Not So Super After All (Public Bank Super FD Rates Campaign)

KUALA LUMPUR: Public Bank has launched its "PB Super FD Rates" campaign for customers seeking long-term fixed deposit placements with higher step-up interest and also receive regular monthly interest payment.

It said on Monday individual customers had to place a minimum of RM30,000 fresh funds.

The campaign is open to all new and existing Public Bank individual customers from Jan 28 to June 30, 2014.

The campaign offers step-up fixed deposit rates to as high as 8.88% per annum to individual customers.

Public Bank said from the total placement amount, 80% would be placed under one month PLUS Fixed Deposit (PLUS FD) auto-renewable for 12 consecutive months at a step-up rate whilst 20% of the funds would be deposited into the PLUS Savings Account earning interest at the current prevailing rate.

Each individual customer could place up to a maximum of RM3mil under the campaign.

Public Bank said the campaign enabled customers to withdraw the fixed deposit at any time and customers were still entitled to the prevailing one-month PLUS FD counter rate without any penalty.

****Everything above was taken from TheStar: http://www.thestar.com.my/Business/Business-News/2014/02/17/Public-Bank-launches-super-fixed-deposit-rates-campaign/ 

My comments:

Public Bank's super big 8.88% is extremely misleading. Let me explain: [1] 8.88% is for month 12, 1-month ONLY, in fact at the last month only [2] The effective annual rate (EAR) is 4.33% for the 80% portion [3] The remaining 20% is deposited to the Saving Account at prevailing rate as stated here: http://www.pbebank.com/en/en_content/personal/rates/srates.html

Assuming you invest RM 100,000. 80k/20k. The effective interest (that you see rolling into your bank account) is only (80%*4.33% + 20%*0.20%) = 3.504%! Even at the highest prevailing rate that's if you have RM 1 million: (80%*4.33% + 20%*1.20%) = 3.704%! That's a huge 5%+ gap. Can you tell me why these rates are considered SUPER? Oh because it is super misleading. 

It is amazing that BNM can approve this, Zeti (our BNM chairman) probably can understand but you think everyone is Zeti out there? Financial literacy is not something taught in school. Me and you, we went through the same education system in Malaysia (primary to tertiary). The greatest thing I obtained there in my toolbox is copy, paste and modify.

Aunties and uncos are sure to be confused. I bet several young people will too. I mean just look at the picture below.

More numbers to digest than alphabets. What? 

The definition of marketing is to communicate the value of a product or service to customers for the sole purpose of selling it to them with a goal of increasing sales volume/profit. Where is the value here? 8.88%? 3.68%? 3.78%? 3.88%? 4.88%? 6.88%? Prevailing FD rates? Just say something like 3.504% to 3.704% 'apa susah sangat'?

Like a friend who told me, man this is a "marketing big con job".

Speaking Of Recent Gold Demand Trends

Precious Metal: Gold

Rating: UNDERPERFORM (KEEP IN VIEW)

Current Price: $1,334 (from $1,236)

Target price: $1,100 to $1,150 (unchanged)

Fundamentals: Long Term Outperform (5-year period)

Sentiment: Medium Term Bearish (6-month period)

Risk Level: High

**Outperform: Expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.


Gold price has recently been on the uptrend and some are wondering if Aboi got it wrong. You can get the full report here: Latest Issue: Gold Demand Trends Full Year 2013.

This is the grand chart of gold demand for the year 2013 and a bigger pictures shows the demand trend for the last ten years. What are you looking at?
[1] Jewellery: Is on a declining trajectory since 2004 to 2013. In fact to say that rising middle class of India and China will improve demand on this category is simply unfounded.

[2] Technology: Demand is relatively flattish. Again to say that rising use of electronics e.g. tablet / smartphone 'hot' trend will improve demand on this category is also not substantiated.

[3] Total bar and coin demand: Now this is interesting. Demand shot up astronomically at which year? During the financial crisis that happened late 2007. I will postpone my explanation to below.

[4] Central bank net purchases: This is also interesting. Since 1999 to 2009 central banks were selling their gold holdings because money flowed to the greenback (USD). The US financial crisis of 2007-2008 made the demand of dollar almost next to zero and thus money flowed into gold and is still is today. Demand here to continue to play a role albeit on a lower quantum.

[5] ETF and similar purchases: This is basically demand from mutual funds in short. Demand for this category has been relatively mild for diversification purposes except: 2008-2010. Fund managers divert the risk to gold's safe haven and with equities now turning 'hot' you can clearly see the huge selldown in 2013.

Gold had a 'mild pop' when funds sold their holdings in 2013 causing it to drop from $1900/oz to $1200/oz. The only major factor keeping gold supported now is the RETAIL INVESTOR, people like me and you but actually not really us la. Whose buying them? The Chinese and Indians especially! Why? Real interest rates in these countries are absurd, that's ONE reason; ~4% in China and less than 2% in India, that's very little considering their inflation figures are near double digit range. If you are in Malaysia you would understand what I'm talking about here.

The case of India: India’s gold mania is driving the nation deeper and deeper into debt
"A surge in money earned on the black market; investors chasing the gold price; and the dismal returns savers get from deposit accounts. Real interest rates are low, reflecting high inflation and a repressed financial system that is geared to helping the state finance itself"

The case of China: The Chinese are almost as crazy about gold as Indians—but for different reasons

"While gold is popular in China as jewelry, it also functions as an alternative asset to the Chinese yuan. Chinese capital controls make it hard to change yuan for foreign currency and invest overseas. Even though the Chinese authorities have been slowly loosening currency exchange rules, the vast majority of Chinese people still have limited investment options. That’s one of the reasons that China sees so many bizarre asset bubbles (the bad art bubble and the pu’er tea bubble spring to mind)."

Back by India's restriction to limit gold import in mid 2014 and China's appalling just released PMI index, gold is going to meet resistance in the $13xx range. I'll put it this way:

Total demand = real demand + speculative demand. Real (a.k.a stable) demand I would attribute namely to Jewellery and Technology, these are the categories that ABSOLUTELY can't live without gold. Speculative demand refers to the rest; central banks / bar & coin / ETFs. Why? The first chart shows you everything. It swings HUGELY from one category to another. Banks suddenly stopped selling at 2009. ETFs bought large amounts in 2009 only to sell it four bloody years later. And now we have the retail investors, who suddenly feel gung-ho about gold and buy huge quantities of them since 2010. It is huge because there is a tremendously large amount of retail investors, people like you and me; more than 7 billion people in the world!

With China & India consuming 60% of the world's gold, this is SHIT SCARY. Will retail investors sell them when things go sour e.g. their economies finally pop or go south meaning a slowdown? When that will happen remains to be seen BUT it 'can happen' because people are like buffaloes. Once a few starts running, the rest follows. Current data doesn't look good. Aboi is not wrong, he is just not yet correct :)

Aboi's Updates For March 2014

KING'S BRIDGE FINALLY OPENS FOR TRAFFIC JAM

Najib opens second Penang bridge, naming it after the King

KLSE TECH REVIEW

Here's the link for the previous month's market sense: Aboi's Updates for February 2014

For those who find it hard to follow I suggest reading through my previous posting on how I am using technical indicators as a trend seeker.

1. First Attempt on Tech Analysis Part 1
2. First Attempt on Tech Analysis Part 2

Recap my last month's commentary. 
[1] recent sell off looks to be supported, I suspect money from weak holdings are transferring hands towards more resilient fundamentally backed counters as blue chips are keeping Bursa steady - Local fund institutions are supporting our market even as foreigners are parring down their stake here. [2] I think February will be a month where Bursa trade sideways as companies continue to release their 2013 earnings report. - It HAS and will continue to do so for March. Emerging markets will continue to Lao Sai especially true for riskier markets, not so worried-some for Malaysia as it is a defensive market. My risk evaluation still stands firm. For the year 2014, the main risks are likely to be on the sharp sell in US bond yields backed by news on Fed tapering or much stronger US economy growth.

I created 3 supports namely 1800 (profit taking), 1780 (minor correction) and 1750 (major correction) with only one resistance at 1850. The reason is simply: All tech indicators show that there is no support for a bull run in March. Volume is flattish, MACD showing crossover imminent while RSI has already passed the bull peak and will repeat the cycle again. Boring month for March.


Second, my portfolio managed to grow! 
This time by around ~RM7000 even during the period when Bursa is trading sideways. This showcases the strength of having a portfolio that is fully diversified! That's the primary reason my portfolio underwent a drastic change exactly a year ago. See my previous post My portfolio is NO LONGER purely equities. For the month of Feb this is what happened:-
[1] Supermax and Genting declined in stock value.
[2] Freight supported this decline as it rose backed by good earnings for year 2013.
[3] iCap traded sideways as usual.
[4] Boustead REIT went private. Profited ~65% inclusive of cumulative dividends.
[5] All mutual funds listed gained in value. AmDynamic Bond is back to black! (faster than I initially expected->middle 2014). This is good news indeed.
The bad from [1] & [3] is offset-ed by [2]. [4] and [5] and in this month's case the good far outweighs the bad leading to an increase of portfolio value. A clear example of the benefit of diversification.

Following some comments by readers, I will list my coming plans for 2014 (please NOTE that KEEP IN VIEW is not my final decision):-
[1] Invest roughly 25% of cash balance in Aberdeen's Islamic World Equity Fund. CONFIRMED and I will do so via cost averaging method until June. 
[2] Invest in a new mREIT holding: Time To Revisit mREITS in 2014 KEEP IN VIEW, waiting for opportunity when yields are right.
[3] Invest another fund, diversify further into small cap-medium cap companies where I have no exposure. KEEP IN VIEW, yet to do any research.
[4] Possible buy of gold commodity: A fool and his gold are soon parted KEEP IN VIEW, my opinion is that gold will see resistance at $1340.
[5] Par my remaining cash balance to 10% level. This will be done using my already 4 year old endowment fund with a projected 4% return p.a to better reflect my portfolio composition, currently the cash is sitting ducks with absolutely no returns. CONFIRMED but I have not decided how to integrate it into my portfolio.

As usual AMP Capital has a really good compressed weekly information (freely available, no sign ups) on weekly global market & global economic updates. It is usually updated every Monday afternoon so go read it when you have the time.

PORTFOLIO REVIEW

Portfolio composition. Equities 50%, Mixed Assets 15%, REITs 10%, Bonds 5% and Cash 20%.
Targets for returns p.a. Equities type 12%, Mixed Assets 8%, REITs 6%, Bonds 5% and Cash 3.75%.

Notes
*Boustead REIT went private for RM1.94 with special dividend of RM0.16 per unit. It will be removed from the portfolio next month.

Comments
#1 Portfolio target for the fourth portfolio year @ RM140k for April 2014 has already EXCEEDED. Portfolio target for the fifth portfolio year @ RM152k for April 2015. The TWRR (time weighted annual return rate is now at 12.39% vs my target of 8.80%).


Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.