Top Post Views

3: Malaysia REITs - Looking For My 2nd Durian Runtuh
4: Is Insurance Really Necessary?
5: Everyone Must be A Millionaire

Head to the watch list on the above tab to see my what's on my radar and foreseeable future postings =)

Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Wednesday, October 31, 2012

Guna Otak Sikit

Guna Otak Sikit literally means "Use Your Brain laa". This is a collection of comments by various netizens as well as some of my commentaries. Just two days ago the government has clarified that it has NO intentions to cut car excise duties in Malaysia, what the hell happened to our automotive liberalization promise in 2015? Talk cock sing song again? What comes after that is even more surprising: flexi-payment schemes offered by banks specifically to students and fresh graduates that offer LONGER repayment periods can help the rakyat (people) deal with high car prices. While duties & taxes generate in total RM7 billion in revenue to the government as of 2011, it is also inflating car prices by as much as 100 percent.
Back in the 70s, the usual car repayment period was a mere three years. Then it went up to five, seven and we even have nine years now. A longer repayment period means the banks will make more profit from the interest because the hire purchase interest is computed on a fixed scale at the start of the loan, rather than reducing amount like we see for houses. Take an example of a Honda City bought using RM60,000 (30k down payment) with purchase loan of 3% interest rate would incur the following charges:-

Repayment over 5 years, interest amount of RM9,000, 15% of principal amount. Monthly installment of RM 1150.
Repayment over 7 years, interest amount of RM12,576, 21% of principal amount. Monthly installment of RM 865.
Repayment over 9 years, interest amount of RM16,140, 27% of principal amount. Monthly installment of RM 706.
*Repayment over 12 years, interest amount of RM21,648, 36% of principal amount. Monthly installment of RM 567.

This is the best way to lose even more money and to use up future earnings now. Take 7 to 9 years, one has an extra RM159/month. In 2 years one would have an additional RM3816 but remember you are paying an extra RM 3564 in interest. So you technically save RM252 in 2 years which is RM10.5 a month! What the oook. Extending the repayment period merely reduces the quantum of the monthly installments. In reality it will make VERY little difference to the buyer's disposable income once interest amount is taken into account.
Personally I would like to see market prices for cars and market prices for petrol. You heard it right, cheap cars but expensive petrol. Then I will have the choice of how to spend my money. If I don't drive, I don't really pay for expensive petrol and if I choose to drive to Ipoh for Dim Sum, I have to pay for expensive petrol.

In fact it makes a lot of economic sense to totally abolish the duties & taxes on cars and slash subsidies. Lower revenue is compensated from slashing subsidies and the increase of disposable income for people has a multiplier effect on the consumer industry thus indirectly leading to higher sales tax revenue. Some argue that by lowering car prices would lead to 1) increase in  traffic 2) used car dealers going bankrupt. Both are not true.
Total vehicle sales in Malaysia has reached near saturation stage since 2005. The market is saturated because there is little room to grow (the only way is a growing population) as Malaysia has one of the highest vehicle-to-population ratio in the world. We have 20 million vehicles travelling on the road (from Malaysia Automotive Institute statistics) to a population of 28 million people. If cars are to be cheap, one can say that they will only replace existing cars, not adding more vehicles on the road.

Second by reducing the excise tax slowly, say by 20 percent basis year by year or the used car industry may collapse. This way disposable income can be increased by RM70 to RM100 for a monthly car loan of RM700. This will give ample time for dealers to clear existing stock and at the same time help the people cope with escalating cost of living. Moving forward, you should know how to vote if you wish for the following. The choice is a no brainer, it is backed by numbers and data. One just would only need to lay it out for the people to what I am doing =)

Sunday, October 21, 2012

The Yellow Fever

This is meant to be a short post, it's Sunday night anyway =p These dodgy schemes of gold investing have stole the limelight in the newspapers for several days. We have seen many people from all wakes of life investing into gold with the promise of grandeur returns (not yearly ones but monthly lolx). I put in picture to explain how these schemes work on a high level basis:

Life is soooo goood does it pay 1.5% Hibah per month? Remember the 25% upfront profit? By calculation G-firm is able to sustain the 1.5%*12 = 18% per annum returns of Hibah to a customer for a full year. This model works fine when GOLD PRICES KEEP GOING UP or NEW CUSTOMERS KEEP COMING. The mantra buy low, sell high only benefits the firm not the customer. When the deal is too good to be true, IT IS USUALLY A PONZI SCHEME =) Here's another good read, in fact the best explanation I have seen from another blogger:

To the disbelieve of ordinary folks, gold is just like any commodity. IT DOES NOT GO UP ALL THE TIME.
Then why has it spiked up these few years? Demand from China/India? Neh....back in 2005 (not in the chart below), only 16% of gold's demand went to investment. Now it is a staggering 40%!! Everybody's doing it which suggest that a dangerous amount of speculation is on board which could potentially develop into panic selling similar to the tech bubble burst.
*World Gold Council i an association whose 22 member comprise the world's leading gold mining companies, representing approximately 60% of global corporate gold production.

If you have gold now, it's time to review your holdings. If you are thinking about getting into gold, think twice and HARD. A few useful indicators to look out for. 
No 1. If the central banks of major economies start raising interest rates, it is tough for all investment classes which includes gold. Because there is little point in putting cash into the banks when interest rates are low, people will buy gold as a hedge against inflation.
No 2. If the US dollar has strengthened, decrease in gold prices will follow. This is because people use gold as a substitute/hedge for the world's reserve currency.

IMHO I do not see both no.1 and no.2 happening in early 2013. Unless growth picks up again in the US, will need to see what happens after the US elections in Nov 6 2012 (forget EU, it's a big mess) the world economy looks bleak for next year. If US does recover better than 2012, gold would not hold around current prices for another year.

Since this is a short post, I will probably re-edit this at a later date with more charts/data.

Sunday, October 14, 2012

Bersih's Demands in Numbers

The only reason I am writing this is because a healthy democracy translates into better economic climate within a country. There is no country in the world that prosperous economically without a full fledged democratic system in place. The most damning argument set forth about free and fair elections in Malaysia is that the opposition has won a sizable and record number of 82 seats and 5 state governments during the 2008 general elections. It is the same as claiming that smoking does not causes lung cancer because most smokers are still healthy. Just like how nicotine gradually damages your lungs, electoral fraud slowly damages the health of a country's democracy. BERSIH started out as the Joint Action Committee for Electoral Reform, which was formed in July 2005, and the coalition’s objective was to push for a thorough reform of the electoral process in Malaysia. The movement has since grown up to the historic day of 28 April 2012 which saw more than 250,000 Malaysians standing up as a united front to demand for CLEAN and FAIR elections.

Demand 1: Clean the electoral roll
A good electoral roll must include all citizens who are eligible to vote and nobody else. As of March 2012, 3 million eligible citizens had yet to be registered as voters. To add on we have many names that are not supposed to be on the roll which includes; illegal foreigners, the deceased, multiple-registered voters and fabricated names. The EC claimed that problematic registrations are only 42,051 names / 12 million registered voters. What people do not realised is that this 0.03% is VERY significant. Consider the 2008 general elections, BN's weakest 30 seats were won with very small margins, smallest being 51 votes in Sarikei and 3,070 in Stampin. If you add these 30 weakest seats together the amount would be 56,792. By using calculation if those problematic registrations were to vote for the opposition/disappear, it would be enough to win 25 more seats, just 5 seats short of causing regime change!

Demand 2: Reform postal ballot
Also known as absentee voting which is mostly synonym with military and police votes. Overseas voters who are eligible to vote on postal ballot does not matter in this case simply because of the short period to transport the postal votes due to short campaign period. E.g. postal ballots are issued only 4 days before polling, those posted overseas and expect it to return to the Returning Officer by post would most probably never even make it. In addition to that, if a postal voter were to return when elections are called they are not eligible to vote at the polling station but need to take a flight back to wait for his ballot to arrive there. Simply nonsense. 

Demand 3: Use of inedible ink
A simple and cost effective way of preventing voter fraud. Once marked an observer would immediately know that person has voted for.

Demand 4: Minimum 21 days of campaign period
This also links to Demand 2 because for overseas voting to work, logistics has to be taken into account. A minimum of 21 days would provide enough gap between nomination and polling for oversea voters to cast their votes through postal means. In current regulation, it stipulates a minimum of 7 days and a maximum of 54 days. But if you take into account the 16 by elections in Malaysia from 2008-2011, the average is indeed short, just ranging from 8 days to the max of 11 days. Even the 2008 general election, it was only 8 days while our first national election was 42 days! A longer period would allow voters more time to gather information and also to provide candidates time to reach the rural folks.

Demand 5: Free and fair access to media
Three keys points: Free airtime allocated/non-discriminatory access for ALL contesting parties. Televised debates a common thing in developed democracies are not even aired once. Lastly there must be right of reply (for defensive reasons) for politicians who have been negatively reported. As you know non of these exist on any of our state-owned broadcast media and state-owned radio channels.

Demand 6: Strengthen public institutions
All public institutions must remain neutral. Ministers can campaign for their parties or colleagues but they cannot be doing so using the resources of the government. Government functions and party functions must be held separately. The spending spree of the Federal and State governments can be seen from both side of the political divide again more prominently on BN's side. In Sibu, Sarawak BN promised RM37 million worth of projects. Batang Ai, Sarawak; BN promised RM200 million of instant development grant. In Kelantan, PAS dished out land titles faster than McD's Big Macs. Police personnel were also misused. In Batang Ai, 850 personnel were deployed for a constituency of only 8006 voters. A 1:10 ratio and there were flown in using helicopters! (another form of abuse of official resources).

Demand 7: Stop corruption
Campaign finance is capped at RM200,000 for parliamentary candidate and RM100,000 for state contestant from the Election Offenses Act 1954. Say a 20 days campaign period, one would only have RM10,000 and RM5,000 per day to spend. But the act has 2 major loopholes, first the accounting is on a candidate level, so the party can spend on his/her behalf. Second, contributions from kind/labour and donations to their supporters are not accounted. This simply means the elections are largely a game of money. Holding treats, free dinners, lucky draws, dancing shows, election goodies, outright vote buying and the etc are also considered bribery. This is prevalent more so on BN but also can be seen from the opposition parties. And the most famous being this video which went viral:
Demand 8: Stop dirty politics
Instead of discussing core issues, politics in Malaysia are marred by personal attacks also known as gutter politics. No further explanation needed just read the daily news. 

Additional demand from Bersih 3.0. They are more specific in nature and does not need further explanation:
Demand 9: The Election Commission must resign, as it has failed in its responsibility and has lost the confidence of the public.
Demand 10: The electoral process must be cleaned before the 13th General Elections.
Demand 11Invite international observers to observe the 13th General Elections.

Largely taken from the book Democracy At Stake? Examining 16 By-elections in Malaysia 2008-2011. Only RM30 and can be finished in a day (255 pages).
It's not just protest, it's progress. Najib, wake up laaaa:
Will Bersih's rally really hurt the economy?:

Examining AIA's Investment-Linked Funds

If my history serves me right, investment linked plans (ILP) only existed in Malaysia back in 2001. Prior to this new insurance scheme, customers only had the traditional life insurance policy in the market. Nowadays, when you are approached by an insurance agent you will most likely be presented with a Investment-linked policy for a few reasons as listed briefly below:

1. Low insurance charges: As this is based on age, for young people entering the workforce you can obtain high coverage at low cost.
2. Many other benefits: Hospitalization, accidental, critical illnesses and many other protection benefits can be added on top of the standard ILP.
3. Visibility/transparency: ILP reveals how the premium allocation is made on your statement. You will also get an annual report on how your fund is performing.
4. Investment strategy in your hands: You can decide your risk level, choose which fund to invest, fund switching and portfolio allocation.

**Please note that ILP by insurance companies are not supposed to generate money for retirement. After all insurance plans are essentially protection providers NOT wealth generators (this is a great misconception by people). The returns are meant to offset the higher insurance charges (but you still pay the same premium) as you grow older thus as more returns are achieved, the longer the plan will last/the better coverage you can add later on in life.

Back to no.4, where should you put your money then? Only two months ago I have gotten myself another ILP and this time with AIA (my first was a Prudential), here's the top 4 AIA investment linked funds where you can invest in if you have an AIA ILP. Remember you have the right to change your investment strategy, so do check with your agent.

AIA Aggressive Fund
CAGR of 11.23%
2001: RM1000 would have been RM2898 in 2011. (RM3224 projected for 2012)

AIA Medium Cap Fund
CAGR of 9.28%
2001: RM1000 would have been RM2428 in 2011. (RM2654 projected for 2012)

AIA Dana Dinamik Fund
CAGR of 9.19%
2001: RM1000 would have been RM2408 in 2011. (RM2630 projected for 2012)

AIA Fixed Income Fund
CAGR of 7.07%
2001: RM1000 would have been RM1980 in 2011. (RM2120 projected for 2012)

Of these four funds, 3 are 100% equities and only 1 falls under the fixed income securities category. Pure equity funds are volatile in nature and tend to correlate with stock market sentiment. All 3 have major exposure on trading/services sector, industrial products and finance. Malaysia's economy is highly dependent on growth in these areas and these sectors in total contribute a large amount of total GDP to the country. As such the easiest barometer to gauge the fund performance is to look at the KLCI. It correlates very well. Fixed income securities however are generally stable with lesser returns. 

These four founds also share some similarities: they have been around for 10 years, small in size for their category and with only domestic holdings/securities.
The other funds pale in comparison. The table below will describe them.

1. Red ones are largely foreign investment funds. Avoid them at all costs, seems like AIA fund managers have a hard time even getting + returns when investing beyond our shores.
2. Oranges are just decent funds. View my spreadsheet for more details.
3. Two new funds were launched in 2012, as it is still new I have to ignore them for at least another 3 years. 
*AIA Equity Dividend Fund on prospectus looks promising. It invests only in Bursa's blue chip counters that provide strong dividend payouts. It will be on my watchlist come the 2012 annual report in Nov/Dec.

I personally picked AIA Aggressive Fund (trading/services), AIA Medium Cap Fund (industrial products & consumer) and the AIA Fixed Income Fund (finance borrowings). At 33% allocation each, I am seeing a 9.2% return p.a. based on historical data. To add some leeway, I have only a 8% expectation =)

Data sources:
The link to download my spreedsheet:
AIA's investment linked funds Annual Report for policyholders 2011:

Other useful reading:
The Ugly Truth of Unit Trusts & Mutual Funds:
Public Bank Fanatics:
HwangDBS Select Income Fund: 

Saturday, October 6, 2012

Budget 2013: Becoming the next "Greece"

Consistently persistent fiscal deficit is the best description I have for long time ruling coalition government. Fiscal deficit happens when a government's total expenditures exceed the revenue that it has collected (this excludes money from borrowings). An accumulation of yearly fiscal deficits is our national debt. Fiscal deficit is not always a bad thing. However, persistent deficits even during times of economic growth shows a major lack in spending discipline. When the economy is doing well, a balanced budget strives for a surplus so in times of recession a government can meet its debt obligations. This is the exact opposite in Malaysia, the persistent fiscal deficits are adding more and more to our total national debt further burdening future generations with ballooning national debt.

Practically when drafting a national budget, the most likely number the government looks at is the country's economic growth via Gross Domestic Product (GDP) which is how much recognized goods and services a country can produce in a given year. When GDP grows, revenue is expected to go as more tax is collected and other revenues go up as well. There is an increasing risk of a double dip global recession and slower economic growth projected for 2013/2014 due to sapping demand from Eurozone, India and China. Given the path we are currently on (as you will see below later), higher deficits will happen. Worse come if we do enter into a recession, we will definitely see record level deficits and national debt levels. By the time, as the government cannot fulfill it's debt obligations through any mathematically possible resolution, we will be the "Greece of Asia".
It is worth to highlight that the country has been running fiscal deficits for the last 14 years since the financial crisis of 1999 and is expected to continue unless we cut unnecessary spending. Where do we spend our money then?

Operating expenditure has now hit a high of 80% of our national budget allocation leaving a highly disproportionate % left for development spending. The reason of increase spending under the "operating" tab can be attributed to reckless handouts/promises of bonuses. What are the implications of such irresponsible spending?

The country is built up around amassing more and more debts. The country's national debt (domestic debt + foreign debt) is just short of its self-imposed ceiling of 55%. There is no political will to dismantle our humongous bureaucracy, a stage of over-governance. Yet we have someone in parliament playing the role of "Santa Claus" year after year. Now you will ask me, who funds the government then? We can't just print money like the United States so the Malaysian government funds these yearly deficits by borrowing, welcome to Malaysian Govt Securities (MGS). People often refer them as Malaysian bonds.

As much as RM120 billion is official invested in MGS by the EPF, this comes from their latest 2011 Annual Report. EPF also lends money under loans/bonds to others. It is surprising to see that the category "Others" is deemed as "SOCSO, nominee and trustee companies, co-operative societies, foreign holders and other entities" from our National Economic report. EPF on loans/bonds == Others? Let's assume yes, and give a 10% error tolerance which makes up to 50% of our national debt is owed to the EPF!! The investment size of EPF is RM469 billion as of year 2011. Effectively this means our government has already spent ~50% of all your savings in the EPF. If say I take just the MGS figures, it's still a staggering 25.5%!. One very big egg in a basket. 

Let me paint a bleaker picture. The EU central bank back in 2011 agreed to extend financial aid to the Govt of Greece on the condition they adopt massive austerity measures and that the lenders take a haircut of 50% of all outstanding loans. After all, they continually lent to a borrower that absolutely shows NO commitment whatsoever to cut expenses in order to service their debts. Just imagine if the EPF was in the same situation and asked to take a 50% haircut of their debts from the Malaysian Govt. You will only have 70% of your retirement money back (factoring the exposure % of EPF as EPF invests 30% of money into equities as well)!!!

It's no use digging deeper or reading line by line of Budget 2013 transcripts. It the same thing all over again for the past 14 years. How much public money has been lost through corruption? How much of it has been used to subsidise big corporations instead of the people? How much of it has been used to pay for ‘commission’ for big business deals involving the government? We may never know how much, but we do know that it is one hell of an amount, it's now well over RM500 billion! Malaysia is so fucking rich to this extent that the C4 has not exploded. But how much longer can we take this? There's a timer to every bomb.

Data sources: 
You can download my spreadsheet from the link:
It compiled from KWSP's annual report, malaysia economic figures by MoF, BNM and auditor's general report. 

Other useful reading:
Search for "Economic and social effects of austerity measures" on Greece:
Malaysian budget 2013: