REVIEW INTERVIEW: Can China grow itself out of trouble?

Straits Times - Feb 26, 2009

REVIEW INTERVIEW

Can China grow itself out of trouble?

Andy Ho

Last week, the noted China expert, Professor Woo Wing Thye, testified before the United States Congress on China's role in the crisis. Senior writer Andy Ho asks the University of California at Davis economist, who is also affiliated with Brookings Institution, about China's growth prospects.

Even before the global crisis hit, China's 2008 growth was lower than the two previous years'. Why? From October to December last year, a collapse in exports exacerbated the slowdown in China's growth already in place from January to September. The latter was actually induced by domestic policies per se. Here's how. To help President Hu Jintao consolidate his leadership at the October 2007 Congress of the Chinese Communist Party, credit quotas that every bank was subject to were continually adjusted upwards by the People's Bank of China, the country's central bank. So the 2007 growth was 13 per cent. But after the congress, fighting inflation became paramount. Credit quotas were strictly enforced and growth dropped from 10.8 per cent in the fourth quarter of 2007 to 6.2 per cent in the third quarter of last year. Note that exports in the first nine months remained good, so growth slowed in the period because of domestic policies. With the global crisis, exports plunged in the last quarter of 2008, so exports grew only 9.4 per cent for the whole year compared to the decade's average of 20 per cent. Export growth last month was minus 17.5 per cent, industrial production has dropped, and unemployment is rising. Last month, the International Monetary Fund projected China's 2009 growth at 6.7 per cent. At Davos, Premier Wen Jiabao predicted 8 per cent. Who is correct? I think Mr Wen - because China's 4 trillion yuan (S$890 billion) stimulus should work. Here's why. As they won't be held accountable for any non-performing loans, state-owned banks will now lend freely. Last month, they extended 1.62 trillion yuan in new loans compared to 772 billion yuan in December. And state-owned enterprises will now borrow heavily since future losses will be socialised, while some gains, if any, may be 'privatised' with creative accounting. The undervalued renminbi keeps China's trade surpluses large. Would it be forced to appreciate - to reduce United States trade deficits? Bilateral US-China trade imbalances may be thereby reduced but not US global trade deficits because the US would continue to import from other countries. When yen-dollar rates fell from 239 in 1985 to 128 in 1988, the US current account deficit only fell from 2.1 per cent to 1.7 per cent of GDP. Why? Japanese firms started investing abroad to export to the US from there. Starting a trade war now would mean a disgruntled China and a no happier US. Where do China's current account surpluses come from? When you sell more than you buy abroad, you are putting your savings into foreign assets. China should not do this as domestic investments garner higher rates of return. But it has to because the financial system can't translate savings into investments. China's private savings rates are up to 12.2 per cent higher than that of the US because, first, its financial institutions don't transform savings into education, housing and investment loans. So people just save. Second, it has no financial instruments to pool social risks through medical insurance, pension insurance and unemployment insurance. So people save up for a rainy day. Should China rebalance its economy for less investment-led and more consumption-led growth? That is an oxymoron because growth needs productive capacity to increase, which requires investments. Consuming more may use up savings but the state could also expend more of savings in import-intensive investments, like buying planes or scholarship programmes to send students abroad. If the state provides health insurance, a pension system, and so on, that would also be consuming more without lowering investments. What may cause the Chinese economy to sputter? Any speeding car may suffer hardware, software or fuel supply failures. A hardware failure, like a blown tyre, is an economic mechanism breaking down - like, say, a banking crisis that leads to a credit crunch which dislocates production. A software failure, like people altercating inside a moving car, is something like social upheaval. High growth along with corruption and regulatory failures like the melamine-tainted milk crisis have seen the trickle down dry up, inequality grow and social dislocations rise. China is the most unequal country in Asia. In 2004, the combined income of its top 20 per cent was 11.4 times that of the bottom 20 per cent. Public-disorder incidents rose from 8,700 cases in 1993 to 74,000 in 2004. The average number of persons involved in a mass incident rose from eight in 1993 to 50 in 2004. One 'fuel supply failure' would be protectionism reducing demand for China's goods. Another is bumping up against nature. Is China's development sustainable? China's dirty air is legendary. Less well-known is that 400 of China's 660 cities face water shortages. Lower than normal rainfall in the past 15 years means extended semi-drought in northern China. Combined with population growth, more water has to be pumped from aquifers. So the water table is dropping 3m to 6m a year and deserts are expanding. There are increasingly major sandstorms interrupting aviation, crippling high-tech manufacturing and causing health problems in northern China. To bring water from the south to the north, China began building in 2002 an eastern coastal canal from Jiangsu to Shandong and Tianjin. In 2003, it began a central canal from Hubei to Beijing and Tianjin. Next year, it will start a western one from Tibet to the north-west. The canals, each over 1,000km long, are fraught with environmental risks. The central one has to tunnel through the foot of the huge dyke holding up the elevated Yellow River. The western one will move water through freezing regions.Water temperatures might drop, which may see fish stocks decline. Future urbanisation may have to be located mainly in the south. So China can't grow its way out of trouble by doing more of the same? Its earlier reforms led to providing more jobs, which reduced poverty significantly. But now, the trickle down isn't working so well. What the poor need most now is help with building their human capital through education and health interventions.

CPF-invested stocks and unit trusts fall in value

The Straits Times - Feb 26, 2009
CPF-invested stocks and unit trusts fall in value
By Michelle Tay

LAST year's market meltdown has slashed over a third of the value of the investment of retirement savings in stocks and unit trusts under the Central Provident Fund Investment Scheme (CPFIS).

Their plunging values were roughly in line with a slump that hit bourses around the world. Only the traditionally safe haven of bonds saw investment growth under the CPFIS.

According to Lipper, a fund research and analysis firm, unit trusts available under the CPFIS retreated 40.24 per cent on average, while investment-linked insurance products (ILPs) fell 36.06 per cent.

CPFIS investors who put their cash in bond funds, on the other hand, gained 1.9 per cent over the previous year.

Among the CPFIS-included ILPs, bond global funds and bond Singapore funds have consistently been the best performers over the last three years, said Lipper.

The DWS Lion Bond SGD, for example, is one of five top-performing unit trusts named Lipper Leaders.

Lipper noted that the MSCI World Index shed a total of 40 per cent last year, while the Straits Times Index lost 49 per cent.

The final quarter of last year alone saw CPFIS-included funds lose an average of 16.82 per cent, as global bourses slumped after the failure of Lehman Brothers.

Even before that, nearly half of all CPFIS investors - or 440,000 of them at the time - who sold their Ordinary Account investments in the year ended Sept30 last year had lost money.

Still, figures from the CPF Board show that CPF members remain invested in insurance policies and unit trusts.

As of Sept 30 last year, CPF members had withdrawn $7.8 billion from the CPF Special Account for investments, of which nearly 80 per cent, or $6.19 billion, went into insurance policies. About $1.61 billion went into unit trusts.

As of Dec 31, total investments stood at $7.7 billion - $6.1 billion in insurance policies and $1.5 billion in unit trusts.

Mr Rajeev Baddepudi, Lipper's research analyst of Asean, said: 'The outlook for the global economy continues to look gloomy, while aggressive stimulus measures rolled out by the governments and central banks of most major economies have yet to take root.

'On the positive side, valuations are attractive across most asset classes, and cautiously optimistic, longer-term investing will prove profitable in the coming months.'

Inflation cools to 2.9%

The Straits Times - 23 February 2009

Inflation cools to 2.9%
by Robin Chan

SINGAPORE'S inflation eased significantly in January, continuing its downward trend.

The consumer price index (CPI), which tracks prices of a basket of commonly purchased goods, rose 2.9 per cent in January over a year ago, the Department of Statistics reported on Monday.

This is slower than the 4.3 per cent rise in December, and prices have now eased for the fourth straight month since last October.

Compared to December, inflation was down marginally by 0.1 per cent.

Overall, food prices in January rose 6.2 per cent from a year before, while housing costs rose 7.7 per cent. More expensive holiday travel also pushed up the recreation and others category by 3.2 per cent.

Excluding housing, which makes up 21 per cent of the index, CPI only rose 1.5 per cent.

Transport and communication costs were down 5 per cent due to lower pump and car prices.

Economists had forecast CPI to rise 2.4 per cent from the previous year.

Citigroup economist Kit Wei Zheng said that while inflation is slightly higher than expected, he still expects the Monetary Authority of Singapore (MAS) to ease the Singdollar policy further in its upcoming April meeting.

Lower price levels allow the Government to spend aggressively to stimulate the recession-hit economy through public spending and weakening the Singdollar to make exports cheaper, without fear of driving up inflation.

The Government, which announced a $20.5 billion stimulus package in the Budget, expects inflation to hold steady or fall 1 per cent this year as Singapore battles a recession which could send gross domestic product (GDP) down minus 5 per cent this year.

MEDICAL INSURANCE: A QUICK GUIDE

MEDICAL INSURANCE: A QUICK GUIDE

Hospital and surgical

This type of policy reimburses expenses for inpatient and some outpatient medical treatments.

Buy a plan that reflects your health-care expectations, such as the type of ward you would prefer should you be hospitalised.

Choose a guaranteed-renewable plan that provides lifetime cover.

An 'as-charged' plan, which does away with benefit limits, is desirable as it minimises out-of-pocket expenses.

Critical illness

It pays a lump sum when you are diagnosed with one of 30 designated critical illnesses.

Payouts made under this type of policy serve to replace your income when you are unable to work because you are critically ill.

As a guide, one may insure an amount of about two to five years of income or at least $100,000.

Disability income

This type of policy pays a monthly sum when you are unable to work due to a disability.

As a guide, the payout should be enough to cover all non-discretionary monthly expenses and all monthly contributions towards achieving your financial goals. This is generally 50 per cent to 75 per cent of one's regular monthly income.

Long-term care

This type of policy pays a monthly sum when you suffer from a severe disability.

To estimate the cost of caregiving needed, consider the following:

If caregiving is provided by a family member, about $400 a month is required just for medicine alone;

If a foreign maid is needed, about $1,000 a month is needed to pay for medicine, and the maid's salary and levy;

Caregiving at a basic nursing home (eight-bed ward or more) may cost up to about $1,300 a month.

Those demanding higher standards of caregiving should get a higher level of cover.

Hospital income

It pays a fixed sum based on the number of days of hospitalisation.

Previously, such plans served to supplement the protection of a hospital and surgical plan. However, with improvements to Shield plans, this cover is no longer essential.

Source: Providend

Cover yourself before it's too late

Sunday Times - Feb 22, 2009

Cover yourself before it's too late
Personal medical plans are essential as most group policies are not portable
By Lorna Tan

Relationship manager Stephen Tang never thought of buying a personal medical plan as he has always counted on his employer's insurance programme.

It dawned on him only when he got the pink slip last month that he now faces the gloomy prospect of not having any medical coverage.

To make matters worse, he was diagnosed with high blood pressure last year.

This means that insurers may shy away from covering this condition or they may charge Mr Tang, 37, a higher premium for providing medical cover.

He is not alone. The group medical insurance programmes provided by most firms to their staff are not portable.

The coverage ceases when the person leaves the job.

By that time, he may no longer be considered insurable if he has been diagnosed with certain medical conditions.

Unless you have vast savings to dig into to cover health-care expenses, the majority of us are better off buying a suitable medical plan.

The good news is that it need not burn a big hole in your pockets as the premiums for some plans are payable from your Medisave accounts.

It is easy to get confused by the various health-care insurance plans and jargon.

In fact, many people buy a given medical plan believing it is sufficient when it is not.

For instance, many Singaporeans buy a critical illness plan thinking it will cover hospitalisation expenses, only to find it does not allow such claims.

Here is a quick guide:

Hospitalisation & surgical (H&S) insurance

It covers the expenses for inpatient medical treatment or surgery, including some outpatient charges for day surgery, consultations with specialists and tests before and after hospital stays, as a result of an illness or accident.

You will be paid no more than the actual medical expenses incurred, regardless of the number of plans you own.

And depending on your policy, there are limits on the amount you can claim.

Examples include: MediShield plans, which provide the basic level of H&S cover at class B2 and C wards in restructured hospitals like Tan Tock Seng, and private Shield plans which provide more cover at higher premiums.

While MediShield is administered by the Central Provident Fund Board, Shield plans are provided by private insurers.

The premiums for MediShield and private Shield plans can be paid from one's Medisave, subject to an annual cap of $800.

The downside is that the benefits payable for some H&S plans may be subject to specified limits such as room and board, so it is prudent to shop around and check out the full benefits.

Critical illness insurance

Also known as dread disease insurance, it provides you with a lump- sum payment to tide you over the initial period of being diagnosed or treated for an illness covered by the policy.

This could protect against a loss of income or go towards medical and other expenses.

Do note that only 30 specified illnesses are covered under this plan and benefits are payable only if the disease or surgery exactly meets the policy definition.

The payment is independent of whether you are hospitalised or your actual medical bill.

Early this month, British insurer Prudential introduced a critical illness 'PRUmultiple crisis cover' plan that enables policyholders to claim up to three times the sum assured.

It is also a stand-alone plan which means that it need not be bundled with a whole life, term or endowment plan.

The two features make the cover unique as most critical illness plans will allow just one claim payout once a dread illness is diagnosed.

Mr Gregory Fok, a financial planner at Canadian insurer Manulife, advises customers to understand the definition of each illness before buying the cover.

This is to avoid misunderstandings on what can or cannot be claimed in future.

In 2003, the insurance industry standardised the definitions of the 30 critical illnesses.

As a result, not all cancers are covered. They include pre-cancerous conditions like non-invasive breast cancer or cancers with low risk of metastases like skin cancer.

Disability income insurance

It pays a fixed regular replacement income if you are unable to work due to an illness or accident. This will allow you to continue to pay for your daily expenses and upkeep and that of your dependants.

It typically pays no more than 80 per cent of your average monthly pay.

The definition of disability under this cover is less stringent than that for total and permanent disability, as defined in most life plans. For instance, this policy pays when the insured is partially disabled.

The downside is that the cover is up to age 65 only.

Also, certain occupations are not insurable, such as armed forces personnel, divers and pilots, notes Ms Tang Yin Fong, wealth management firm Providend's risk management specialist.

Long-term care insurance

It pays a fixed sum each month for a specified period, if you are suffering from a debilitating illness that requires long-term care services.

An example of such a product is ElderShield. It provides a monthly sum should you be unable to perform at least three of six so-called 'activities of daily living', such as feeding, washing, dressing, using the toilet, mobility and transferring from a bed to a chair or vice versa.

Customers who are at least 40 years old are eligible to buy ElderShield cover.

Hospital income insurance

It pays a fixed daily amount, say $300, for each day of hospitalisation resulting from an accident or illness.

The coverage is independent of the actual expenses incurred for your hospital stay.

The payment is usually limited to a specified number of days per hospitalisation.

The downside is that the payout under this plan is small relative to the cost of treatment and the cover is limited, says Mr Fok.

Which medical plan should I own?

Financial experts like Ms Tang say that an H&S plan is a 'must' for anyone as it protects against rising health-care costs.

In Mr Fok's opinion, a private Shield plan is a must as it provides more comprehensive cover.

This is particularly so as they are typically 'as charged' plans that do away with the benefit limits.

This means the policyholder is almost covered for the hospital bill, subject to deductible and co-insurance.

The deductible is the portion of a claim that the policyholder has to bear before the insurer pays any benefits, while the co-insurance is a fixed percentage of the claim - what is left after the deductible is accounted for.

What if you have a limited budget? Mr Fok says that one could consider both the MediShield and ElderShield plans as they can be paid for from one's Medisave.

Both Ms Tang and Mr Fok agree that the next medical plan to consider is the critical illness cover, followed by the disability income plan.

Says Mr Fok: 'As a critical illness usually incurs high treatment costs, we should get ourselves covered as early as possible, within affordable premiums.'

He recalls that he recently helped a 29-year-old client make a claim under his critical illness policy after he was diagnosed with lymphoma, or cancer of the lymph nodes.

'In the event of illness, a lump- sum payout from the policy can help to tide over the difficult period and hopefully pay for the best medical care available when one needs it most,' he explains.

'In the case of the young client, his family has no history of cancer or other related illnesses.'

Most financial experts believe that if a comprehensive H&S plan is in place, a hospital income cover is a 'good to have' plan but not essential, mainly because the payout is relatively small.

Planning early for life coverage

Business Times - 16 Feb 2009

Planning early for life coverage

Just why is life insurance so crucial and why is it important to start a policy as early as possible? QUAH CHIN CHIN lays out the basics

BUYING a life insurance policy is a crucial step in financial planning. Such insurance is a long-term commitment that provides financial coverage to the policyholder or his beneficiary in the event of unforeseen circumstances such as critical illness, permanent disability or premature death.

It can also be used as a vehicle to achieve one's financial goals, including income protection, building a retirement fund or saving up for a child's education.

Life insurance policies fall into various classifications. A whole life policy is one in which the premium - money paid for the coverage - remains level for the entire duration of the policyholder's life.

It provides protection and increases cash value (also known as cash surrender value or surrender value), or the cash amount an insurance company will pay a policyholder when he cancels or surrenders his policy prematurely, or savings.

A term policy, meanwhile, provides protection only and is usually renewable annually, while an endowment policy involves an insured sum that is payable upon maturity of the policy (at the end of a fixed term of 20 years, for example) or on prior death of the policyholder.

There are also investment-linked policies, which, as the name suggests, are tied to investments. Policyholders with 'participating' policies are entitled to profits or losses of an insurance company through the distribution of bonuses, while those holding 'non-participating' policies will earn only the guaranteed cash value stated within his contract and not company dividends.

Needs and goals

Determining which policy to get depends on such factors as one's risk appetite, needs and financial goals, according to financial advisers BT spoke with.

For example, traditional whole life policies would appeal to a risk-averse person, while someone with a higher risk appetite could consider investment-linked policies, said Nick Czolak, Manulife (Singapore) senior vice-president and chief marketing officer. 'We'll show the prospective buyer the options available based on his profile, such as his attitude to risk, investment outlook, his considerations in terms of family, and circumstances,' he explained.

One's objectives also play a part, said Joan Lim, a financial planner at PromiseLand Independent, an advisory and insurance brokerage firm.

'We'll find out if they have any special objectives; for example, how much money they want to have in the bank if they wish to retire by 40, and make other suggestions for their consideration, such as disability income and extending their term plans,' she said. 'From there, we'll work backwards and come up with a financial roadmap for them.'

Insurance premiums depend on the amount of cover and type of plans. For instance, premium rates for non-participating policies are lower than those for participating policies.

Another important point new policyholders are often advised on is to consider carefully before terminating or surrendering their policy before the tenure is up, as doing so typically results in losses. Early cancellation may incur not only additional fees, but also causes the holder to lose his benefits.

'Your health status could have changed since you first took out the policy and you may not be able to get a similar level of protection in a new policy, as you'll be required to declare all pre-existing conditions and possibly undertake a medical examination,' according to advice from the Life Insurance Association (LIA) of Singapore's website.

For those unable to continue paying premiums on their current policy, the association suggests looking at other options available or reducing the sum insured, which would in turn lower the premiums.

Start young

Given that one is healthiest when young and that cash values build up over the years, it makes sense to start a policy from young.

'The whole idea of insurance is to start as young as possible,' said Patrick Lim, PromiseLand associate director, adding that this is the reason parents are encouraged to buy coverage for their newborns.

Added Ms Lim: 'When people start young, the premiums are at the lowest and they're at the peak of their health.'

Still, for those unsure of what to look out for when buying insurance for the first time, she suggests low premium, high-cover plans and hospitalisation plans to start off.

'Then as they progress in life, they would develop a clearer picture of what they want,' she said. 'This would be helpful for their financial planning; for example, more cover, returns or savings.'

And as their priorities shift or when they experience significant changes in their lives - such as getting a pay rise, tying the knot or receiving an inheritance - financial advisers would typically have periodic reviews with them.

These views were shared by Mr Czolak, who nevertheless sounded a note of caution: 'The younger you start, the cheaper it is and the more time you have, but of course, if you can't afford it, don't do it. Weigh your priorities.'

Indeed, being clear about one's goals and knowing what to expect are vital before jumping on the bandwagon. This is especially so in light of the current economic turmoil and the recent collapse of insurance giant American International Group, which had to be rescued with American tax dollars.

In the words of LIA: 'As the prospective customer, you still have to play an active role in determining your own financial needs; your financial adviser can help you make the right decisions but not make the decisions for you.'

Going for value stocks pays off in long run

The Sunday Times - Feb 15, 2009

Going for value stocks pays off in long run

Buying underpriced or undervalued stocks is what is termed as a value-oriented investment strategy, and some believe this beats other investment styles over the long term
By Gabriel Chen

It has been a trying time for investors, with stock markets around the world plunging on every indication of trouble.

Indeed, shares of many financially sound companies have been pounded to unreasonably low valuations.

For value investors, bearish times like these spell opportunity and represent a chance to pick up battered stocks at very cheap valuations.

The late Mr Benjamin Graham - widely regarded as the father of value investing - was the quintessential bargain-hunter who would scour the market for good deals.

'Price fluctuations have only one significant meaning for the true investor,' he wrote in his widely acclaimed book The Intelligent Investor, first published in 1949.

'They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.'

Value investors buy stocks that are cheap relative to some measure of intrinsic worth like a company's earnings.

On the other hand, growth investors look for fast earnings growth and will pay a premium for it.

The stocks they buy into come with high price-earnings or price-to-book ratios, as they believe these stocks indicate superior growth prospects.

When markets are trending up and momentum is good, investors tend to do very well with growth or momentum strategies.

'Growth investing works well in times with burgeoning industries riding an economic cycle,' said Mr Lionel Lee, director of equity investment firm IBS.

Technology stocks of the late 1990s are an example. They exhibited above-average earnings growth rates and often beat earnings estimates.

Numerous studies, however, have demonstrated that value stocks can outperform not just growth stocks, but also the overall market.

This is shown to be true in most years, and in most five-year and 10-year periods or longer.

Dr Mark Mobius, executive chairman of Templeton Asset Management, told The Sunday Times that value investing has the best long-term record.

'It is based on actual earnings records and projections. Earnings drive stock prices,' he said.

Research published by Societe Generale strategist James Montier last year found that a value strategy beats a growth-oriented strategy over a long period.

In Mr Montier's analysis, the cheapest 20 per cent of all stocks - regardless of industry or geographical location - delivered an average return of 18 per cent a year over the period from 1985 to 2007.

But the most expensive stocks over the same period generated an average return of less than 3 per cent a year.

Even in emerging markets such as Asia, value investing works.

In the same study, Mr Montier showed that the cheapest emerging market stocks outperformed the most expensive stocks by over 18 per cent a year and beat the broad market by around 11 per cent a year on average from 1985 to 2007.

The validity of the value approach has been borne out repeatedly.

US-based Brandes Institute showed that value outpaced growth over the 28-year period ending December 2006 for stocks of large and small companies in the United States.

The large-capitalisation Russell 1000 Value Index outperformed the Russell 1000 Growth Index in 57 per cent of the years.

The smaller-capitalisation Russell 2000 Value Index also outperformed the growth equivalent in 64 per cent of the years, the Brandes study revealed.

Given that value investing outperforms growth investing over long periods, should you be leaping into the market now to grab a cheaper blue-chip stock or two?

Mr Richard Jones, director and portfolio manager at DWS Investments, believes the time is right.

'Now may be an attractive buying opportunity as the world and Asia's greatest companies are on sale,' he said.

But before you start nibbling on some of these value stocks, it may be worthwhile to know the pitfalls of value investing.

First, beware of 'value traps', where some companies that are cheap stay cheap for a very long time.

'The reason they appear 'undervalued' is that their price fall is outpacing their fundamental deterioration,' said Ms Daphne Roth, head of equity research in Asia at ABN Amro Private Bank.

'As a result, these industries could stay trapped in this category until an external catalyst takes them out.'

Next, value investing is not for those seeking a quick gain.

'After the severe fall in asset prices last year, value has started to emerge and even Warren Buffett has come out to buy,' said Mr Paul Heng, director of investment analysis at Ferrell Asset Management.

'There may be the possibility of a further fall in prices, but if you buy into good and value assets, they will go back to their true value in the next five years.'

Dollar cost averaging or lump sum investing?

Dollar cost averaging or lump sum investing?

By Daniel Buenas - Jan 29, 2007
The Business Times

A CONCEPT, or practice, that is often touted by financial advisers and those in the financial community is that of dollar cost averaging.

This means investing a fixed sum of money at a regular interval, regardless of how the market is doing.

However, while it is a commonly-used technique, not everyone feels that dollar cost averaging is a good practice. Some critics even claim that it is more of a marketing ploy, rather than a risk-reducing strategy.

So should an investor consider dollar cost averaging, or is one-time lump sum investing better? Before we examine that question, we'll relook at an example we've mentioned before on this page to better understand the concept.

Some retail investors try to 'time' their investments. If they are lucky, they may gain more, but could also lose more if they buy when prices peaked. Imagine if you wanted to invest $1,000 in company ABC whose stock is currently selling at $10.

SCENARIO 1: No Dollar Cost Averaging

If we bought it as it is, we get 100 shares of ABC with our $1,000. Assume 10 months have passed, and we decided to sell our ABC shares which have fallen to $5 a share. At that price, our shares would be worth a total of $500. Or we make a $500 loss.

SCENARIO 2: Using Dollar Cost Averaging

Now we assume we start out with the same $1,000, but this time we spend $100 at the start of every month for 10 months to purchase ABC shares.

The share price remains steady at $10 for the first five months, which means we purchase 10 shares a month for five months, or 50 shares.

For the next five months, the share price drops to $5 a share, which means we now purchase 20 shares a month for five months, or 100 shares.

At the end of the 10 months, we have accumulated 150 shares currently worth $5 each. If we sold them all, we would get $750. Or the loss is $250, compared to a $500 loss in our earlier example.

This illustration is simplistic, but it does demonstrate the basic principle of dollar cost averaging.

But some market watchers believe that dollar cost averaging may not be as effective an investment technique as some purport.

For example MSN Money Insight contributor Timothy Middleton says in a column on the MSN Money website: 'Dollar-cost averaging is easy to sell to nervous investors because calamities do happen in financial markets, and they can seldom be foreseen.'

However, Mr Middleton says calamities are 'astonishingly rare'.

'When the market is studied over long periods, dollar-cost averaging almost always produces lower returns than investing lump sums in diversified portfolios, and almost never reduces risk meaningfully,' he says, adding that investors should 'invest on any schedule you wish, (as) they all work out in the end'.

Salman Haider, Citibank Singapore's head of investments, points out that regular investing tends to perform better than lump sum investing when markets are volatile but trending upward.

As an illustration, he cites the three ways investors could have invested in global equities over the last 10 years.

'As you can see from the chart over the past 10 years, lump investing actually outperformed dollar cost averaging because of the strength of the global equities market,' says Mr Haider. 'However, not everyone has the money to put in a large sum at the outset, or the discipline to sit tight on their investments for a long period. Hence, a dollar cost averaging approach may be more realistic.'

So which should an investor choose?

'The answer really depends on your view of the market, your time horizon and objectives,' Mr Haider says. 'But generally speaking, if you are someone who does not want to worry about volatile markets, who wants to avoid letting their emotions get in the way, or to simply put some money aside for the future, then regular investing may be the option, as it allows you to build your wealth in a consistent and disciplined manner.'

However, he also points out that there are some benefits to dollar cost averaging, as regular investing does require discipline, which may be difficult, especially when markets are volatile.

'This is one reason why we encourage customers to sign up for a regular investing plan,' he says. 'With an automated process, you will keep to your plans and are less tempted to discontinue especially when markets are down. Such plans are also affordable; in most cases, you can invest with as little as S$1,000 initially, and $100 thereafter.'

A good option, he adds, would actually be to do both lump sum investing and dollar cost averaging by starting with a small lump sum and topping up with a regular savings plan.

'That way, you benefit from the best of both worlds,' he says. 'Investors should understand that investing is not about 'timing the market' but about 'time in the market'. So invest regularly, with a long-term view and stay disciplined in that approach.'

Dollar Cosr Averaging

Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. If you participate in a regular savings plan, you are already using this tool. Many others could save themselves alot of time, effort and money by beginning such a plan. Dollar cost averaging can lower an investor's cost of investment and reduce his risk of investing at the top of a market cycle.

The beauty of dollar cost averaging is that you buy more shares when prices are low and fewer shares when prices are higher. The result is an average cost that is better than trying to time the market with your investments.

What is Dollar Cost Averaging

Instead of investing all his money at one go, the investor gradually builds up a position by purchasing smaller amounts over a period of time. This spreads the average cost over the period, therefore providing a buffer against market volatility.

In order to begin a dollar cost averaging plan, you must do three things:

1. Decide exactly how much money you can invest each month. To be effective, you should have sufficient funds to continue investing through the market cycle.
2. Select an investment (index funds are particularly appropriate) that you want to hold for the long term, preferably five to ten years or longer.
3. At regular intervals, weekly, monthly or quarterly, invest that money into the security chosen.

An example of a Dollar Cost Averaging Plan

Here's how it works. The principle is simple: Invest a fixed amount of money in the market at regular intervals, such as every month, regardless of whether the market is up or down.

Let's assume you have $12,000 and you want to invest in a stock. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock.

You opt for the latter and decide to invest $1,000 each month for one year. Assume further that the stock started at $10 per unit and reaches $16 per unit a year later.

Had you invested your $12,000 at the beginning, you would have purchased 1,200 shares at $10 each. When the stock closed for the year in December at $16, your holdings would only be worth $19,200!

Had you dollar cost averaged into the stock over the year, however, you would own 1,643 shares as shown in Table 1; at the closing price, this gives your holdings a market value of $26,228.

Why Dollar Cost Averaging Works

The system works because it takes the emotion and temptation to time the market out of the process. You establish an amount that is comfortable for you to invest and let the market work for you. The system takes the decision-making elements of how much to invest and when to invest out of your hands. Dollar cost averaging solves this problem by eliminating the need to predict an entry point.

Chart 1 shows what happens when you invest $1,000 per month for twelve months in an investment that fluctuates in price. The average market price per unit is $8.08. Look at Table 1, your average cost per unit = $12,000/1,643 which is approximately $7.30. Thus, the example shows that you don't have to guess when to purchase shares to get a better price.

Will dollar cost averaging guarantee you a profit? No system can do that. However, if you buy quality investments and continue dollar cost averaging over a long period, you will have a much better chance of success than trying to get in and out of the market at the right times.

Buy Low, Sell High

For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, in other words, how to find the bottom of a price swing. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. If you miss this point and the stock begins to move up, you have lost some of the potential gain by not buying at the right point. Very few people buy at the bottom. Those who do, typically happen to have been averaging all the way down.

Market timing is a dangerous game, especially when practiced by beginners, who typically tend to over expose themselves to the market. Market timing is an attempt to predict future price movements through use of various fundamental and technical analysis tools. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is better than if you had bought the stock on its way up.

Market timers are the ultimate "buy low and sell high" traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock's price.Most market timers operate on a longer time-line, but may move in and out of a stock quickly if they perceive an opportunity.

There is some controversy about market timing. Many investors believe that over time you cannot successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.

Market Timers and the Next Big Thing

Some investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. Usually, the market proves them wrong. Stock prices do not always move for the most logical or easily predictable of reasons.

An unexpected event can send a stock's price up or down and you cannot predict those movements with charts. The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, overpay for their investments. Those who bought then are not likely to have made much money.

Everyone has a hot tip about the next "big thing" and investors are always jumping on stocks as they shoot up. Unfortunately, most of these collapse just as quickly as many investors typically hold on way too long. The disastrous result is usually the exact opposite of what they were hoping for. In the end, it is usually a case of "buying high and selling low". For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.

In conclusion, dollar cost averaging takes the emotion out of decision-making and is a useful tool for the individual investor who wants to buy and hold a stock for the long term. Over time, it will usually result in a better entry price than timing when to buy.

If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get.

Contributed by Peter Heng, Chief Investment Officer, Manulife Singapore

Investors must keep at least $30,000 in Special Account

The Straits Times - Feb 14, 2009
budget debate: CHANGES IN CPF

Investors must keep at least $30,000 in Special Account

PEOPLE with less than $30,000 in their Special Accounts (SA) will not be able to use these funds to invest under the Central Provident Fund Investment Scheme (CPFIS) from May 1.

Acting Manpower Minister Gan Kim Yong said this was being done because the SA receives an additional interest on its funds, and also because of the uncertainty around CPFIS returns.

'Given the higher interest rate on the SA and the uncertainty of CPFIS scheme, it is better to be more conservative,' he said yesterday.

The change will not affect existing investments.

Currently, all CPF members earn a flat floor rate of 4 per cent on their Special, Medisave and Retirement Accounts (SMRA).

But by the end of this year, interest rates of the SMRA accounts will be floated and pegged to the average yield of 10-year Singapore Government Securities rates.

They will earn the floating rate plus 1 percentage point.

CPF members earn higher interest on their first $60,000 of savings - 5 per cent on their Special, Medisave and Retirement accounts, and 3.5 per cent on up to $20,000 of their Ordinary Account.

Previously, CPF members had to keep a minimum of $20,000 each in their Ordinary and Special accounts before they could start to invest.

But with this change, they will need to keep a minimum of $30,000 in their Special Account and $20,000 in their Ordinary Account.

The excess funds can be invested in CPF-approved bonds, equity-linked funds, unit trusts and investment- linked insurance products.

Latest data from the CPF Board showed that investments in such products have not been paying off.

In December last year, the CPF Board said nearly half of all CPFIS investors who sold their Ordinary Account investments last year lost money, up from 43 per cent in 2007.

Only about 174,000 members, or 20 per cent made profits from their CPF savings over and above the 2.5 per cent they could have earned anyway.

These figures reflected the financial meltdown that began in September last year, the CPF board said at the time.

It said that CPF members had withdrawn $7.8 billion from their Special Accounts for investments.

Nearly 80 per cent of that figure, or $6.19 billion, went into insurance policies. About $1.61 billion went into unit trusts.

AARON LOW

A beacon of stability

Business Times - 14 Feb 2009
A beacon of stability

With prices hitting new records, gold promises to become even more appealing as billions in US government stimulus set the stage for rising inflation and a weaker dollar

THE gold-mining sector is rapidly emerging as a beacon of stability in an uncertain stock market, and a flood of recent equity issues by miners has topped up their balance sheets and laid the groundwork for a new round of takeovers.

With gold well above US$900 an ounce, investors have shown strong appetite for a sector that promises to become even more appealing as billions in government stimulus set the stage for rising inflation and a weaker US dollar - conditions that typically trip a buy signal for the precious metal.

Canadian miners Kinross Gold, Agnico-Eagle Mines, and Yamana Gold have collectively raised about C$1 billion (S$1.2 billion) in the past two months, stocking up their war chests at a time when many companies are struggling for cash.

'This is a reflection of gold being pretty well the only game in town in light of the woeful economy,' said John Ing, president of investment dealer Maison Placements.

But it's not just the top producers that are finding the funding taps still open. Developer Osisko Mining , which is moving part of a town in western Quebec, Canada, to build the Malartic gold mine, announced a bought deal last week that could be worth up to C$400 million, defying the recent thinking that junior explorers are running on a treadmill to insolvency.

The trade-off for Osisko is that it had to sell the shares at a deep 17 per cent discount to its market price to drum up demand. But the money raised will fund its mine nearly to completion, at which point it will have steady cash flows to rely on.

Other smaller players bulking up include Minefinders Corp, which completed a C$40 million bought deal in December, and Africa-focused Red Back Mining, which announced a C$150 million bought deal in late January that the company plans to use to fund an aggressive M&A push.

The thirst for shares comes as most equity sectors are still struggling to rebound from last year's market plunge, while worries of corporate defaults and narrow government bond yields have kept investors wary of debt instruments.

'What we've been seeing since the beginning of January is there's a sea change that's taking place,' said Frank Holmes, chief executive of fund manager US Global Investors. 'All these pension fund groups are recommending gold. I think what's really significant here is a lot of these buyers are (typically) non-gold fund buyers.' The buying has propelled shares of many established gold producers up to levels not far off the record peaks hit last year when gold topped out above US$1,030 an ounce.

The Toronto Stock Exchange's S&P/TSX global gold index, which tracks gold producers listed on several exchanges, has more than doubled from its trough in October last year, compared with a flat performance or slight gains since then by major stock indexes.

However, valuations for smaller players have remained compressed, a scenario that yields a big opportunity for cash-rich large miners to add assets on the cheap.

'It is a time of unprecedented opportunity,' Kinross CEO Tye Burt said of the wide valuation gap between large and small miners. 'So we thought it prudent to top up.' With gold at these levels, analysts expect several more gold miners to come to the equity trough to load up on cash, and a small bump higher in gold prices could be enough to trigger deals.

'It happens when gold goes over 1,000 bucks (an ounce),' said Mr Holmes. 'As gold goes through US$1,000, you'll get a revaluation of that whole space.'

Gold has 'very strong support' at about US$600 an ounce as any drop below that level would result in the closure of 20 per cent of the world's production capacity, OAO Polyus Gold chief executive officer Evgeny Ivanov said.

A 60 per cent increase in mining costs in the last two years, because of rising oil, steel and machinery prices, pushed the cash cost of producing gold in Australia to US$635 an ounce, Mr Ivanov told an Adam Smith conference in Moscow on Thursday.

'Below US$600 an ounce, mining in South Africa and Australia becomes unprofitable,' Mr Ivanov said. The nations are the world's second and fourth-largest producers of the precious metal, according to the US Geological Survey.

Polyus, Russia's biggest gold producer, has planned its budget for this year based on an average price of US$800 an ounce. OAO Polymetal's figure is US$750, CEO Vitaly Nesis said at the same forum.

Gold has averaged US$790 an ounce in London in the last two years, falling as low as US$606 in January 2007. It last traded below US$600 in October 2006. -- Reuters, Bloomberg

NTUC Income bucks trend with 14% growth

The Straits Times - Feb 14, 2009

NTUC Income bucks trend with 14% growth

By Lorna Tan

INSURER NTUC Income has bucked the current slowdown by notching up strong 14 per cent growth in its life insurance premiums (excluding annuities) to $255.8 million last year.

This was a far stronger performance than overall industry growth in the same period of a mere 3 per cent.

Income posted strong figures during the second half even as the turmoil from the global financial crisis rocked markets and left many insurers struggling.

The firm said it had emerged as a market leader during the six-month period as its life insurance sales jumped 30 per cent to $149.2 million, compared to an overall industry contraction of 18 per cent.

That was in contrast to a 2 per cent contraction in its life premiums in the first half of last year.

During the same period, the insurer also emerged as the market leader in the annuities segment, accounting for more than half of the overall sales.

Income's strong second-half performance was strongly supported by solid growth in the final three months of last year - just as the financial crisis was reaching a grim crescendo.

In fact, Income said it was the only insurer here during that turbulent period which posted a positive sales growth - of 8 per cent, compared with the same period a year earlier. This was in stark contrast to the 42 per cent contraction registered by the industry.

The figures are based on a weighted premium measure which takes into account just 10 per cent of a single premium and all of a year's premiums for regular premium plans.

Income chief executive Tan Suee Chieh attributed last year's strong performance to its multi-channel distribution strategy, ongoing focus on its people and its reputation as a trusted Singapore company.

'We engaged independent financial advisers and re-established our ties with corporate agents selling motor insurance. This, and probably some luck, is an important reason for our sales success.'

Besides its 600 full-time and 900 part-time agents, Income's products are available through its branches, brokers, corporate agents and the Internet.

When Mr Tan took over the helm in February 2007, he had a vision of making the firm Singapore's top insurer by this year. He also wanted to reclaim its No. 1 position in the motor insurance business here, a spot it last held in 2004.

Last year, Income's motor insurance business grew 37 per cent to $237 million, compared to an industry projected growth rate of 19 per cent. This worked out to a market share of 26.5 per cent.

Looking ahead, he said: 'I'm happy if we remain in positive territory this year because of the tougher environment.'

In view of the gloomy economic climate, Income said it would cut costs to save jobs in the short term, instead of vice versa. It also expects to invest in the areas of customer service, sales and information technology.

Rules on CPF top-ups for family members eased

The Straits Times - Feb 14, 2009
budget debate: CHANGES IN CPF
Rules on CPF top-ups for family members eased

MORE CPF members will be able to top up the accounts of their family members following changes announced yesterday.

From April, they need only to have CPF balances of at least the prevailing Minimum Sum before being allowed to do top-ups.

At present, they need to have 1.5 times the Minimum Sum in their account before they can top up someone else's account.

Age restrictions will also be removed from August.

Currently, top-ups to parents and grandparents can be made only to those aged 55 or above.

The changes announced in Parliament are aimed at encouraging individuals to help older family members build up their retirement savings, Acting Manpower Minister Gan Kim Yong (below) said.

The rules for the top-up have been progressively eased in recent years, such as the change last year making it easier for CPF members to receive top-ups to their Retirement or Special accounts.

Such top-ups, said Mr Gan, can help older CPF members participate in CPF Life - the annuity scheme which provides a steady stream of income for life.

Those who turn 55 in 2013 will automatically go on the scheme, if they have a minimum of $40,000 in their CPF accounts.

The top-ups, Mr Gan added, will also help CPF members enjoy the 1 per cent extra interest on the first $60,000 of CPF savings.

'Naturally, if CPF members continue to work after 55, this would be the best way for them to continue building up their balances to participate in CPF Life,' he said.

SUE-ANN CHIA

Higher Medisave limits will lower out-of-pocket expenses

The Straits Times - Feb 14, 2009
Higher Medisave limits will lower out-of-pocket expenses
By Judith Tan

WHEN Emilia Dayana Abdul Hamid needed an operation on her knee in December last year, she opted for the semi-private B1 class at Alexandra Hospital (AH) for her hospital stay.

'I thought I was covered by the company's managed health-care scheme (MHS),' said the 25-year-old customer service executive.

She was not. Instead, she had to pay the bill herself.

Her Medisave account took care of $1,932.59 of the total bill of $3,121.81. The remaining $1,189.22, or 38 per cent, had to come out of her own pocket.

Someone in Ms Emilia's shoes this June is likely to be more fortunate. That's when new, higher limits kick in as to how much can be taken from one's health savings account, Medisave, to pay for hospital bills.

Ms Emilia would have paid just $222 out of her own pocket - only 7 per cent of her total bill. She would have saved more than $960.

Saving such out-of-pocket spending was one of the goals of the Health Ministry's (MOH) budget this year, which is swelling by nearly $1billion to $3.7billion as it anticipates patients needing more help with medical bills.

By June, Medisave withdrawal limits of $150 to $5,000 for operations will be raised to $250 to $7,550, reducing 'out-of-pocket expenses of all surgical patients, particularly those in Classes A and B1 and private hospitals', Health Minister Khaw Boon Wan told Parliament on Monday.

He was replying to Madam Halimah Yacob (Jurong GRC), who had asked for the use of Medisave to be expanded, to help cash-strapped Singaporeans.

This is the second time in two years that Medisave limits have been raised.

In 2007, the withdrawal limits for daily hospitalisation charges were raised to $450.

Both measures are aimed at helping middle-income Singaporeans who opt for private A and B1 wards in public hospitals, or the services of private hospitals.

The changes in June are unlikely to affect subsidised patients in B2 and C class wards, since the current limits are enough to cover their share of the bill.

The most common surgery performed in Singapore is colonoscopy with the removal of polyps or growths. The procedure costs between $900 and $2,000.

This is followed closely by coronary angioplasty, a procedure to enlarge the narrowing blood vessels that supply blood to the heart. It costs about $16,000 to $20,000.

Easier now to pick a CPF annuity plan

The Straits Times - Feb 14, 2009
Easier now to pick a CPF annuity plan
Schemes streamlined to four, three of which have refundable feature
By Sue-Ann Chia

THE Government has produced a more streamlined package of annuities to give Singaporeans a steady stream of retirement income for life.

The package of four plans, to be run by the Central Provident Fund (CPF) Board, is a revision of an earlier scheme that many found confusing.

Called CPF Life, it will apply automatically to those turning 55 from 2013, with at least $40,000 in their CPF savings. It will give them a desired monthly income from age 65 for the rest of their lives.

The first to come under the scheme are about 35,000 people turning 51 this year.

Announcing the new scheme in Parliament yesterday, Acting Manpower Minister Gan Kim Yong noted that the package introduced last February could confuse.

That had 12 plans, with different amounts of payouts, at different ages.

'(That) gave members a choice, but at the same time, made it more difficult for members to decide on an appropriate plan,' he said.

Now there are 'just four plans that are meaningful, simple and clear'.

To keep it simple, the premiums too will be based only on a person's age and gender, a standard practice in many existing annuity schemes.

No account will be taken of other factors, like whether a person is obese, smokes or what his income level is, he said in his reply to MPs like Madam Halimah Yacob (Jurong GRC), who wanted a simpler scheme.

Madam Halimah made the call during the debate on his ministry's budget, the last in the nine-day debate on the $43.6 billion national Budget. The Parliament sitting ended yesterday.

Mr Gan highlighted that three of the four plans have a refundable feature. This returns to beneficiaries the remaining CPF savings and any Life premium that had not been paid out when the member dies. Only half the earlier 12 plans provided for refunds.

The new scheme is a key piece in a comprehensive plan to ensure that in Singapore's ageing society, people who are living longer will have enough for their retirement years.

CPF Life assures them of a monthly income to cover basic needs.

But the payouts are not fixed for life, Mr Gan told Mr Teo Ser Luck (Pasir Ris-Punggol GRC), who asked how a protracted downturn would impact on payouts.

Mr Gan said it would depend on the prevailing interest rates. A lower interest rate would lead to lower payouts, and vice versa, he said.

But in a move to reassure Singaporeans, he pointed to the interest rates paid out on CPF balances.

'The CPF interest paid by the Government will not fall below the guaranteed floor rate of 3.5 per cent on the first $60,000 of CPF balances and 2.5 per cent for amounts above that,' he said.

The new scheme is also open to older CPF members, who have to opt in. From September, the CPF Board will start asking those aged 55 and older to do so and they will receive the CPF Life payouts as early as next January.

Another group who can opt in are CPF members with balances below $40,000.

While helpful, CPF Life is not intended to solve all financial difficulties for older folk, cautioned Mr Gan, urging Singaporeans to build up their retirement savings by working longer.

So there will be no delaying the re-employment law to be introduced by 2012, he told Mr Heng Chee How (Jalan Besar GRC), who asked if the current downturn might derail plans.

The law requires employers to rehire workers beyond the retirement age of 62.

The employment rate of those aged 55 to 64 has risen in the past five years, from 45.2 per cent in 2003 to 57.2 per cent last year.

MEDISAVE USE FOR MENTALLY ILL

The Straits Times - Feb 13, 2009
MEDISAVE USE FOR MENTALLY ILL
Welcome move for sufferers
It de-stigmatises illness, encourages patients to seek treatment, say psychiatrists & lobbyists
By Judith Tan

PSYCHIATRISTS and lobbyists have welcomed the decision to relax restrictions on Medisave use, as it will allow up to 20,000 people currently suffering from schizophrenia and clinical depression to dip into their compulsory medical savings to pay for treatment.

They make up the bulk of the 30,000 mentally ill patients living in the community and treated as outpatients by the Institute of Mental Health (IMH).

Most of them are on lifelong medication that can cost between $290 a year for subsidised patients and up to $1,000 a month for specialised treatment.

On Monday, Health Minister Khaw Boon Wan addressed questions from Members of Parliament, asking for the chronic disease management programme (CDMP) to be extended to cover mental ailments.

'Just like the other chronically ill, the mentally ill patients need continuous and often long-term outpatient treatment, where cumulative costs are high,' said Mr Khaw.

The CDMP allows patients with chronic illnesses to withdraw up to $300 a year from each Medisave account to use towards their clinic bills.

This withdrawal limit with deductibles and co-payment will also apply for treatment of schizophrenia and depression.

CDMP was first introduced for diabetes and later expanded to include hypertension, lipid disorders and stroke, and most recently asthma and chronic obstructive pulmonary disease.

A spokesman for the Ministry of Health (MOH) said that discussions are under way with general practitioners and psychiatrists on how best to implement the new initiative, which will be ready before October.

In the last three years, new schizophrenia cases formed between 2 per cent and 4 per cent of all new outpatient cases seen, and newly diagnosed depression cases formed between 8 per cent and 10 per cent.

Ms Porsche Poh, executive director for Silver Ribbon Singapore, an organisation that promotes a positive attitude towards mental health among the community, said: 'This will also encourage patients to start seeking help or continue their treatment as many delay or stop treatment due to financial difficulties.'

Many people believe that all who have mental illnesses are dangerous and should be locked away. Doctors say this stigma still clings tenaciously to patients, preventing them from studying, working and socialising in the community.

A 31-year-old schizophrenia patient, who did not want to be named for fear of losing her job, described her bills from four years ago as 'dead high' when she did not have stable employment and was earning just $800 a month.

She used to spend about $200 on consultations with a psychiatrist and medication that lasted her for six months.

'It is going to be helpful for people who have a low income. For those who earn less than $1,500, this Medisave scheme will help them a lot,' said the woman, who now works in the engineering industry and makes $2,000 a month.

But Dr Adrian Wang, a consultant psychiatrist in a private practice, said the challenge is 'knowing where to draw the line'.

'We don't want everybody to say 'Hey, I'm depressed'. A set of guidelines is needed to ascertain what is appropriate and what is necessary,' he said.

Mr Khaw's earlier reason for not adding mental illness to the list of chronic diseases covered by CDMP was a lack of consensus among psychiatrists on the proper treatment.

Private consultant psychiatrist Calvin Fones said there is a lack of objective measures at the moment, 'such as tracking the progress of psychiatric patients during treatment'.

Speaking to The Straits Times, Dr Brian Yeo, another consultant psychiatrist in private practice, said: 'I can see their concerns. But in general, I don't think the system will be open to abuse. These are diagnoses that carry a strong stigma.'

Dr Fones felt that the extension of Medisave 'de-stigmatises and helps people put mental illness in the same category as other chronic diseases'.

'Like those with hypertension and diabetes, these are people who need long-term treatment to get them well and, perhaps more importantly, to keep them well,' he said.

When the MOH announced in March 2006 that the list of chronic diseases for which Medisave could be used to pay for outpatient treatment - in a departure from the policy that had so far reserved the savings mainly for in-patient treatment - mental illness was left out.

Dr Wang said only about half the people with schizophrenia and on lifelong medication 'would be able to return to some form of normal daily function, but not enough to return to a proper job'.

One such patient is Madam Doris Lau Siew Lang, 56, who has been treated for schizophrenia since she was 17.

Her husband, Mr Raymond Anthony Fernando, 59, said she still suffers a relapse every five years, 'triggered by things such as a loud noise, even while she is on medication'.

'When I'm no longer around, I don't know what she is going to do. She can't even go downstairs to withdraw money. And when she gets a relapse, she doesn't know what she is doing,' he said.

Dr Chua Hong Choon, the vice-chairman of the IMH Medical Board, said that while scientific research suggests that individuals with three or more recurrent episodes of depression should receive lifelong treatment to reduce the risk of relapse, two-thirds to three-quarters of all schizophrenic patients will require treatment for life.

More Medisave for private hospital bills

The Straits Times - Feb 10, 2009

More Medisave for private hospital bills

Funds can be tapped for outpatient treatment of some mental ailments too
By Salma Khalik

BY JUNE, middle-income Singaporeans can tap their Medisave accounts to pay a larger part of their private hospital bills.

The amount they can withdraw for operations will go up, in some cases, by as much as 80 per cent

The move is to help them meet the high cost of surgery.

Currently, the limits for the full range of operations stretch from $150 to $5,000. The new range is $250 to $7,550.

This change will not affect subsidised patients in B2 and C class wards, since the current limits more than cover their share of the bill.

For lower-income Singaporeans, the change is in the scope of Medisave use for chronic problems. It will be extended to include some mental ailments.

The chronic problems that Medisave can now pay for include diabetes and asthma. However, the cap is set at $300 a year per Medisave account. But patients from large families can tap on more than one account to pay for their treatment.

Health Minister Khaw Boon Wan announced these changes in Parliament yesterday when he replied to Madam Halimah Yacob (Jurong GRC).

Madam Halimah had asked for the use of Medisave to be expanded as Singaporeans prefer it to be more flexible.

'A common complaint from Singaporeans is: 'I have money in my Medisave yet I have to pay cash for my medical bills which I do not have', and this causes them stress and anguish,' she said.

The latest move follows a change made in 2007, which raised daily withdrawal limits to $450.

Both measures are aimed at helping middle-income Singaporeans who prefer private wards in public hospitals, or the services of private hospitals.

Mr Khaw said the 2007 increase had helped many people, especially those who did not require surgery.

So this year, the focus is to help those who need surgery.

The higher limits for surgery will let patients with hefty Medisave accounts cut their out-of-pocket expenses should they opt for private health care.

Mr Khaw gave the example of a person going for knee replacement. The current cap of $3,200 will be raised to $5,150 - reducing the amount the patient has to fork out by $1,950.

Dr Lam Pin Min (Ang Mo Kio GRC) wanted the $300 annual amount on outpatient treatment extended to all illnesses.

Mr Khaw said 'no' as he feared 'the money will be depleted, a few doctors will get fat, and the medical condition will not get better'.

Dr Fatimah Lateef (Marine Parade GRC) asked that Medisave be allowed for the payment of outpatient treatment of mental illnesses.

She suggested that it initially be confined to a few types of mental conditions, such as schizophrenia and manic depression. After fine-tuning the use of Medisave for such treatments, it can be extended later to more mental ailments.

This is not the first time the suggestion has been made in Parliament. Said Mr Khaw: 'Madam Halimah, Dr Fatimah and several other Members have asked for this extension for quite some time.

'Proper management of psychiatric conditions in the outpatient setting would also reduce the number of cases turning into costly hospitalisations.'

But before agreeing to extend the use of Medisave, he reminded the House that its original purpose was to pay for costly hospital care, and it should not be depleted for outpatient use.

He also repeated his previous objections to including mental ailments: the lack of consensus among psychiatrists on the proper treatment.

However, Mr Khaw agreed to its use for depression and schizophrenia, which affect the bulk of the mentally ill.

The treatment must also be within a framework to be set out. This will be ready before October and will cover treatment by both psychiatrists and general practitioners.

Mrs Josephine Teo (Bishan-Toa Payoh GRC) asked that Medisave be allowed for overseas medical treatment. This idea was mooted at a meeting the minister had with unionists in April last year.

While agreeing with the point in principle, Mr Khaw's concern was ensuring 'safety and adequate standards, while guarding against fraudulent claims'.

He added that the ministry is mulling over the implications of such a move.

Finding real value in beaten-down markets

The Sunday Times - Feb 8, 2009
Finding real value in beaten-down markets

By Lorna Tan

With stocks hitting new lows, the share market is like another Singapore sale but minus the crowds, given that only a few brave souls are putting their cash down.

While investors may have misgivings about the uncertain and volatile markets, the assets are just too cheap to ignore.

Valuations of many stocks are at attractive levels, so it is no wonder that financial experts are pointing to 'value' as a key theme for this year.

Indeed, it is during bearish times like these that investors who believe in the value proposition come out hunting for bargains.

What value investing is

Essentially, value investing means buying at good value and holding for the long term to reap capital appreciation and dividend yields. It is the investing style that made Mr Warren Buffett and his mentor, value-investing pioneer Benjamin Graham, kings of the share markets.

It contrasts with the strategy known as growth investing. This involves investing in companies deemed to have good growth potential, even if the share price appears expensive.

A growth stock is typically defined as a company whose earnings are expected to grow at an above-average rate compared with that of its industry peers or the overall market.

In value investing, buying something for less than its worth is a fundamental principle.

This was an important concept used by Mr Graham, who believed that investors should buy only firms that are selling lower than the value of their net current assets. That is, their value after deducting their liabilities.

Doing this ensures that even if one is wrong, there is a margin of safety. Your downside is protected to a certain extent if the stock price falls further.

For example, if your perceived value of stock A is $3, you may want to buy in only at around $2.70. This gives a margin of safety of 10 per cent to protect you from any fall.

Many investors have trouble deciding if a stock is cheap or expensive. There are several factors to consider to accurately determine a share's worth.

Ho

w to pick value stocks

First, never look at the stock price in isolation. To see how it is faring, it must be compared with other stocks in the same industry. You also need to know how the industry and overall market are performing.

For instance, if you are considering buying a property stock, do not sink your money in just because it seems cheap on the surface.

Compare it with other property stocks in the same region, say, the Asia-Pacific, or in the same business segment, such as residential mass-market developers.

If you are value investing, do not rely just on prices to determine how cheap or expensive a firm is. In the long term, price and intrinsic value are likely to be similar but this is not so in the short term, when prices usually reflect investor emotion.

So low prices do not necessarily mean low values. Instead, use an appropriate valuation measure to help determine the value.

A common measure for comparative purposes is the firm's earnings. In this case, buy stocks selling at a low multiple of their earnings - what the company has left after expenses are paid. It follows that a firm selling at a low earnings multiple is usually a better value pick than one with a high earnings multiple.

You should also compare the price-earnings multiple to that of its competitors in the same industry and also the broader indexes to determine if the company is a value buy.

Another common measure is a firm's price-to-book ratio, which is derived by dividing its share price by the book value of the firm. The book value provides an estimate of how much the firm would be worth if it had to be liquidated.

Investors should also check if a firm passes the following criteria: Does it have sound businesses with good earnings and revenue growth? Is it run by competent managers?

Be wary of 'value traps'

Some stocks and markets could turn out to be 'value traps'. This means that despite being attractively valued, they could still prove disappointing and remain cheap for a prolonged period.

This could happen when a particular market is suffering from political uncertainty, for example, or the company is facing depressed earnings without any prospects of a near-term turnaround.

This is the first of a three-part series on value investing brought to you by DWS Investments.

Savings for a rain day

Article from Sunday Times (1 Feb 2009)

Singaporeans are financially ill-prepared if they lose their jobs, and they can do a lot more to improve their financial health, according to two recent surveys.

The Citi Fin-Q (Financial IQ) survey conducted by Citibank Singapore polled 400 respondents online in mid-October, just a few weeks after the financial crisis took a drastic turn.

About 20 per cent of respondents said their savings would last only four weeks or less in the event of a job loss. But the average Singaporean has three months of reserve savings to live on.

Mr Salman Haider, Citibank's managing director and head of wealth management, said: 'The findings clearly show that Singapore residents need to improve their financial health, especially in areas such as saving for emergencies or in the event of an unforeseen job loss.'

It has not helped that the higher cost of living has made saving more difficult for Singaporeans. As a result, many have no choice but to curtail their expenditure.

About 60 per cent have cut back on dining out, while more than 40 per cent have postponed holiday plans or put off buying big-ticket items.

In another online survey, conducted last month by French insurer AXA, 70 per cent of the 100 respondents recognised that Central Provident Fund savings are insufficient for their golden years.

The survey's objective was to find out the retirement and savings aspirations of Singaporeans.

About half anticipated needing a monthly sum of $1,501 to $3,000 for living expenses in retirement, while a third projected that they would need between $3,001 and $4,500.

More than half, or 57 per cent, of those surveyed said they wanted to set aside savings of more than $500,000 by age 65.

On a scale of one to 10, with 10 being the most confident, respondents rated their confidence level in achieving their targeted savings goal at 5.6 on average, under the current economic climate.