Braving the rival attractions of St. Patrick’s night
a team of financial experts, including fund managers, addressed
an audience of clients and invited guests of Financial Partners
International at the Sanur Beach Hotel on March 17. This was
the last stop on the final stage of their World Tour IV that
took them to the Middle East and major cities in Asia, Bali
being the only ‘non-city’ location. So what did
they have to say and how relevant are their observations to
investors in Bali? I took copious notes at the meeting and
have extracted the more salient points.
Which way are the stock markets going?
The general consensus was a positive one. There is currently
an even balance between growth and inflation. US business
spending is on the rise and there is still strong growth in
a number of countries. Companies are cash-rich and this is
leading to a lot of merger and acquisition activity, which
is generally very positive for the markets. We are continuing
to see strong growth in Brazil, Russia, India and China. Japan
and Asia as a whole were still strongly favoured by the speakers.
While overall prospects look good for the markets there are
potential headwinds. These include a slowdown in the property
market, particularly the US and UK, rising interest rates,
the price of oil, peaking record profit margins and the ‘X’
or ‘unknown’ factor.
The important role of hedge funds
Once the domain of the very rich, hedge funds are now available
to retail investors and due to their low correlation with
stock markets should be a part of every balanced portfolio.
Our group recommends a holding of around 20% in hedge funds
for most risk models. One of the speakers sought to break
the ‘mystery’ of hedge funds by describing some
of the many strategies involved. Some of them are ‘event-driven’
such as merger arbitrage. This usually entails the fund buying
shares of a company being acquired and ‘shorting’
the company that is buying. This is based on an assumption
that the shares of the company about to spend a lot of money
on the acquisition will fall and those of the company about
to be taken over will rise. Another strategy involves buying
whole companies in distress, such as those in the US that
are in Chapter 11 bankruptcy. Specialist managers are sent
in to turn the company around and if all goes to plan will
sell it at a good profit. There are many other strategies
but all of them require very high levels of skill. This is
why great care must be taken in selecting a hedge fund. The
smaller investor would be wise to choose a ‘fund of
hedge funds’ in order to spread the risk.
Currencies
Asian currencies, particularly those of China, Taiwan, Korea
and Singapore are likely to strengthen further during the
year, reflecting the strong growth in the region. The US Dollar
could strengthen in the short term but the weight of the growing
deficits and a slowdown in the housing market could see the
dollar falling before the year is out. Sterling is likely
to weaken in the short term but could rise against the dollar
later in the year. For some time the Yen has been a weak currency
but that is now changing. With the reforms taking place in
Japan and a strengthening economy the Yen could be the strongest
currency over the next 12 months. This could make the Japanese
stock market even more attractive. The audience was urged,
however, to consider carefully when choosing currencies. The
safest route is to focus on one’s ‘base’
currency. For an expatriate this would normally be the currency
of the home country. Moving into other currencies brings both
opportunities and risk.
How relevant was the seminar to members of the audience?
Much depends on where people are on the investment ‘ladder’.
While not everyone has reached the serious investment stages
there were messages for all, including the currency one for
those just at the cash stage. For those who had reached the
top of the ladder and attained financial independence the
subjects discussed were even more relevant as it is important
to keep abreast of developments in a constantly changing world.
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions relating to personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
