Formula to become Rich 2

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Formula to become Rich 2

• Global Investment Market Analysis
• By Charter President - Brian Kwan

HK Junior Asset Management Association
(??????????)
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Global Market Analysis
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Hong Kong Hang Seng Index
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US Dow Jones
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US

• Huge deficit every year
• Trade deficit USD 68.9 billion (10/2005)
• Expenses gtgt Production
• Financial deficit USD 83.1 billion (11/2005)
• Long term weak dollar policy
• 15th increase of interest rate ? 4.75
• Significant increase of property prices ?
  property bubble is starting

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Developing Countries

• Asia
• China, India, Korea, Thailand, Japan
• Europe
• Russia, Hungary, Turkey
• Latin America
• Brazil, Mexico

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BRIC

• The most influential term since 2003
• Established by Goldman Sac
• BRIC Brazil, Russia, India, China
• Present Total global asset values 3.5
• 2020 Total global asset values 10-16
• 2050 Overtaking the G6 UK, US, Germany, France,
  Japan, Italy

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BRIC
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China

• The fastest developing country
• GDP growth 9.6 (US only 3.5 in 2005)
• Financial Market Reforming
• QFII (Qualified Foreign Institutional Investor)
• 12/2005 US 5.64 billion (from 34 institutions)
• 12/2006 US 10 billion
• QDII (Qualified Domestic Institutional Investor)
• e.g. ??????
• 09/2005 US 24 billion (19 stock, 81 cash,
  bond)
• 12/2010 US 125 billion (40 stock, 60 cash,
  bond)
• ??????
• Currency

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China

• RMB depreciated 1.4x since 1986, but GDP growth
  was 12.4x
• 7/2005 RMB appreciated 2
• Market predict RMBs value will be double within
  5-10 years

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China
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India

• The 2nd fastest developing country
• GDP growth 8.5
• Total population 1.05 billion, just behind China
• Over 50 Indian is younger than 25 yrs old
• Strong consuming power (40 of total)
• 20 million of university graduates / year
• Strong productivity
• Cheap labor costs
• Largest offshore software development center in
  the world -gt 04/05 rose 34 to 17.2 billion US

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India

• Enterprise management level just behind HK and
  Singapore
• Strategic investment from HSBC
• P/E Ratio 21

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India
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Japan

• Economic burst in 1990s
• Over loan to enterprise -gt serious bad debt -gt
  loss of confidence
• Nikkei dropped from 33000 to 8000 (3/2003)
• Recovery of Japan since 2004
• Continuous decrease in bad debt
• 2400 billion (9/2005) vs 2100 billion (3/2006)
• Ratio 8.4 (3/2002) vs 2.4 (10/2005)
• Enterprise loan demand rose to 5 years high
• Unemployment rate dropped to 10 years low 4.5

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Japan

• CPI (11/2005) rose 0.1, the first rise in past 5
  years
• The second largest investment amount since
  10/1987 530 billion in the last week of Jan
  2006
• GDP growth accelerated strongly in Q4 2005

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Japan

• Nikkei rises from 8000 (03/2003) to 17000
  (03/2006)

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Eastern Europe

• Convergence with Western Europe catalyst for
  growth, restructuring and reform
• Growth prospects in the region are still
  undervalued
• High skills and large natural resources at low
  prices
• Good country and industry diversification
• Geared to European growth in FDI

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Eastern Europe - EU
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Eastern Europe - FDI

• FDI (Foreign Direct Investment) into Eastern
  Europe grew rapidly over the 1990s
• Historically, accessing countries witnessed
  considerable jumps in FDI (eg Spain Portugal)
• Further opening of Eastern European economies may
  result in similar upward FDI in-flows

Source 1990-2002, Balance of Payments
Statistical Yearbook. World BankPast performance
does not guarantee future results.
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Latin America

• Mainly Brazil (50) and Mexico (20)
• P/E the lowest in the world (8.3)
• Rich of natural resources e.g. wood, sugar,
  mining
• Sugar ? Ethanol (49 Energy, 51 Food)
• Huge demand of Mining from China, India
• Reducing the demand of external debt
• Mexico outsourcing center from US

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Mining

• Demand
• Industrialization and urbanization of China and
  India is having a huge effect on commodities
  market
• China is becoming the worlds largest consumer of
  raw material
• Supply
• Lack of investment in previous decade and long
  lead times limiting supply side reaction.
• Fewer and larger companies with management
  discipline. Most focus on increasing shareholder
  value.

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Mining China Demand
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Mining Inventories Prices
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Energy - Oil

• Demand
• Daily consumption 85 million barrel
• Predict increase 2m barrel / year
• China and Indias fast growth
• US seasonal demand (Q3 Traveling, Q4 Winter)
• Supply
• Number of oil farm drops 50 to less than 2500
  around the world since 1981
• All founded oil will be used within 30-40 yrs.
• Oil company dont want to invest on oil
  exploitation
• Afraid supply gt demand (corrupted in 1970s)

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Oil History
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How to invest in these markets?
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Funds

• Fund is a pool of money e.g. MPF
• Managed by professional fund manager and a team
  of financial analysis
• Have specific objective e.g. China
• Have specific strategy and discipline
• Diversify to a minimum of 50 companies
• Management Fee
• Fund Class
• Country, Sector, Bond, Currency, Hedge

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Method 1

• Direct Fund
• Minimum amount 10k/fund
• Bid-offer spread, redemption charge, fund
  switching fee, management fee
• Managed by your own
• You should have time to know the market
• You should have knowledge to analysis
• Less diversification
• Suitable for specific market e.g. China A

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Method 2

• Lump some portfolio
• Minimum amount 150k
• Can select max 10 from 100 funds into the
  portfolio
• No Bid-offer, no redemption, free unlimited fund
  switching
• Only have portfolio annual fee and funds
  management fee
• Usually managed by Investment Advisor
• You dont need to have time and market knowledge
• More diversification and flexible for large asset

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Method 3A

• Regular Saving
• Bank fund saving
• Usually 1k per fund per month
• Funds are usually managed by the bank rather than
  professional fund house
• Performance is less competitive
• You need to change market by your own
• Less diversification and flexible for asset
  accumulation

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Method 3B

• Regular Saving
• Portfolio fund saving
• Similar to lump some portfolio
• Usually 2k-10k per month for each portfolio
• Can select max 10 funds among 100 funds from
  global fund house
• Usually managed by Investment Advisor
• More diversification and flexible for asset
  accumulation
• Most young people nowadays use this
• E.g. Im using one from Royal Skandia

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How to design your portfolio?
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Formula to design portfolio

• Set an investment objective
• Know your age and risk tolerance level
• Select the platform based on brand name, fund
  choices, fund range, charges or bonus
• Seek advice for market information
• Set the proportion for different markets

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Sample 1 For young people
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Sample 2 For elderly
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Q A
Brian Kwan
Email briankwan_at_ieaa.org Mobile [phone] ICQ
3812516