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Why you should not buy IPOs As Sheng Siong is launching its IPO next month, I expected a few calls as whenever an IPO is launching. And if you are my client, you know my answer. I decide to write this article so everybody can benefit...

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Questions to ask your Financial Adviser Every Sunday morning when I read the newspapers, I always see articles or advertisements regarding "Financial Advisers". Nowadays, just like the once prestigious word "Banker", which is misused in the...

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Revision to Nomination of Insurance Nominees Regulation With the onset of the Mental Capacity Act ("MCA") coming into effect on 1st March 2010, the Insurance (Nomination of Beneficiaries) Regulations 2009 ("the Regulations") will be amended to effect 2 changes: The...

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The ABCs of the Financial Advisers Act The title, Financial Adviser, is always mis-used in the industry and misunderstood by the consumers. On 10 October 2002, the Financial Advisers Act came into effect and all financial institutions are...

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Moratorium Underwriting by Aviva It is a common that insurance companies do not cover pre-existing condition. Typically, pre-existing conditions will be excluded with little or no chance of them being covered, even after a number of treatment-free...

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CPF extends 4% interest rate again, How long can it last?

Posted by Ivan Guan | Posted on 27-09-2012

Category : CPF

Tags:

CPF is going to extend 4 per cent minimum interest rate on savings in the Special, Medisave and Retirement accounts (SMRA) until Dec 31, 2013.

Since Jan 1, 2008, these savings have been invested in Special Government Securities which earn an interest rate pegged to the formula of:

12-month average yield of 10-year Singapore Government Securities (SGS) + 1%

Many people are not aware of the impact of such pegging. The average yield of the securities plus 1 per cent was merely 2.55% from Sept 1 last year to Aug 31 this year. CPF members were lucky because since 2008, CPF has provided a minimum 4 per cent interest, or floor rate and this minimum rate has been extended three times due to global economic conditions and exceptionally low interest rates.

With newly announced QE 3, US interest rate will stay low till at least mid 2015. Since Singapore interest rate is significant affected by US interest rate, 10 year yield of Singapore Government Securities (SGS) will stay low. In the past, 10 years Singapore Government Bond was able to hover above 2.5%, but since 2011, it has stayed low at around 1.5%. How long can this 4% interest rate to be given to CPF members, that is a big challenge to the board.

What is SIBOR

Posted by Ivan Guan | Posted on 03-05-2012

Category : Financial Terms

Tags: ,

SIBOR stands for Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market). It is similar to the widely used LIBOR (London Interbank Offered Rate), and Euribor (Euro Interbank Offered Rate).

Using SIBOR is more common in the Asian region and set by the Association of Banks in Singapore (ABS).

CPF extends 4% interest rates for Special, Medisave & Retirement Accounts to 2012

Posted by Ivan Guan | Posted on 30-09-2011

Category : CPF

Tags:

The Central Provident Fund (CPF) has decided to further extend the 4% floor rate for interest on Special, MediSave and Retirement Account (SMRA) for another year until Dec 31, 2012.

Since Jan 1, 2008, savings in the SMRA have been invested in Special Government Securities which earn an interest rate pegged to the 12-month average yield of 10-year Singapore Government Securities plus one per cent. Hence, CPF members will continue to earn a 5% interest rate in their SMRA.

The additional one per cent will continue to be paid on the first $60,000 of a member’s combined balances with up to $20,000 from the Ordinary Account (OA). This additional interest rate received on the OA will go into his Special or Retirement Account to enhance his retirement savings.

Source: Straits Times

What is Operation Twist and Its Implications

Posted by Ivan Guan | Posted on 23-09-2011

Category : Currency, Monetary and Fiscal Policy

Tags: , ,

After two-day Federal Open Market Committee (FOMC) meeting from 20-21 September, FOMC announced that it will sell short maturity (three-years or less) securities to purchase USD 400 billion of longer-dated Treasuries (6 years to 30 years) by the end of June 2012. This is known as “Operation Twist”

Technically, Operation Twist is the sale of front-end securities and using the proceeds to buy longer-dated maturities, the aim of which is to make higher-yielding alternatives more attractive, and to reduce market volatility through removing duration.

In a formal statement, the Fed explained: “By reducing the supply of longer-term Treasury securities in the market, this action should put downward pressure on longer-term interest rates, including rates on financial assets that investors consider to be close substitutes for longer-term Treasury securities.

“The reduction in longer-term interest rates, in turn, will contribute to a broad easing in financial market conditions that will provide additional stimulus to support the economic recovery.”

The bonds’ purchase and subsequent sale does not put any new money into the economy but is designed to encourage low interest rates to boost business borrowing for companies and mortgage lending for individuals.

Unfortunately, the markets seem to react quite negatively to the policy, which is supposed to stimulate the economy. Asian stocks fell, driving a regional benchmark index toward its largest weekly loss since 2008.

If you follow my blog, since early this month, I’ve cautioned investors to be careful about the downside risk of Singapore currency due to all these uncertainties in the markets, USD has risen above 1.3 against SGD in just a couple of weeks since! However, investors should always remember, what goes up will come down, and vice versa.

USD/SGD as 23/09/2011 Source: Yahoo Finance

Record Low Sibor Rates offer Refinancing Opportunities

Posted by Ivan Guan | Posted on 05-09-2011

Category : Property

Tags: ,

SIBOR stands for Singapore Interbank Offered Rate and is the rate at which banks lend to one another. Banks normally use it to determine mortgage loan interest.

After Sibor rates hit record low, banks are under pressure to offer cheaper loans. As today, the three-month Sibor was 0.4375% while the one-month Sibor was 0.3125%. It may be good time for some property investors to refinance their existing loans if they are paying a relatively high interest.

So what are the banks offering? As published in Sunday Times article “Low interest rates = Good time to refinance housing loans“,

Citibank is offering a one-month Sibor plus 0.7 per cent loan package. With the one-month Sibor at 0.218 per cent, this works out to effective interest rates starting from as low as 0.918 per cent throughout the loan tenure. Their customers can also switch between one-, three-, six- and 12-month Sibor tenors, or from a floating rate to a fixed rate free of charge.

OCBC Bank’s deal has a three-year lock-in, and on top of the three-month Sibor, has a spread of 0.55 per cent for the first year, 0.6 per cent in the second, 0.65 per cent in the third, and 1.25 per cent thereafter.

DBS Bank’s latest offer is pegged to the one-month Sibor or three-month Sibor, with a spread of 0.85 per cent for the first three years. For the three-month Sibor package, the interest rate is capped at 1.49 per cent for the first three years.

HSBC has a loyalty package, which is Sibor plus 0.9 per cent for the first year, 0.85 per cent for the second and 0.8 thereafter. There is a cash incentive of 0.4 per cent of the loan amount, capped at $10,000.

However, refinancing does come with risks and costs. Interest rate does not stay low forever, investors must understand the impact of rising interest rate. ‘Regardless of the prevailing interest rate environment, home buyers should always assess what they can afford to ensure they are able to service a housing loan over a longer period of time.’

Is private property investment safe? high yield? inflation hedged?

Posted by Ivan Guan | Posted on 22-06-2011

Category : Property

Tags: ,

When I first started this blog, I wanted to focus on financial products. However, it becomes increasingly frustrating to me how poorly people misunderstand property investment.

Many investors I talked to, treat property as “safe, high yield” investment.They borrow to their neck and struggle for the mortgage payment for their second or third properties, while the same group of people treat stock or even bond investments as “highly volatile, losing money” business.

Many failed to understand

  • The leverage effect of property investment applies not only upside but also downside
  • The interest rate impact to their investments
  • The un-leveraged yield of private property investment is poorer than many stocks
  • The property investment itself is as volatile as stock investment.

Take a look at the chart below. PPI refers to Private Property Index, where STI refers to Straits Times Index. It is not hard to see that the private property market moves inline with stock market in Singapore. To be more precise, stock market is a leading indicator for property market, which means property price movement is typically a few month lagging the stock market.

STI vs PPI vs HDB (source: www.singaporerealestate.info)

I hope this blog entry and recent comment about property market by new minister of Ministry of National Development Khaw Boon Wan serve as a wake up call for many property investors. During financial crisis, many property owners learn the truth in a hard way. But why the misunderstanding of private property investment is still so prevalent, just like those Gold Bugs. I will discuss this in greater details in the future.

Why do US interest rates matter to Singapore

Posted by Ivan Guan | Posted on 18-04-2011

Category : Investment Ideas

Tags: ,

When I was driving home today, the radio 938 live was playing Money Talks, with economist Dr. Tan Kee Wee sharing his views on various current money and economic matters.

There are a few callers and the questions seemed to be surrounding with the questions about US interest rate forecast and inflation.

So Why do US interest rates matter to Singaporeans?

Firstly, Singapore does not have an overt interest rate policy. It does manage the value of the SGD against a basket of currencies that belong to its major trading partners. By managing the SGD against a basket of currencies (of which the US dollar is a primary component due to trade), Singapore has also allowed SGD interet rates to be influenced almost directly by the interest rates of the currencies in the basket

Secondly, The USD is recognised as the leading trade currency in the world today. It also forms the largest pool of freely available capital on a global basis. This means that the USD is the most easily borrowed and lent currency in the world. The difference between SGD and USD interest rates will create carry trade opportunities for smart investors till no more money making opportunity exists

You can read this well written article for more information.

ECB hikes key interest rate to 1.25%, Bank of England holds key interest rate at 0.5%

Posted by Ivan Guan | Posted on 08-04-2011

Category : Monetary and Fiscal Policy

Tags:

FRANKFURT - THE European Central Bank is raising its main interest rate by a quarter of a percentage point to fight inflation despite the debt problems afflicting Portugal, Greece and Ireland.

The key refinancing rate is going up to 1.25 per cent from a record low of 1 per cent.

LONDON - THE Bank of England has held its base lending rate at an all-time low of 0.5 per cent, as analysts expected, despite mounting concerns about high inflation.

The Bank’s Monetary Policy Committee on Thursday also announced no new funding for its economic stimulus program of asset purchases, known as quantitative easing.

PBOC cuts CNH deposit rate

Posted by Ivan Guan | Posted on 04-04-2011

Category : Monetary and Fiscal Policy

Tags: ,

Recently, there is growing interest in RMB Deposits or Bonds. Investor should pay attention to this new market development but remain cautious and vigilant. if in doubt, please contact your financial adviser.

Last week, the market was caught off guard by the People’s of China’s (PBOC) lowering of the offshore RMB (CNH) deposit rate in Hong Kong to 0.72% from 0.99%, effective from 1 April.

Previously, banks in Hong Kong were constrained by their credit limits in placing deposits with Bank of China, which is the sole CNH clearing bank. As a result, banks have been buyers of bank papers even at yields lower than deposit rates of ~0.8%. Under the new policy, lenders involved in CNH settlement in Hong Kong are allowed to deposit the currency in a special account with China’s central bank, which means banks will face PBOC directly.

In the short term, we expect the move to result in short-dated bond yields correcting up toward the deposit rate, which will be generally positive for CNH bonds, except for bonds that are currently trading below the deposit rate.

China Hiked Interest, Again, on Christmas!

Posted by Ivan Guan | Posted on 25-12-2010

Category : Market Commentary

Tags:

BEIJING (Dow Jones)–China has decided to raise interest rates for the second time in slightly over two months, signaling the authorities’ resolve to combat rising inflation despite concerns over intensifying capital inflows triggered by ultra easy monetary conditions in the U.S. and Japan.

Beijing’s latest move also suggests the world’s second-largest economy may be entering a relatively formal monetary tightening cycle and that policy-makers may have been convinced that the weapons used so far, such as credit rationing and artificial price controls, have failed to cool politically-sensitive consumer price pressures.

The People’s Bank of China said Saturday that effective Sunday, it will raise the one-year yuan lending rate by 0.25 percentage points to 5.81% from 5.56%, and the one-year yuan deposit rate to 2.75% from 2.50%. The move comes after the central bank hiked on Oct. 19 the benchmark lending and deposit rates also by 25 percentage points each, the first rate hike in nearly three years.

Saturday’s announcement shows that the PBOC will likely hike interest rates more often next year to curb overly ample liquidity and rising inflation, said Brian Jackson, an economist at the Royal Bank of Canada.

“We expected a rate hike by the end of the year, though Christmas Day is something of a surprise–a rate hike is not normally on the wish-list for Santa Claus, but in China’s case this is a prudent move,” said Jackson.

Source : Wall Street Journal

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