China Boost for Ringgit and Malaysian Capital Market

China's Premier Li Keqiang attends a news conference in Putrajaya, Malaysia, November 23, 2015. Photo - Reuters

KUALA LUMPUR - China has given an undertaking to buy Malaysian government bonds and will also be providing a 50 billion yuan (S$11.9 billlion) quota for local institutional funds to purchase equities and bonds directly in the world's second largest economy.

In what are seen as measures that could boost Malaysia's capital market and the ringgit in the longer term, the Asian powerhouse said that it would buy more Malaysian bonds, an action that will lend support to the ringgit should foreigners sell down as they brace for an upcoming rise in US interest rates.

"We want to assume a market role by purchasing your treasury bonds," Chinese premier Li Keqiang said at the Malaysia-China High Level economic forum here yesterday.

He did not however say how much worth of Malaysian bonds China would buy.

The ringgit is one of the worst-performing currencies in the region year to date, shedding almost 20 per cent against the US dollar over the period amid political uncertainties and external weaknesses.

The stock market is down 5 per cent since January while Malaysian bond market investors have also suffered a negative impact since the beginning of this year.

On the 50 billion yuan new quota, Li said this would be given to Malaysian investors under the Renminbi Qualified Foreign Institutional Investor (RQFII) programme.

The RQFII essentially allows foreign investors to invest in China using offshore renminbi accounts. Without access to RQFII, foreign investment in China is largely curtailed.

In its response, Bank Negara said in a statement that China's decision to extend the RQFII programme to Malaysia would complement the renminbi clearing bank arrangement in Malaysia and collectively, the initiatives will support the growing trade, investment and financial flows between China and Malaysia as well as position Malaysia as another offshore renminbi centre in the region.

It said with this framework, Malaysian qualified institutions would be able to mobilise offshore renminbi funds to gain direct exposure to the Chinese financial markets and contribute to the development of the renminbi market in Malaysia.

Notably, Malaysia's closest neighbour Singapore said recently that China had doubled its investment quota to 100 billion yuan.

Li said the measures announced were part of China's plan to help boost Malaysia's economy while strengthening ties between the two countries which have long enjoyed a good working relationship.

In spite of the positive news, the ringgit ended lower at yesterday's close finishing at 4.3010/3050 against the US dollar from 4.2830/2880 last Friday.

Li also said yesterday that China was keen to work with Malaysia to help it achieve its goal of becoming a high-income nation by 2020.

Among ASEAN countries, Malaysia has been doing the most trade with China since 2008, Prime Minister Datuk Seri Najib Tun Razak said earlier this year.

Trade between both countries had reached a historic high last year totalling more than US$100bil (S$141.7 billion).

China, the world's second largest economy after the United States, is also Malaysia's top trading partner.

In terms of Chinese manufacturing projects implemented in Malaysia as of Dec 31, 2014, these totalled 182 worth US$2.83bil.

More recently, Malaysia has seen the setting up of the Xiamen University Malaysia Campus in Salak Tinggi, Sepang which will take in its first batch of students in February.

The collaboration between Malaysia and China in setting up this overseas campus is expected to contribute to the creation of skilled manpower in both countries.

Li said that in the next five years, China was expected to import foreign goods worth US$10 trillion.

Meanwhile, Bank Negara said in its statement that the Securities Commission would further collaborate with the China Securities Regulatory Commission to implement the newly-announced RQFII programme. - Asia One Business

Systematic Transfer Plan: Better Way to Play Volatility

It not only allows you to invest at regular intervals but also enhances returns as the cash is invested in liquid funds, which generally offers better returns than savings bank account.

As a mutual fund investor, what do you do when you have large sum in bank account and equity markets become attractive day by day, a scenario that we are going through for almost last three months? Some of you may want to write a cheque immediately. 

The wiser lot will opt for a systematic investment plan (SIP) to benefit from ongoing volatility but the bit smarter lot opt for systematic transfer plan (STP).

STP allows an investor to invest lump sum amount in a scheme and periodically transfer a fixed or variable sum into another scheme. 

It is quite similar to SIP which is more widely known and popular of the two among the mutual fund investors. While in a SIP you invest a specified amount in a scheme at pre-specified intervals and the investment amount for every SIP tranche comes directly from your bank account, in STP the investor first invests a lump sum amount in a scheme and out of that amount a sum, usually fixed, is transferred (invested) into another scheme of the same fund house at pre-specified intervals. STP is mostly used to transfer the amount from debt funds to equity funds but can also be used vice versa. 

Different types of STP

The STP facility comes with different frequencies of transfer and various types. The most frequency of the transfer could be on monthly and quarterly intervals depending on the fund house offering such facility. 

The main types of STP are as follows. 

• Fixed STP - In fixed type of Systematic Transfer Plan the amount that needs to be transferred from one scheme to another scheme is fixed and decided by the investor at the time of starting STP. 
• Capital Appreciation STP - In capital appreciation STP only the profit part is transferred periodically from the source fund to the target fund and the principal part remains unchanged and does not get transferred. 
• Flex STP - Flex or Flexi Systematic Transfer Plan is a facility wherein the investor can opt to transfer variable amount linked to the current value of existing investments under Flex STP on the date of transfer at predetermined intervals from one scheme to the another scheme. In Flex STP the fixed amount is the minimum amount to be transferred, specified at the time of enrolment and the variable amount changes depending upon current value of the existing investments in the scheme. By using Flex STP you invest more money when markets are falling and consequently you buy more units in such markets and invest minimum amount in rising markets. Thus Flex STP enables you to take advantage of bearish phases in the market by accelerating your investments automatically during falling markets. 

Advantages of Systematic Transfer Plan

• Like SIP, STP ensures the investor the advantages of dollar cost averaging. Similar to SIP, STP makes sure that more units are bought when the equity markets are down and consequently NAV are low and fewer units are bought when the equity markets are high and NAV are high. 
• In an STP your initial investment in a debt/liquid scheme enhances your total returns as liquid fund brings you better return than a saving account in the bank. 
• STP Enables you to rebalance your portfolio. By using an STP you can rebalance the portfolio through transferring investments from one asset class to another asset class. For example if the value of your equity portfolio exceeds the targeted allocation, you can transfer the excess amount from equity to debt through STP and if value of your debt portfolio exceeds the targeted allocation, amount can also be transferred from debt to equity through STP.
• You enjoy the benefit of power of compounding. 

A few scenarios when STP can be an ideal option for investment

• When you want to enter the equity markets when they are highly volatile and wish to reduce your risk. 
• When you have a large sum in your bank account and you want to invest it in an equity fund systematically, then you can use STP to generate higher overall returns than what you will get through SIP and saving bank account. In such case you can invest a lump sum in a liquid or debt fund and can simultaneously give the necessary instructions to transfer a fixed sum from liquid/debt fund to your chosen equity fund over regular periods. 
• When the investor want to invest lump sum amount in schemes with stable returns and wish to take a small exposure to equity schemes in order to benefit from higher growth potential of equities.
• When you are not sure of the uptrend continuing in the market going forward or when in the near term the potential upside in the market looks lower than the potential down side. As regards to STP, it is noteworthy that you can switch between two schemes of same fund house only. Moreover, please also keep in mind that any switch transaction under STP from one scheme to another scheme attracts capital gain tax. - moneycontrol

The New Rules for Early Retirement

Do you dream of leaving full-time work behind at 60 or even sooner? Plenty of Americans do, of course. But the real question is whether you can afford to clock out early. It may require tradeoffs, such as moving to a smaller home or picking and choosing your hobbies. Yet it may not be as big a stretch as you think. Here’s what you need to know.

1. You need not fear losing health insurance

Until recently, health insurance was one of the biggest obstacles to early retirement. Few employers offer coverage. And buying a policy on the private market before you qualify for Medicare has been a challenge: A condition like diabetes or heart disease can leave you uninsurable, while even healthy 50- and 60-year-olds pay far more than young people for the same coverage.

Health reform changed that. Regardless of your health, you can buy a comprehensive insurance policy through the state online exchanges. Your age will still push up your premium, but a 60-year-old can’t be charged more than three times what a 20-year-old pays, as was once the case.

What to do: Start at healthcare.gov to find options in your state. Keep in mind that the premium is just the sticker price. About half of those who buy insurance on their own today will qualify for a subsidy, estimates the Kaiser Family Foundation. And since that help is based on how much of your income must go toward insurance, an early retiree with a high premium has a good chance of qualifying for a break, especially if retirement means living on less.

Obamacare means you can’t be turned down or charged more for health reasons, but it may not be cheaper than what’s available on the private market. Price out both options before you buy.

2. Early retirement means tradeoffs, now and later

Finding relatively safe sources of retirement income, never a breeze, has become tougher in this economy. Interest rates are hovering near historic lows, and some experts think relatively low rates may persist for decades. What you can earn on low-risk cash and bonds will remain paltry.

What to do: The most straightforward solution is saving more or living on less. You can catch up with bursts of savings — often easier once big expenses like college or a mortgage fall away. According to retirement research firm Hearts & Wallets, saving 15% or more of your income for eight to 10 years — early or late in your career — can ensure that you save enough to retire comfortably at 65. Such power saving is common among early retirees too, says Hearts & Wallets cofounder Laura Varas, but the rate is 25% or more.

To get away with saving less, commit to living on less. Planners typically suggest you aim to replace 70% to 80% of your preretirement income, which doesn’t amount to a dramatic lifestyle change once you eliminate the money you were saving, Social Security taxes, and commuting costs. If you can make it on 50%, you need to save about 12 times your income by age 60, versus 17 times if you hope to live on 70%, says Charles Farrell, CEO of Northstar Investment Advisors.

3. Moving can make all the difference

The housing market’s recent recovery may be one of the things giving you the confidence — and the wherewithal — to retire ahead of schedule. Alas, you can’t count on a housing boom to keep padding your net worth. You need to set realistic expectations for what your home can do for you and plan prudently with what you have. That might mean leaving your old digs behind.

What to do: Lose two bedrooms. By selling into a strong market now and buying a smaller house, you can lock in your good fortune, letting you add to your savings or wipe out any lingering debts. Plus, if retiring early means learning to live on less, there’s no better way to do that than to cut your housing costs, which typically eat up a big chunk of retirees’ budgets.

Better yet, consider moving to a town with lower property taxes and lower living costs, as well as cheaper homes. Caveat: Whether you downsize locally or across the country, it’s crucial that you don’t simply trade maintenance costs for steep association fees. “I see a lot of people who move into a new home for retirement, and their cost of living goes up, not down,” says Colorado Springs financial planner Linda Leitz, national chair of the National Association of Personal Financial Advisors.

4. Don’t blow it in the first decade

Early on in retirement, you tend to spend more freely, as you can finally do all the things you were too busy to do when you worked: travel, eat out more, or indulge a costly hobby. After you hit your mid-70s, your outlays start to drop, even when you take healthcare spending into account. People 65 to 74 spend 37% more than those 75 and older do, according to the Consumer Expenditure Survey. Retire young and you’re starting those free-spending years early.

At the same time, crafting an income is trickier. Not only can’t you take Social Security until age 62, you’ll lock in a higher payment if you wait until full retirement age to claim (67 for those born in 1960 or later). If you’re eligible for a pension and collect before 65, you’ll have to settle for as much as 30% less. So you’re especially dependent on your investments for income.

What to do: Be prudent about withdrawals. With bond yields low, a portfolio withdrawal rate that starts at 3% and adjusts for inflation is considered safer than the traditional 4% rule, says Wade Pfau, professor of retirement income at The American College. And that’s for 30 years, not the 35- or 40-year time horizon of an early retiree. For that, a safer rate dips to a measly 2.6%.

When you’re living entirely on withdrawals, 2% to 3% won’t cut it (unless you’ve saved a lot of dough). Simply boost your withdrawal rate, though, and you run a high risk of running out of money. To improve your prospects, get by on less.

Crucially, if you allow yourself a higher withdrawal rate early on, you must cut back when Social Security kicks in. And since your spending patterns and market returns will undoubtedly vary, reassess your plan at least annually.

5. A second paycheck does come in handy

No question, picking up a part-time gig after you walk away from 9-to-5 work will ease the pressure on your finances. And that’s the plan for many. Trouble is, many would-be retirees are often unrealistic about landing meaningful part-time work, says Colorado planner Leitz. Lining up a 15- to 20-hour-a-week job sounds great, but there aren’t too many stimulating and well-paying jobs in professional fields that allow that. “Flexibility is great for you, but not really for employers,” says Leitz.

What to do: Go for projects, not a job. Even when firms don’t want a 20-hour-a-week senior staffer, they still may have high-level work that needs to get done. Set yourself up to be the consultant they hire, says Dick Dawson of CareerCurve, a coaching firm for 55-plus workers. Start where you’re known: your old workplace and your network. Keep going to industry events and seek out contractors who do similar work and may hear of jobs they can’t take. Visit elance.com and peopleperhour.com, which match employers with freelancers in fields such as marketing, writing, and design.

Even if you don’t work out of the gate, keep yourself employable. That means maintaining professional credentials, following changes in your industry, and staying in touch with former colleagues. - businessinsider.com

Give Yourself the Gift of Retirement

Readers of my articles know that I am a huge fan of compound interest. With the holiday season already entrenched in retail stores and online, it seems that everyone wants to sell you something as a gift for your friends or family. But for most people, you’re not being given the opportunity to enjoy a worry-free retirement. So in the spirit of the holiday, give yourself the ultimate gift of a hassle-free retirement. Over time, those retirement accounts will yield interest and compound interest, amounting to sums that are larger than you might think.

How to begin? 

For people just out of school and beginning their career in the workforce, the dominant debt in their lives are student loans. With debt at it’s highest point in most of their lives, many believe it is best to pay off school debt before planning their retirement. This is a terrible decision.

Did you know that around 60% of people who retire in the United States do so on Social Security alone? Many of these folks wanted to wait to begin retirement planning until they paid off school loans, college acquired credit card debt, or other financial obligations and were never able to get caught up enough to plan for their retirement.

Outliving your money is never a good thing. Putting away just $50 a month into an interest-bearing account keeps your money safe and growing. If your employer matches part or all of your IRA or 401K contribution, this is the place to begin - because this essentially means you get free money from your employer. Between interest that compounds, and contributions from your job, growing your money can be easy. Just remember that as your income increases, that your contributions should keep pace.

If you are in your late twenties or older and have not started saving towards your retirement, there is no time like the present to start. You can begin by making a contribution with your employer's plan at least to the company match.
However—depending on age and personal retirement goals—you may need to augment your retirement plan with further options. - The Morgan Hills Times

Maturing Yuan Becoming a Player in Investment Products

Within the space of about a decade, the yuan has gone from being little used outside of China to becoming a major player in trade financing, payments and in the forex markets.

Now the currency is starting to make inroads into another sphere – joining the set of possible investments for clients looking to diversify their portfolios.

But many savers have yet to fully understand the benefits of investing in yuan products. As the yuan continues to mature, that looks set to change.

Since the first yuan-denominated bonds were issued in Hong Kong in 2007, the market for so-called “dim sum bonds” has expanded massively. Just 12 per cent of China’s trade was settled in yuan at the end of 2012. By 2020, the percentage is expected to be about 50.

These trends will continue as Beijing pushes to restructure its economy and integrate it more into the global financial markets. The Chinese authorities have been actively encouraging mainland companies to invest more overseas.

As more companies and investors use the yuan for trade, hedging, cash management and financing in different parts of the world, the differences between the renminbi and other major global currencies are starting to diminish, and more and more yuan-denominated investment products will become available to ordinary savers.

The recent decline in the yuan has dented short-term sentiment, but does not change the overall picture. The currency remains backed by strong fundamentals and government support. Changes to the way the official daily reference rate is arrived at, announced on August 11, were designed to make the exchange rate more market-orientated, and were a key development in the yuan’s evolution, rather than a step towards sustained falls.

As the yuan is becoming more popular for investment purposes, offshore markets are expanding their offerings of yuan-denominated products.

Canada, Australia and the UK currently only offer yuan savings. They plan to launch more sophisticated products, such as unit trusts or bonds, in the near future to better satisfy the needs of its customers.

Singapore, Malaysia and Taiwan, however, already offer a full range of investment products, and are working on deepening product lines.

For now, the yuan is not yet fully convertible, and China’s capital markets are not fully open. Over the past few years, however, Beijing has been gradually relaxing restraints on the currency, opening the doors to more capital flows into and out of mainland China.

Despite recent market jitters, more initiatives are in the pipeline, including the Qualified Domestic Individual Investors scheme, which will allow some retail investors in mainland China to invest overseas, and could unleash billions of yuan in Chinese savings on to global stock, bond and property markets.

For retail investors around the world, this means greater direct access to a broader range of Chinese asset classes and investment options, and a widening range of ways in which they can buy into what is – despite the slowdown – still the world’s fastest growing major economy. - The National

Ringgit extremely undervalued, says StanChart

The ringgit will probably get stronger towards year-end, says StanChart group chief investment strategist Steve Brice. The Reuters photo shows customers counting their ringgit notes outside a money changer in Singapore.

KUALA LUMPUR: The ringgit is extremely undervalued - by 15% to 20% - and expected to make a turnaround in the second half of next year, Standard Chartered analysts said.

Standard Chartered group chief investment strategist/wealth management, Steve Brice, said the ringgit would probably be weaker in the next three months, by three to five per cent from where it was now.

“But when it rebounces, it will be better than its regional peers. It is not the time to get excessively concerned over the weakness of the ringgit as it will probably get stronger towards year-end.

“We have seen significant weakness in Asian currency in the past two years but not looking at something similar in the coming 12 months,” he told reporters at a briefing on currency investment outlook in Kuala Lumpur on Friday.

Brice said the Malaysian market was badly affected by sentiments due to commodity prices such as crude oil and palm oil plus the US Federal Reserve interest rate move.

“Once the affecting factors stabilise, Malaysia will start seeing money coming back and it will give a strong impact and support for the ringgit. For now, it is a little bit far away from that point,” he said. 

On the equities market, head of managed investments and product management (Malaysia) Danny Chang Choon Hing, said the FBM KLCI was expected to be at 1,700-point level at year-end.

“It is going to be a flat year, as it started about the same level early this year. However, it is relatively good considering current various headwinds facing the equities market,” he said.

Chang said when there were headwinds against the currency, commodity prices and other related economic issues in Asia, all of these factors would have an impact on Malaysian equities.

He said to foreigners, the market was currently underperforming but was in line with its regional peers with the earning growth at a pedestrian level of 5%.

“That is strong but not growing fast enough from a foreign point of view and if the stocks are flat and the ringgit gets hit, they will be losing money hence making Malaysian equities looking less atrractive.

“If the ringgit stabilises, valuation on the stocks gets more atrractive and growth improves, then the turnaround for KLCI might come,” he said. 

Chang said assuming the ringgit rebounced back to the mean/average, which was about 15% from 4.4-level, the local note would be just under RM4 versus the greenback. - Bernama

Invest for Retirement With Market Volatility in Mind

A written plan can help investors withstand the short-term ups and downs of the market.

During the past few months, investors have been flooded with headlines warning of market swings and extreme volatility, threatening major companies and Main Street portfolios alike. With eyes still fixed on emerging markets overseas and speculation around regulatory changes at home, many investors may find themselves uncertain of how to best manage their portfolios to ensure that the money they've been working hard to save for retirement remains safe.

The most important thing to keep in mind as the final quarter of 2015 plays out is to keep thinking in the long term. Since the financial crisis, the markets have generally been performing well for everyday investors. Contraction is a normal part of the market cycle and, with the right strategy, it should not have a major effect on your retirement savings.

Create a solid plan. According to the Voya Retire Ready Index study, only 17 percent of working Americans have a written financial plan in place. With that in mind, one of the first basic steps to avoid the consequences of market volatility is to create a solid plan.

Consider meeting with a financial advisor to map out your financial priorities, for both now and your future, in order to determine how you should be allocating funds and diversifying risk within your portfolio. Your goals and your age are important factors for guiding how active you should be in the market, as well as the types of risk you should assume with your investments.

When the market tumbles as it did this past August, your portfolio may see some fluctuations. Understanding your risk tolerance will allow you to better manage through these unsettling times. Working with an advisor can help you hedge your investments in a manner that keeps your portfolio — and your nerves — steady over the long term.

Buy low, sell high. When you do see changes in your portfolio during a market downturn, don't assume it's immediately time to start selling. In fact, this could actually be an opportunity to take advantage of lower prices and add new stocks to your portfolio.

The old investing tenet says to "buy low and sell high." Many investors tend to see stock tickers turning red on their television screens and assume they should unload any "unpopular" or poor-performing investments. Before making any major buying or selling decisions, however, it's best to consult with your advisor again to get his or her perspective on how any volatility might impact you. Your retirement plan should be built with a long-term investing strategy in mind, so that it is able to withstand any unexpected turbulence.

Do a quarterly checkup. Often when the markets take a sudden dip, many of us become instantly glued to our computer or television screens in order to make the most educated investing decisions possible. Take advantage of this time to actually evaluate your current strategy. For most people, I'd recommend checking in on your investments about once a quarter.

You can also meet with your advisor or use an online planning tool, such as Voya's myOrangeMoney, to track if you are on the right path to meeting your future monthly income goals in retirement. Market volatility shouldn't necessarily be driving any changes to your strategy, but it may help to remind you to rebalance, adjust your plan, or revisit some important calculations. A market correction is a good excuse to think about potential portfolio corrections.

With a 24-hour news cycle telling us that markets are down day after day, it's easy to worry that the money you're working so hard to save now may not be there tomorrow, when you need it most. That's why it is important to create a holistic plan — one that you stick to — that can weather the short-term ups and downs and keep you on the straight and narrow to a financially secure retirement. - money.usnews.com