawal is likely to get increasingly messy. There are now fears that other countries could look to exit the EU. Worries of Europe’s biggest bank, Deutsche Bank, going bust are a wildcard with far-reaching implications for the global economy and markets.
The Trump effect
The anti-government, protectionist sentiment that’s given rise to Donald Trump is a global phenomenon and will have unknown worldwide repercussions in the months ahead. Gold has historically done well when there is a high level of global uncertainty.
Finally, you an own assets that stand to benefit from the actions of President Donald Trump. For example, one of the world’s cheapest stock markets offers opportunities… and we recently highlighted an asset that stands to rise if a U.S.-China trade war happens.
You can find out all the details, and learn how to subscribe, by clicking here.
Now that Donald Trump is the U.S. president, the world will now see if he was all rice and no chicken on the campaign trail. If he does follow through on everything he promised to do, Singapore will be one of the countries impacted the most. (Click here to find out how to protect your portfolio.)
This is because Singapore’s economy relies on trade like few other nations on earth. This is shown by the total trade as a percentage of GDP number – the higher the number, the more open a country is to international trade… and the more important trade is to that country’s economy.
Trade through Singapore accounted for 326% of the country’s GDP in 2015 – the third-highest ratio in the world, after Hong Kong and Luxembourg. In fact, that figure has been at 300% or higher for Singapore since 1976, according to data from the World Bank (except for 1986 when it was 295%).
With that in mind, here are three ways Singapore could be “trumped” by the new American president.
The U.S. is Singapore’s fourth-largest trading partner as measured by total trade (imports plus exports). Trade between the two countries is dominated by the exchange of different kinds of machinery and commercial services. The chances are good that as President Trump focuses more on domestic matters, and on alienating China, the U.S. government will pay less attention to the rest of Asia. The days of President Obama’s so-called “Asia pivot” – entailing a renewed and refreshed focus on the continent – are long gone.
In October 2015, the U.S. government signed the Trans-Pacific Partnership (TPP) along with 11 other nations, including Singapore, Australia, Malaysia and Japan. The TPP’s goal was to make it easier for the participating countries to trade with each other by removing trade tariffs and lowering importing and exporting costs between members.
But Donald Trump said the TPP was “a terrible deal” for the U.S. Then, shortly after winning the U.S. presidential election, Trump announced that one of the first things he will do as president is withdraw from the TPP. Without U.S. involvement, the deal is dead.
That means easier access to the giant U.S. consumer market for countries like Singapore will not get any easier. And if Trump starts imposing higher tariffs on goods from Asia, it will slow down trade even further.
But soon after Trump promised to withdraw from the TPP, Chinese president Xi Jinping said that “China will not shut the door to the outside world but will open it even wider.” In other words, China is set to fill the void left by the U.S. easing up on globalisation. And it already has deals in place – all of which involve Singapore – that could nearly match the TPP in size.
For instance, China is a leading member of the Regional Comprehensive Economic Partnership (RCEP). This is a trade agreement between the 10 ASEAN countries (which includes Singapore) and the six countries with which ASEAN has existing FTAs – this includes China, Australia, Japan and New Zealand.
This deal is still being negotiated. If it happens, the RCEP will be a mega trade deal. The 16 countries involved account for more than a quarter of global trade and a quarter of global GDP. Plus, with China, India and Indonesia involved, it would cover almost half of the world’s population.
China is also developing the One-Belt, One-Road initiative, which is an effort to create a modern-day Silk Road. The proposed infrastructure will more tightly connect the continent of Asia to Europe and parts of Africa. One estimate suggests that this will end up costing about US$8 trillion. It will allow China to trade more easily with the majority of the world’s population.
Singapore hopes to play a key role in this initiative. Not only is it a key part of the Maritime Silk Road portion of the plan, but Singapore also hopes China will use it as a platform to reach out to Southeast Asia and the rest of the world.
So even with the potential of less trade with the U.S., Singapore could still benefit from better trade relationships with its Asian neighbours.
It used to be that in developed markets (like the U.S., Europe, and Japan), things were comfortable and easy, and there weren’t many surprises. Politics didn’t matter much to share prices.
And then there were crazy emerging markets (like most of Latin America, Africa, and much of Asia), the wild west of investing, where anything could happen. Bad politics could erase years of market gains in a matter of moments.
When I worked for a political risk consulting company a few years ago, we would talk about how an emerging market was one where politics mattered to markets. That meant that personalities (that is, the people in power) were bigger than, and more important than, the institutions those people headed up. Who’s president, what the parliament is doing, what kind of people are making policy – all of that could be the difference between making or breaking a market.
And this is still true in emerging markets, like Brazil and South Africa and Malaysia and Russia. Who the president is and what crazy things he’s doing can completely change the business and investment environment.
The big change is that developed markets are looking a lot more like emerging markets when it comes to politics. From Germany to Japan to the U.S., politics in many developed markets are a lot more polarised than they’ve ever been before. Different sides don’t want to talk – they only want to yell. And after a while, a strong personality harnesses one part of this polarisation. That’s what can threaten institutions. And that’s a big risk.
This is what we see happening with the popularity of Donald Trump. Even in a developed market like the U.S., personalities are becoming bigger than the institutions they inhabit (like the presidency). If personalities can change those institutions for the better, it’s a good thing. But it’s a big risk – as the history of many countries in emerging markets has shown.
This type of uncertainty in the world’s most developed market, the U.S., could translate into more volatile markets everywhere. And that includes Singapore.
So with Trump now in the White House, Singaporeans can expect to see more market volatility, less interest from the U.S. and a bump in trade with the rest of Asia.
(Want to learn more about what President Trump means for Singapore, and Asia – and how to profit from it, while also protecting your portfolio? Click here for more information.)
The Trans-Pacific Partnership (TPP) trade deal was supposed to be a boost for Singapore’s slowing economy. Instead, it’s American electoral roadkill, run over by the rumbling lorry that is the U.S. presidency-in-waiting of Donald Trump.
Donald Trump is bad news for global trade, especially in Asia. But while the U.S. is looking like it’s going to pull away, China is taking a greater leadership role in regional economic integration. And there are a number of free trade deals on the Asia-Pacific horizon. As we’ve written before, this part of the world isn’t turning its back on globalisation.
This might mean that the collapse of the TPP is a missed opportunity, but not a catastrophe for Singapore’s economy. (And some markets might actually do well… click here to find out more about one of the most attractive stock markets in Asia.)
The TPP’s slow death
Singapore was one of the four initiators of the TPP trade agreement. Singapore, Brunei, Chile and New Zealand came together to negotiate the Trans-Pacific Strategic Economic Partnership in 2006. Two years later, the U.S., Australia and Peru joined negotiations. By February of this year, 12 countries had signed the trade agreement.
The TPP was intended to further integrate participating economies. It was designed to reduce tariffs, foster trade and support economic growth. It also included regulations on intellectual property rights, state-owned enterprises, competition and the environment.
The 12 countries that were to be part of the TPP make up about 40% of world GDP. These countries also account for 25% of global exports. The agreement could have added 1.1% to each country’s GDP by 2030, as estimated by The World Bank.
For Singapore, the TPP participants represent a large market. They accounted for 30% of its total trade in goods in 2013. Thirty percent of foreign direct investment in Singapore also comes from TPP members.
Throughout his campaign to become the American president, Donald Trump railed against the deal in his presidential bid. On the campaign trail, he said, “the TPP is a horrible deal… It’s a deal that was designed for China to come in, as they always do, through the back door and totally take advantage of everyone.” (And he may be right, as we wrote here). Trump said he will begin his administration by serving notice of U.S. withdrawal from the trade deal. And no America means no TPP.
Trump’s “America first” rhetoric suggests that the country will turn towards isolationism. Large free trade deals involving America are on shaky ground. He campaigned on the promise of bringing jobs back to the U.S. from parts of the world where labour is cheap. On November 6 at a campaign rally in Florida, Donald Trump criticised Singapore, and other Asian countries, for stealing American job opportunities. If Trump’s words turn to action, Singapore should look towards other free trade agreements for an economic boost.
Singapore’s existing – and potential – trade deals
With 21 free trade agreements to date, Singapore’s economy has boomed from decades of trade liberalisation. Trade through Singapore accounted for 326% of the country’s GDP in 2015. We recently wrote about the important role trade plays in Singapore’s economy. And as a trans-shipment hub, Singapore relies on international supply and manufacturing integration to help boost its economy.
However, renegotiating America’s involvement in the TPP may not directly affect Singaporean exports. Singapore already has free trade agreements with 9 of the 11 other TPP countries, including the U.S.
But ultimately, trade agreements led by China may provide more immediate benefits to Singapore’s economy. Chinese president Xi Jinping recently said that “China will not shut the door to the outside world but will open it even wider.”
This suggests that China may wind up taking America’s place in future trade agreements. If China takes on a greater leadership role in free trade, the slow and inexorable shift of economic and political power from west, to east, will only accelerate.
How would this play out? Let’s look at three deals that could stand in for the TPP.
1/ Regional Comprehensive Economic Partnership (RCEP)
Beginning this December, chief negotiators from 16 Asia-Pacific countries landed in Jakarta, Indonesia for the next round of RCEP negotiations.
RCEP negotiations started in November 2012. The deal intends to sync and streamline existing trade deals between ASEAN (Association of South East Asian Nations) and its free trade partners. ASEAN includes Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam. The bloc’s free trade partners are India, China, Japan, South Korea, Australia and New Zealand.
Backed by China, the RCEP will be a massive trade deal for ASEAN members and their trade partners. On its own, ASEAN accounts for a sixth of the world’s economy. It also has a favourable demographic dividend, ensuring robust economic growth for some time.
Together, RCEP countries share more than one fourth of global trade and a fourth of global GDP. And with China, India and Indonesia participating in RCEP, the trade agreement includes half the world’s population.
The U.S. doesn’t have a free trade agreement with ASEAN. And it isn’t included in the RCEP either (although it could – in theory – join the deal later).
However, U.S. participation in RCEP is unlikely. The deal doesn’t meet U.S. standards for trade, labour practices and environmental protection. These standards were present in the TPP and some argue they were the reason the TPP was so complex.
But the complexity of the TPP is what made the trade agreement so different.
The RCEP maintains free trade agreement “status-quo.” It would eliminate, or reduce, tariffs on thousands of goods and services, and cover investment rules, economic cooperation and intellectual property rights. But unlike the TPP, the RCEP fails to address key issues such as state-owned enterprises, the environment and the digital economy.
Of the three deals that we’ll talk about here, RCEP looks most likely to eventually go into effect. And in light of the recent U.S. presidential election, a senior fellow at the Brookings Institution in Washington says, “countries [like Singapore] have realised very quickly that (RCEP) is the only major Asia trade deal on the table.”
2/ Free Trade Area of the Asia-Pacific (FTAAP)
The FTAAP is a trade deal linking Pacific Rim economies from China to Chile, including the U.S. The deal was initiated by the U.S. in 2006. The FTAAP includes 21 APEC (Asia-Pacific Economic Cooperation) member countries, including China. China championed the agreement at a 2014 APEC summit. This move was most likely a response to ongoing TPP negotiations, which excluded China.
APEC is a regional economic forum that promotes free trade between Asia-Pacific countries. By including all APEC members, the FTAAP would include major economic players such as Japan, Hong Kong, Singapore, as well as China and the U.S. Numerous regional and bilateral free trade agreements already exist between APEC members. The FTAAP aims to harmonise the group’s “spaghetti bowl” or “noodle bowl” of free trade agreements.
The FTAAP could be one of the biggest free trade deals in history. First, it would encompass the world’s two largest economies, the U.S. and China. Second, it would include the world’s “factory” in China and Southeast Asia. Third, it would represent the world’s biggest consumer economy. And finally, FTAAP countries collectively possess a vast base of natural resources.
According to a 2014 study, the FTAAP could result in income gains for member nations of nearly $2 trillion dollars by 2025 – representing almost 2% of world GDP in 2025.
The FTAAP is much larger than the TPP. President-elect Trump didn’t like the TPP. And the people who voted him into office weren’t fans of it either. So, it seems safe to assume that the FTAAP won’t be popular in America at this time. Without U.S. participation, global gains from the FTAAP will be delayed for some years.
3/ A proliferation of bilateral and new trade agreements
Even if the TPP dies, free trade will carry on. With Trump in power, the U.S. may enter into more bilateral trade agreements (involving only two countries), rather than multilateral trade agreements (involving more than two).
Through new agreements, Trump hopes to “repatriate” manufacturing jobs to the U.S. He wants to implement policies and negotiate trade deals that encourage manufacturing companies to provide jobs to Americans rather than employing low-cost labour abroad.
If Trump implements his policies, Americans will actually lose the most. Globalisation of production brought American consumers very low prices. These will rise once production returns to American soil. Although low energy prices from Trump’s policies may offset some of the costs.
Countries like Singapore can expect Trump to either negotiate a new trade deal or a series of trade deals with Asian countries. China may even be included in trade agreements.
But in the meantime, Singapore, along with the rest of Asia stands to lose.
But that doesn’t mean there aren’t fantastic investment opportunities in Asia at the moment. There are three Chinese companies in particular that are poised for tremendous growth.
You can learn all about them – and the best way to invest in the Chinese market – by clicking here.
By definition, being contrarian – both in life, and as an investor – is difficult. Going up when the rest of the world is going down, or going right when everyone else is going left, defies the natural human instinct to fit in.
But being a contrarian is what made Jim Rogers one of the world’s best investors. He co-founded the Quantum Fund – one of the world’s most successful hedge funds – which saw returns of 4,200 percent in ten years.
Later Rogers drove around the world – twice. He wrote several excellent books that blend travelogue, investment insight, and political commentary. Today, Jim is viewed as a founding father of the boots-on-the-ground approach to investing in emerging and frontier markets. (He also happens to be a fellow Singapore resident and regular Asian Wealth Daily reader.)
I recently sat down with Jim for an extended one-on-one, exclusive interview. (you can get immediate access to the full, Jim Rogers unplugged video, by clicking here). A few excerpts are below…
Jim Rogers on when to sell
Me: Jim, we’ve talked about buying… how do you know when to sell an asset?
Jim Rogers: Well… when people are getting hysterical, you can sense it just by market action… if you read the press you can see when everybody’s talking about whatever it is that’s the best thing, something going to change everybody’s life… and how boy, it’s a whole new era… You hear the same words every time, every time, they are the same. Investors and the press use the same expressions about how great things are now. [For example,] Amazon can never go down, and will never go down and is going to go own the world someday.
When you hear all that kind of talk… I mean, fortunately or unfortunately, I have read about a lot of markets in my day and they always say the same thing. Absolutely, “a new era.” Oh, how many new eras have we had in history? It’s just amazing.
Me: So you’re talking about really using history to interpret the current market.
Jim: Yes… If you understand history, you’re probably going to be a much better investor. You’re going to be a much better at everything if you understand history, because it all happened, this all happened before. I assure you, we all put our trousers on one leg at a time, and we always have, and we always will.
But you need to understand the basics of how the world works and the best… A good way to do that is to know about what has happened before. And, if you know what’s happened before then you’ll probably be a step ahead of figuring out what’s going to happen.
Why you should move to Asia (or at least learn Mandarin)
Me: If you look at the world, and you look at languages, and you look at economies… if you were to try to target those parts of the world that in 15 years, 20 years will have taken a bigger step than other parts of the world, where would you go?
Jim Rogers: Well, you should definitely go to Asia. I moved to Asia. In 1807, if you were smart, you’d move to London. In 1907, you should have moved to New York. Well, 2007, you should have moved to Asia – which is when I moved to Asia.
Because for my children, the best skills I can give them are to speak good Mandarin and to know Asia. It’s not going to make them successful, I assure you. There are plenty of people in the world who speak Mandarin and who know Asia that aren’t successful. But it will give them a leg up. And if I were a bright young man or woman now, that’s what I would do, I’d go to Asia. Learn at least one Asian language. Mandarin is the best as far as I’m concerned. But I would certainly head to Asia.
During the rest of our interview, Jim also talked about some of the biggest mistakes he’s made, both in life and in markets… one of the biggest dangers of success… and some of his favorite markets today.
For the full interview and Jim’s thoughts on investing in Asia… click here.
Diversification is generally considered one of the basic tenets of investing and financial planning. Owning a mix of assets, ideally with a low correlation – including, stocks, bonds, real estate and gold, for example – is Investing 101.
That is… unless you’re one of the world’s most famous investors.
I recently sat down with Jim Rogers and asked for his thoughts on global markets, what he’s buying now, where bubbles might be forming and… asset allocation. (You have the chance to see the entire video – Jim Rogers unplugged – by clicking here.)
Jim doesn’t buy into the cult of asset allocation.
“Well, I know that people are taught to diversify. But diversification is just that’s something that brokers came up with, so they don’t get sued,” Jim told me. Then he added, “If you want to get rich… You have to concentrate and focus.”
This obviously goes against conventional thinking. But this kind of thinking is what made Jim one of the world’s most successful investors. He co-founded the Quantum Fund – one of the world’s most successful hedge funds – which saw returns of 4200 percent in ten years.
He quit full-time investing in 1980 and went on to travel the world a few times. He also wrote several books about what he saw and learned. Even if you’re not a travel or money junkie and know little about finance, these are some of the most educational and entertaining books you’ll ever read about investing.
Why (maybe) you should diversify
I’ve also written about the importance of diversification to reduce risk in your portfolio. As the saying goes, don’t put all your eggs in one basket. But you also need to make sure they’re not all on the same egg truck, either.
Diversification can limit the risks that are specific to a company or industry. For example, bad (or fraudulent) company management is a firm-specific risk. An airline employee strike, which has an industry-wide impact, is an industry risk. These are called “diversifiable risks” because they aren’t directly related to the broad financial market system.
Market risk (also called “systematic risk” because it relates to the financial system as a whole) is unavoidable for anyone investing in financial markets. Market risk is affected by things like interest rates, exchange rates and recessions. Diversification can’t touch market risk.
The graph below shows these two types of risk. Every investor is subject to systematic risk. Diversifiable risk is higher if a portfolio includes a small number of holdings. And diversifiable risk declines as the number of holdings in a portfolio increases – to a certain point. Having a portfolio with five securities definitely beats a portfolio of just one security. But diversifying beyond 30 securities doesn’t bring any additional benefits in reducing overall portfolio risk.
But Jim Rogers disagrees. “The expression on Wall Street is, don’t put all of your eggs in one basket. Ha! You should put all of your eggs in one basket,” he told me. “But be sure you’ve got the right basket and make sure you watch the basket very, very carefully.”
Now, of course this strategy of putting all your eggs in one basket… but making sure it’s the right basket, is not for everyone. It’s a high risk, high reward strategy.
And Jim acknowledges that. “If you don’t get it right, you’re going to lose everything. But if you get it right, you’re going to get very rich. And by the way, don’t think it’s easy getting it right. It’s not easy. It takes a lot of insight and work and everything else. But, if you get it right, you’ll be very rich.”
Jim shared a lot of other insight with me… and you can find out how to see the entire exclusive video by clicking here.
American politics usually have limited impact on the rest of the world. But what’s happening in the U.S. right now has the potential to affect Singapore – in particular – because of the anti-free trade stance of U.S. President-elect Donald Trump.
Trade through Singapore accounted for 326% of the country’s GDP in 2015 – the third-highest ratio in the world, after Hong Kong and Luxembourg. In fact, that figure has been at 300% or higher for Singapore since 1976, according to data from the World Bank (except for 1986 when it was 295%). The trade-to-GDP ratio reflects how open a country is to international trade – and it also shows how much an economy relies on trade.
Since trade plays such an outsized role in Singapore’s economy, any threat or change to the global trade regime has the potential to have a bigger impact on Singapore’s economy than just about anywhere else in the world.
With that in mind, here are three ways a Trump presidency could impact Singapore:
In October 2015, the U.S. government signed the TPP (Trans-Pacific Partnership) along with 11 other nations, including Japan, Australia, New Zealand, Malaysia, Vietnam and Singapore. The TPP’s goal is to make it easier for the participating countries to trade with each other by reducing or removing tariffs and other barriers to trade.
The World Bank has estimated that the agreement could raise GDP by an average of 1.1% in each participating country by 2030. The 12 signatory countries account for approximately 40% of world GDP and 25% of global exports. That’s a lot of potential trade that could benefit Singapore.
But in Trump’s eyes the TPP is “a terrible deal” for the U.S. One of his biggest issues with the deal is that he said that he thinks China (which is not a TPP signatory) would somehow benefit from the TPP through “the back door and totally take advantage of everyone.” (He may be right about that, as we wrote here.)
And now that Trump will be the next U.S. president, the deal is dead in the water. The signatories in Southeast Asia, including Singapore, that hoped the deal would increase trade and grow their economies, will be the big losers in Trump’s ongoing issues with China.
On the campaign trail, Trump took a hard stance on a wide range of policies. Most relevant to Singapore were his claims that Asia – specifically China – is a main cause of America’s problems. He thinks Asia has stolen America’s manufacturing jobs.
He also thinks China has been intentionally manipulating its currency lower, in order to make its goods cheaper to the world. As a result, Trump has said that he wants to slap import tariffs on Chinese goods to make U.S. goods more competitive.
This could bring the two countries closer to a trade war, in which they’d put tariffs or quotas on each other’s imports and exports. This wouldn’t be good for anyone – including Singapore. That’s because higher tariffs or quotas will slow global trade. And, as mentioned, few countries benefit from global trade more than Singapore.
Even though Singapore is not a major manufacturing centre, a lot of what is produced in other Asian countries passes through Singapore on its way overseas. A slowdown in Asian manufacturing means a slowdown in Singapore trade.
The U.S. is Singapore’s fourth-largest trading partner as measured by total trade (imports plus exports). Trade between the two countries is dominated by the exchange of different kinds of machinery and commercial services, according to the Office of the United States Trade Representative.
(China is Singapore’s biggest trading partner. This again shows how much of an impact a trade war between Singapore’s largest and fourth-largest trading partners would have on the local economy.)
Under Trump, the U.S. may decide to encourage more manufacturing at home. Or, it could impose new, higher tariffs on goods produced anywhere in Asia, not just China. In either scenario, Singapore’s trade relationship with the U.S. would change for the worse, at least from Singapore’s perspective.
Or… it might not be that bad
Of course, Trump may have been all rice and no chicken on the campaign trail. He may not follow through on everything (or even anything) he said or threatened. He is known for speaking off the cuff and taking back things he previously said.
Plus, he was a successful businessman. If he likes a deal, he’ll take it. So despite all his bluster, Trump may end up taking a more pragmatic approach to the U.S.’s trade relationship with Asia once he takes office.
But based on what he’s already said, the new American president could cause some major headaches for Singapore.
For all the details on what a President Trump will mean for Singapore and the rest of Asia, and how you can protect your portfolio, make sure to read our free report on how “Asia is Trumped!” You can download your copy here.
Many financial advisors, stock brokers and private bankers in Singapore are smart, hard-working people who want to build wealth for their clients. But not all financial advisors are created equal – and some advice is worth ignoring.
There’s a vast industry that’s committed to trying to help you make good stock picks. Every day thousands of stock analysts in Singapore and other financial hubs worldwide scout for suitable stocks they can recommend as “buys”. There’s an even larger number of brokers whose main job is to explain analyst recommendations to clients.
But too many stocks are recommended as a “buy”. Truewealth Publishing set up a screen of 81 stocks listed on the Singapore exchange that are covered by 5 or more analysts. It’s not a surprise that multiple “buy” ratings appeared on this recommendation list. Five of the 81 stocks were rated as “buys” by 100% of the analysts that covered them. And 40 of them were rated a “buy” by over half of the analysts. Analysts seem to be overconfident and over-optimistic.
The following table shows those Singaporean stocks that received the most “buy” ratings. For instance, 8 out of 8 (100%) of analysts covering SIIC Environment Holdings rate the stock a “buy”. Keppel DC REIT is regarded as a buy by 90% of its analysts. And 18 out of 21 CapitaLand analysts feel it’s worth buying.
This doesn’t mean that you should buy all these stocks. So, why are analysts so liberal doling out “buy” ratings?
What stock ratings really mean
First, stock recommendations are code. For most of us, if someone advises us to “hold” something (like a stock, your wife’s purse or a sleeping child), we assume they mean we should not let go of it (or sell it). But in the investment analysis world, “hold” doesn’t mean hold.
As the U.S. securities industry regulator, known as FINRA (Financial Industry Regulatory Authority), has noted, “Clear sell ratings have grown rare… Some firms no longer even use ‘Sell’ or any word obviously like it; frequently, a ‘Hold’ rating in effect means ‘Sell.’”
So, the next time you come across a “hold” recommendation from a broker or in a report, it might be time to consider selling it.
Why analysts say so many stocks are a “buy”
Stock analysts often aren’t looking out for investors. Their main incentive is not to help individual investors but to provide assistance and consultancy services for companies – often the same companies whose stocks they cover. A favourable “buy” rating is a great way to create goodwill with potential corporate customers.
If you think this doesn’t happen, consider what happened during the 1990s tech bubble. New internet companies were being listed on the market every day – and they almost all had strong buy ratings on them (even though most of them didn’t make any money). This inflated the bubble right up until it popped and the whole market came crashing down.
Wall Street, however, made billions in revenue from all the small companies trying to list and advising on large mergers and acquisitions. Brokers also made a lot of money as optimistic analysts rated more and more stocks a “buy” which pushed stock prices higher.
Brokers and advisors prefer “buy” ratings to “sell” ratings. It’s better for their bottom line when clients are excited to buy stocks instead of selling them. Because of this, broker-issued research reports, and “buy” ratings, should always be taken with a grain of salt.
But there is another reason why analysts have a “buy” rating bias – herd mentality. Analysts are, after all, only human and prone to peer pressure. So if an analyst finds that she is (say) the only one recommending Chinese stocks in mid-2016, while all her colleagues are strongly against them, she might question her judgment and change her rating to fit in with the crowd.
Bucking a big trend is intimidating and stressful. There’s no way to tell if an analyst is giving in to pressure or recommending a stock based on pure logic.
One sure sign of herd mentality in markets is when a government starts talking up stock prices. In August 2015, the Chinese government published a statement on People.cn (the government’s media outlet and mouthpiece) saying Chinese investors had nothing to worry about as they were entering a bull market. Of course, they were wrong… and the Chinese market fell 32% over the next four months.
So, the next time you hear an expert on TV or a stock analyst online issue a “buy”’ rating, take it with a big serving of salt… and ask yourself why.
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Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.