REIT for beginners in Sunday Mail's ACCA column

Go and grab a copy of Sunday Mail today. There is a write up entitled REIT for beginners provided by ACCA. It introduces the structure, the benefits and the disadvantages of REIT as an investing instrument.

Ok, I admit. Sunday Mail's financial articles provided by ACCA is one of my favourite reads. Most of the articles are sensible and useful.

Hot topics: Investing abroad and reits

We can now buy and sell foreign shares listed on foreign stock exchanges through our local stockbrokers. Securities Commission made a press release on this.

"Investors are now allowed to invest in foreign securities that are listed on foreign exchanges recognised by Bursa Malaysia Bhd (Bursa Malaysia), and are exempted from the requirement for SC approval under section 32 of the Securities Commission Act 1993 (SCA). Currently, there are 51 exchanges recognised by Bursa Malaysia, including Hong Kong, Singapore and Thailand. Investors may obtain the full list of recognised exchanges from the stockbroking companies."

This is our opinion on investing abroad...

However, in reality it will still take a while for our local stockbrokers to build their infrastructure and connections with foreign stockbrokers in providing us the trading/ investing services in foreign stocks. So we still have to wait...

Another red hot topic is REITs. Securities Commission had just issued new guidelines on REITs early this year. What is REITs and how it works? Read here on REITs...

Investing abroad?

With the recent de-regularisation or another word, liberalisation of capital markets in Malaysia, there are many opportunities available for Malaysians to invest abroad.

Why invest abroad?

This is the text book answers on reasons to invest abroad.

There are many reasons for one to invest overseas. Many sided that Malaysia’s stock markets offer limited choices and that the shareholdings are highly concentrated in few hands. Overseas markets provide liquidity and volatilities for savvy investors to maximise their return.

Some markets move in opposite directions of Malaysia’s markets. It provides opportunities of spreading the investing risks.

What are the channels available for us to invest in overseas stock market?

Generally, there are four channels...more.


Foreign exchange fluctuation

If you invest in overseas stock markets you can gain or loss in three ways, i.e. stock prices fluctuation, dividend income and foreign exchange fluctuation.

Let's start with a very simple explanation.

Should RM strengthen against other currencies, you lose. Should RM weaken against other currencies, you gain. So if you invest in overseas stocks you will want RM to get weaker in time to come. The problem is: market consensus is the opposite.

We must remember that there is still an upward pressure on RM against USD. Despite short term stability of RM against USD, it is expected that RM will strengthen gradually. Such movement is inevitable as long as US current account deficit problem is not resolved.

And it will not resolve. Frankly, at this point of time the only way to have this resolves is to reduce U.S. consumptions (dream on), get more foreign investments to U.S. and/or allow USD to depreciate.

If you invest in US stock, you subject yourself to a highly probable situation of foreign exchange (forex) losses. You need a very high investing gain to offset the "almost certain forex losses". If you invest in a fund that invests overseas, the fund manager must really have a good investing gain to offset the "almost certain forex loss".

We are not really neutral at other overseas investing opportunities either, i.e. Europe, Japan, China, etc. because we believe RM is undervalued and RM will strengthen eventually.

But RM is not strengthening and doesn't seems to move up further? You ask.
It is reasonable to suspect Bank Negara Malaysia (BNM) intervenes the trading of RM preventing it from strengthening in order to provide stability and to protect our exporters. There is nothing wrong about it. However, we must know BNM will not do it forever. BNM may want to smoothen out the transition from fixed rate regime to managed float regime. But ultimately market force is not to be defied though can be delayed.

Therefore if you invest overseas, you really must have a very good investing gain to offset the very likely forex loss.

Our local fund managers

Investing abroad is a fairly new subject even to our local fund managers. BNM controlled our local funds tightly from investing abroad for many years. Most of our home grown local fund managers do not have sufficient experience to invest in overseas markets. Yes, they will learn and some will turn out to be great eventually. But why risks your money now?

Conclusion

Stock performance is not known yet forex loss is almost certain. Investing overseas? Buy funds invest overseas? Not at this point of time. Not until RM is strengthen to at least at the expected range of 3.50-3.60 against green back (USD lah).

Coupled with fund manger experience, and their water testing in such new and untapped area, why risk your money?

High risk high return? Hardly. HRHR works only if the odds is to your favour. With an almost certain loser, why risk? (in a more technical term Sharpe ratio is way too low.) Come on, do a good financial planning.

In fact it is probably the other way round. With current lukewarm market sentiment and an expected strengthen of RM, this is actually the best time for foreigners to invest in Malaysia stocks. (Ok, they may have too much things to worry about, like oil prices...) May be we all should still keep our money in RM for a while.

And of course, don't blame...

Forecasting forex trend is a crystal ball gazing game. I can be outright wrong. Just like Professor Trelawney, my guess on currency exchange trend could be as good as her prediction of Harry Potter's fate. This is a disclaimer. :-)

Sometime I do wish investing and financial planning are exact science.

About tax documentation

Under the self assessment system, we work out our own income tax payable amount. It is our responsibility to ensure the tax computuation is correct.

We also KEEP all the orginal documents, i.e. receipts, EA form, dividend vouchers, etc. We only send Borang BE and cheque to IRB.

However there is an exception. In the case of refund of tax overpaid, tax payer is required to present EA/EC form, receipts, dividend vouchers, etc. and not to forget to attach, if you have dividend vouchers, Form HK-3 that is in the centre page of Nota Penerangan.

Ok, that's about it. More tax explanations when the time comes next year. :-)

Product review from Financial Planning Malaysia Dot Com

This is the first time but will not be the last time we do a review on financial product. Hong Leong Bank and HLG Securities offer a credit card that allow its holders to pay for share purchase. At a glance, it seems revolutionary since it actually extends share settlement day from T+3 to more than 20 calendar days. This is what we find out at "Paying your share purchases with credit card!".

Verdict? Check it out.

Malaysians and financial security

It is an interesting finding that I do not wish to forget.

Isabelle Francis from The Edge FinancialDaily reported today that more than one in six or 17% Malaysians agreed that they are unable to cope beyond a month if their main source of income is eliminated quoting AIA Life Matters Index Survey.

The number is surprisingly high as compared to 7% in preceding year.

In the same report, "Only 11% of respondents say they can cope on other sources of financial support for more than two years should they lose their main source of income, compared with 36% in last year's survey."

Unless AIA messed up in their statistical sampling, this indicates just how important personal financial planning is.

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