2005 dec05 no194 p1 theedgespore

Our readers spend a long time on the throneThe EDGE Singapore reader spends an average of one hour and 14 minutes reading the business weekly, longer than The Straits Times, Business Time, AWSJ, The Economist, and Business Week. For more information of our readership profi le, call Edward, Tel. 65-9699 8339. Or E-mail: [email protected].

2 • THEEDGE SINGAPORE | DECEMBER 5, 2005

PRINTERKHL Printing Co Pte Ltd57, Loyang Drive, Singapore 508968PHONE | (65) 6543 2222 FAX | (65) 6545 3333

PERMISS ION AND REPRINTSMaterial in The Edge Singapore may not be reproduced in anyform without the written permission of the publisher.

CHANGE OF ADDRESSPlease inform us of any change in your office or home addressvia fax: (65) 6232 8630 or e-mail: [email protected]

CUSTOMER SUPPORT PHONE | (65) 6232 8617(65) 6232 8627CUSTOMER SUPPORT E-MAIL |[email protected]

EDITORIALEDITOR/REGIONAL MANAGING DIRECTOR | Tan Boon Kean([email protected])EDITOR AT LARGE | Ho Kay Tat ([email protected])CONSULTING EDITOR | Assif Shameen ([email protected])ASSOCIATE EDITOR | Ben Paul ([email protected])SECTION EDITORS | capital markets + companies |

Sunita Sue Leng ([email protected])city + country | Cecilia Chow([email protected])options | Audrey Simon([email protected])

SENIOR WRITERS | Kelvin Tan ([email protected])Goola Warden ([email protected])Francis Tan ([email protected])STAFF WRITERS | Denise Wee ([email protected])Rosana Gulzar ([email protected])Audrina Gan ([email protected])Chan Chao Peh ([email protected])

SENIOR PHOTOJOURNALIST | Chu Juck Seng ([email protected])PHOTOJOURNALIST | Shirley Ye Yingyu ([email protected])

COLUMNISTS | Manu Bhaskaran, Colin Goh

COPY-EDITING DESK | Dorothy Teoh; Elaine Lim; Koay Sook Kuan;Evelyn Tung; Wong Ee Laine

DESIGN DESK | Sharon Khoh; Calvin Yuen; Christine Ong;Nik Edra Ridthwan Anuar; Chan Yoke Lin

PRE-PRESS DESK | Thomas Chin; Hong Kin Siang; Yong Onn;Zamri Razali; Kuah Choon Eng; To Yen Suang

ADVERTIS ING+MARKETINGREGIONAL GENERAL MANAGER | Edward Stanislaus ([email protected])MANAGERS | T Shanmugaratnam ([email protected]);Colin Tan ([email protected]);Simon Wong ([email protected])Wendi Yang ([email protected])COORDINATOR | Sumi Ateck ([email protected])

C IRCULATION+SUBSCRIPT IONSREGIONAL SENIOR MANAGER | Suresh Kumar ([email protected])ASSISTANT MANAGER | Rosniati Selamat ([email protected])EXECUTIVE | Naziela Nasir ([email protected])ASSISTANT | June Cheong ([email protected])

F INANCE+HUMAN RESOURCE+ADMINISTRATIONASSISTANT MANAGER | Tracy Wang

150, Cecil Street #13-00Singapore 069543

PHONE | (65) 6232 8622FAX | (65) 6232 8620E-MAIL | [email protected] | http://www.theedgesingapore.com

TH E WE EK O F D E C E M B E R 5, 20 05

P U B L I S H E R

The Edge Publishing Pte Ltd

BUSINESS & INVESTMENT • EVERY WEEK

194

T H E E D G E C O M M I T M E N TA high standard of editorial quality and excellence shouldundergird success in an industry that is built around serving thepublic interest. We believe the interest of the investing publicwill be served by fair, accurate and timely information.

— Statement of Editorial QualityThe Board of Directors, The Edge Publishing Pte Ltd

You will be pleased withthe company we keep

is on board:

THE WEEK IN PICTURESOCBC

OCBC chairman Dr Cheong ChoongKong with some of the 60 childrenat the bank’s Christmas party forthe Singapore Children’s Society atOCBC Centre last Thursday. A yearago, OCBC Bank adopted theSingapore Children’s Society as itsofficial charity and, for the next fiveyears, the bank will donate a totalof $2.5 million to the society.

Demonstrating the partnership between Singapore, Japan and Showa Denko: (From left) Kengo Yokota, managingdirector, Showa Denko HD Singapore Pte Ltd; Koji Shimizugawa, senior managing director, Takenaka Corp; Teo MingKian, chairman, Economic Development Board; Mitsuo Ohashi, representative director and chairman of the board ofdirectors, Showa Denko K K; Chong Lit Cheong, CEO, JTC Corp; and Shinji Sakai, director, Showa Denko K K.

Jorma Ollila, chairman and CEO of Nokia Oyj, waiting for thestart of Nokia Capital Market Days last Thursday, in New York.Nokia Oyj, the world’s largest maker of mobile phones, forecastindustry handset sales to rise more than 10% next year, helpedby high-end phones and more subscribers.

A Proton showroom in KualaLumpur, Malaysia. Proton HoldingsBhd shares fell as much as 2.6%after a newspaper report saidMalaysia’s biggest carmaker maypost RM700 million ($1 approxRM2.24) in pre-tax loss for thequarter ended September.

The Boeing 777-300ER flies over Washington State in thisundated photograph. Cathay Pacific, Hong Kong’s largest airline,will buy 12 Boeing 777-300ERs with options for 20 more, whileleasing four of the same model. Three Airbus A330-300s will beleased from International Lease Finance Corp.

PICTURES: BLOOMBERG SHOWA DENKO

Genting International’s executivechairman Lim Kok Thay (right) andchief financial officer Tan Hee Teckat the press briefing for the launchof the company’s IPO in Singapore.It is offering one billion newshares at 35 cents each, includingan over-allotment option of 103.4million shares. While the companywill maintain its listing on theLuxembourg Stock Exchange, theprimary listing will be in Singaporeafter the IPO. GentingInternational, together with sistercompany Star Cruises Ltd, is oneof 11 bidders for the integratedresorts at the Marina Bayfront andSentosa sites.

CHU JUCK SENG/THE EDGE SINGAPORE

Sm_2_S194.pmd 3/12/05, 12:41 am2


ECONOMICS WATCH

Singapore’s factorieskeep pumpin’ it up| BY SHAMIM ADAM |

D omestic manufacturing expandedlast month at the fastest pace in 15months on higher overseas and do-mestic orders and production, a keygauge showed.

The Singapore Institute of Purchasingand Materials Management (SIPMM) lastThursday said its purchasing managers’ in-dex rose 2.1 points from October to 53.5,the highest since August last year. A read-ing above 50 indicates overall factory acti-vity expanded. The median forecast of seveneconomists in a Bloomberg survey was fora reading of 52.

The government is counting on a reboundin electronics shipments by companies suchas Venture Corp and increased pharmaceuti-cals production to achieve economic growthof around 5% this year. The economy grew7% in the third quarter from a year earlier.

SIPMM said in its report that a sub-index

The travel business| BY MURRAY BAILEY |

Hotels count the customersCustomers were flocking to four-star hotels, bothlower and upper, filling over 80% of their rooms inthe first eight months of the year (see Table 1).Although five-star hotels got more dollar from eachcustomer, the net result still favoured the upper-four-stars. This may indicate a shift in travelpatterns caused by low-fare airline (LFA) travellers,who have been producing good volume growth fortheir destinations, but not necessarily in spending.

Still, it is risky to assume that all LFAcustomers are budget travellers. Bob Burns, co-founder of Regent Hotels, once told me his top-end resort in Italy’s lake district attractedGermans (because they were close to Italy’ssouthern border), Americans and — since thestart of Ryanair flights — quite a number ofBritons. So, travellers are taking a US$20 flight topay as much as US$1,000 a night at Burns’ resort.Low-cost air fares actually motivate people totravel. Cost is not a major factor becausetravellers who are ready to spend US$1,000 anight for a hotel room would presumably haveenough money to pay much more for the flight.

So, AirAsia’s slogan — “Now everyone can fly”— is not quite right. The customers could beregular travellers who are travelling more often orvisiting new destinations because the fares are low.

2005 heads for 10% visitor growthThe growth in regional visitors was slowing —although by not much. From over 11% in the firsthalf, it slipped to under 11% at the end of thethird quarter. With the numbers trending down,the year-end figure is likely to be lower, albeit stillabove 10%, making this a good year, if not agreat one. And that would be well above theWorld Tourism Organization’s expected 5% to6% growth worldwide.

Singapore, however, continued to under-perform in the region — running at 8% growthcompared with almost 11% for the region. Giventhe boost in visitors, which usually comes fromLFAs, this was not encouraging news. China,

Hotel results in Singapore (Jan-Aug)ITEM LOWER-4-STAR GROWTH* (%) UPPER-4-STAR GROWTH* (%) 5-STAR GROWTH* (%) CITYWIDE**Occupancy (%) 84 5 85 7 73 2 81Average room rate ($) 113 20 202 23 234 15 164

An “average room rate” is the result of total room revenue divided by the number of hotel rooms occupied*Points for occupancy **No comparison with 2004

Table 1

THE

EDG

E, T

RAVE

L BU

SIN

ESS

ANAL

YST

Hong Kong and even high-cost Japan weremoving ahead much faster. Although growth inAustralia was slower than Singapore by a point,Down Under should be suffering more as itslonger-haul passengers — who make up half ofits visitors — would be harder hit by fuelsurcharges on air fares.

Data on visitor counts for Malaysia andThailand covered periods earlier than the firstthree quarters. Malaysia was running slower thanSingapore. However, its figures usually reflectgrowth in outbound travel from Singapore, whomake up 60% of total visitors in Malaysia.

Thailand was still suffering from the tsunamiin the four months for which it had counts. Laterindicators (from hotel occupancy, throughAugust) showed no change for Bangkok — so,at least the decline has stopped. But for Phuket,hotel occupancy was down from 71% in 2004 tojust 46% this year.

Murray Bailey is a research director and travelbusiness analyst

Visitor arrivals into mainAsia-Pacific destinations(2005)

GROWTH (%)YEAR NO OVER OVER

DESTINATION THRU (’000) 2004 2000Singapore Sept 6,574 8.3 14.6

Australia Sept 3,961 7.3 13.7China* Sept 14,943 24.0 100.4Hong Kong** Sept 7,408 15.3 16Japan Sept 5,081 9.1 42.2Malaysia July 9,485 4 62.5Thailand*** April 3,500 -9.5 5.9

Total*** Sept 58,789 10.7 43.3

Notes: *Foreigners only. **Excludes China, Macau.***Estimated; ‘Total’ is for destinations shown here

Table 2

PACI

FIC

ASI A

TRA

VEL

ASSO

CIAT

ION

, TRA

VEL

BUSI

NES

S AN

ALYS

T

E

measuring the electronics industry also ex-panded at a faster pace. The sub-index rose1.3 points to 55.4 as new orders in domesticand overseas markets increased. The medianforecast in the Bloomberg survey was for areading of 54.4.

Export orders expanded in November af-ter a contraction the month before. The indexfor new export orders gained 2.3 points to50.9. The sub-index for new electronics ex-port orders also reverted to growth, gaining6.9 points to 56.2.

The index for production, an indicatorof current factory output, gained 4.6 pointsto 56.8 last month. The sub-index of elec-tronics production rose 3.5 points to expandat 62.4.

The overall employment index rose 1.2points to 51.5. The sub-index of electronicssector employment gained 0.6 point to ex-pand at 50.3, after contracting in Octoberfor the first time in five months. —Bloomberg LP

Shipping containers at the Singapore harbour. The government is counting on a rebound in electronicsshipments and increased pharmaceuticals production to achieve growth of around 5% this year.

BLO

OM

BERG

E

Sm_4_S194.pmd 3/12/05, 12:54 am4


CORPORATE

Dressing up MalaysiansSecond Chance eyes at least 50 apparel retail outlets across the Causeway in five years

| BY CHAN CHAO PEH |

S econd Chance, a Singapore-grownhousehold name, is well-known for itsclothing, jewellery and accessories ca-tering to the Malay community. Thestory of Mohamed Salleh Marican,

founder of the company, has been well chroni-cled. The company is remarkable not only forbeing the only Malay company listed in Sin-gapore, but also for the way it has made atleast two comebacks from businesses thatturned bad, hence the name, Second Chance.

In its latest reincarnation as Second ChanceProperties, the company is earning a big chunkof its profits from real estate. Since 1999, thecompany has been steadily buying up retailoutlets in shopping centres and neighbourhoodtown centres all over Singapore.

For the financial year (FY) ended June 30,its property business contributed an earningsbefore interest and tax of $6.7 million, or 46.7%higher than FY2004. Last year alone, the com-pany added eight units to its portfolio, chalk-ing up a total of more than 40 units (see box).

Income from the property business, coupledwith its dividend payout, has given this scarce-ly traded stock the financial strength to behavealmost like a “mini-REIT” (real estate investmenttrust). For FY2005, the company earned a netprofit of $10 million, compared with $8.9 mil-lion for FY2004. This was its third consecutiveyear of bottom-line growth. In the same period,revenue was up 8.31% to $39.09 million. Itsshareholders, who number just over 2,000, wererewarded with a dividend of 2.5 cents per share.Based on last Wednesday’s closing price of 20.5cents, this payout translates into a yield of about10% — beating Singapore-based REITs at cur-rent valuations. To add more cheer, the com-pany has committed to pay out the same 2.5cents, gross, for FY2006 and FY2007.

Pay by GiroWhile keeping some units for its retail business,Second Chance rents most of them to tenantslike banks DBS and Standard Chartered, andclothing retailers Giordano, Bossini and HangTen. Salleh points out that they are reputablecompanies that carry hardly any risk of default-ing on payments. “We don’t have to worry norask for rent. Every month, they send it by Giro,”says Salleh in an interview with The Edge Sin-

gapore. “Collecting rental is the best business.”Unlike many businessmen who made their

first fortune on property, real estate wasn’t onSalleh’s mind when he started a tailor shop threedecades ago. “We never, ever wanted to go intoproperty but, having been in the retail trade for30 years, we’ve always been paying rent,” hesays. Following the 1997 Asian financial crisis,however, the property market collapsed soonafter Second Chance was listed in January thatyear. With extra cash and a sense of the me-chanics of the retail industry, Salleh decided tomake his foray into property investment in 1999— when the market was in the doldrums.

Another broader factor has also influencedthe company’s strategy in property. A bigchunk of its properties is at City Plaza, a shop-ping centre diagonally across from SecondChance’s flagship store at Tanjong KatongComplex. Both buildings are near the PayaLebar MRT station. In the mid-1990s, when theSingapore economy was accelerating at neardouble-digit rates, the four-storey TanjongKatong Complex and some of its surroundingareas had been slated for redevelopment as partof an overall master plan. During the Hari Rayafestive season, this area is so popular with theshopping crowd that traffic police have theirhands full trying to prevent the throng fromspilling onto the roads and forcing passing carsto inch their way forward.

Salleh needs a sizeable alternative locationto house Second Chance’s retail operationswhen tenants from the Tanjong Katong Com-plex move out. City Plaza is the obvious choice.However, the subsequent economic downturnshave put the redevelopment plans on hold till2012, says Salleh, citing discussions he and otherbusinessmen in the area had with the Singa-pore Land Authority. “The plans — which in-

clude underground links, hotels and offices —were made during boom times in the mid-1990s,when everybody could not think properly. Now,everybody just keeps quiet,” he quips. But theoriginal bet stays. “This area will be redeve-loped. It’s just a matter of time,” he adds.

In recent months, the property market hasfinally been showing signs of an upturn, withproperty stocks enjoying a long-awaited run.However, it is Salleh’s turn to become cautious.Between 1999 and now, Second Chance pickedup ideal units cheaply and, very often, belowvaluation, which contributed to yields of ashigh as 8%, when interest costs were just2.5%. With the upturn, properties that used tobe valued at $2 million are now pegged at $2.4million, and owners are asking for $3 million,he notes. As a result, yield has fallen to be-tween 5% and 6%, while costs have edged upto 4%. “The shiok is no longer there,” he says.

First Lady in MalaysiaSecond Chance will be leaning on its apparelretail business (under the First Lady brand)for growth, and slow down on the purchaseof new properties. “We don’t want to chase;we don’t want to get carried away,” he says.

Second Chance has a 20% share of ladies’apparel in Singapore, estimates Salleh, andonly 1% in Malaysia, through its six First Ladyoutlets, with three in Kuala Lumpur. “In Sin-gapore, there’s limited room for expansion.That’s why we are expanding into Malaysia,where disposable income is rising,” he says.

He believes that First Lady has marketeditself enough to create awareness across theCauseway, and the time is ripe to step up theexpansion. “We are going all out to expand,through our own companies or through fran-chises. For the cities, we are going into the

shopping malls; for the outlying areas, we aregoing into the hypermarkets. Five years fromnow, we will be in every town and city, ofboth West and East Malaysia,” says Salleh.That will be at least 50 locations, he estimates.For FY2005, the company earned an opera-ting profit of $1.62 million on revenue of $8.73million from the apparel business.

Salleh believes he can win over customersin Malaysia with his range of affordable bajukurung and kebaya, with even elaboratelyembroidered ones going for as low as $20,compared with tailor-made ones that can costfour times more. The company sources itsapparel from seven different factories in Viet-nam, and materials from China. With some250,000 pieces sold a year, it can demand adeep discount on volume.

Dividend payout assuredThe company is confident that it can fund itsexpansion in Malaysia easily, without addi-tional borrowings. Start-up costs for each out-let can be recouped as early as within a year,says Salleh. “We are collecting cash everyday,” he says.

The company’s business is not all glittery.The sale of gold jewellery, its largest revenuecontributor, was $22.63 million in FY2005,down from $23.92 million in FY2004, as highergold prices drove away price-sensitive custom-ers. Operating profit was also down from $3.71million in FY2004 to $3.27 million in FY2005.Currently, with gold prices at record levels ofmore than US$500 an ounce — a 20-year high— Salleh concedes there will be some impact.

The apparel and property businesses willmake up for declines in gold jewellery sales,though. Second Chance may be slowing downon its property-buying spree, but that does notmean income from this segment is falling. In-stead, in line with market rates, Salleh has beenasking for higher rental, ranging from 10% to30%. So, shareholders can be assured that thecompany will at least maintain the current levelof dividend payout, says Salleh, who, alongwith his family, owns 70% of the company.

Having built its little property empire inSingapore, Second Chance is not about to turnits back entirely on the sector. “The retailproperty business has given us the highestreturns. If anything happens to the propertymarket again, we move in again,” he says. E

Selected Second Chance properties in Singapore and MalaysiaBUILDING ADDRESS

City Plaza 810 Geylang Road (Units 01-45, 01-46, 01-60, 01-61, 01-56/57, 01-47, 01-81,01-107, 01-105, 01-43/44, 02-51, 02-86/88, 02-105-108, 02-50, 02-81/82)

Far East Plaza 14 Scotts Road (Units 02-40, 02-42)Peninsula Plaza 111 North Bridge Road (Units 01-28, 01-29, 01-38, 01-44, 01-45A/B)Lucky Plaza 304 Orchard Road (Units 01-56/57/58/59)People’s Park Complex 1 Park Road (Unit 01-32/33)Ampang Park Shopping Centre Jalan Ampang, Kuala Lumpur, Malaysia (Lots 1.80, 1.81, 1.82)

Sm_8_S194.pmd 2.12.05, 9:05 pm8

THEEDGE SINGAPORE | DECEMBER 5, 2005 • 9

SPONSORED STATEMENT

The process ofUPS ExchangeCollectSM

1 Buyer and seller agree to saleand purchase terms and specifyUPS Exchange CollectSM for fi-nancial settlement

2 Seller ships the goods by UPS, which notifies the buyer that the goods are intransit and that payment must be made before delivery

3 Buyer pays UPS4 After UPS receives payment, it delivers the shipment to the buyer5 Upon verification of delivery, UPS remits funds to seller

In UPS we trustAV equipment retailer lets customers shop onlinewith confidence via UPS Exchange CollectSM

| BY P C LEE |

I n the world of e-commerce, trust isdefinitely a two-way street. While anonline seller takes a risk by under-taking to deliver goods to overseasbuyers who may not pay, the buyer

too has to take a leap of faith because he isnot familiar with the credibility of the said ven-dor. And for small, online vendors of goodsand services to overseas buyers, a higher de-gree of trust must be established between theparties before a transaction can take place.

Expandore Electronics, a Singapore-basedsupplier of cutting-edge broadcast and elec-tronic equipment since 1994, faced such achallenge when it decided to expand its dis-tribution network via e-commerce and establish it-self as a preferred world-wide supplier. As a smalland medium-sized enter-prise (SME), Expandorehad no way of knowing ifits potential buyers fromabroad were genuine, so itrisked delivering goods toa buyer who could delay ornot pay. And it’s just oneside of the issue. Overseasbuyers, especially first-time ones, are not famil-iar with Expandore anddo not know much about the company.This concern is raised when high-value andexpensive goods such as professional videoand audio equipment are involved.

John Malcolm, now one of Expandore’sregular clients, echoes the concerns of first-time buyers: “I was initially a bit hesitantabout buying something over the Internetand checked Expandore’s profile via severalsources before placing an order. There areso many scams going on these days that youhave to be a bit careful.”

To put the buyer’s mind at ease, Expan-dore decided to offer an alternative finan-cial transaction process that provides thebuyer with enough confidence to purchasefrom Expandore and not bring his businessto other tried-and-tested suppliers.

The solution came in the form of UPS’s Ex-change CollectSM, which enables Expandore tooffer an alternative payment method to cus-tomers that is fast, secure and simple. UPS Ex-change CollectSM offers an electronic financialsettlement option which gives full visibility ofgoods and funds during each step of the trans-action, enabling sellers to quickly receive pay-ment for their goods. UPS acts as a trustedthird party to collect the funds from the import-er prior to shipment delivery and pays the ex-porter only upon delivery. A major advantageof this service comes from the trusted and re-liable brand name of UPS, which legitimisesthe arrangement for both sides.

Prospective customers recognise UPS as aglobal and trusted brand that provides reli-

able delivery services. Withthe option of using UPS Ex-change CollectSM, custom-ers are assured of an easyand secure way of manag-ing financial transactionsfor online purchases.

On top of the securityprovided by UPS, buyersaround the world are alsonotified of the transition oftheir purchases. In addi-tion, UPS has officesacross the globe that buy-ers can visit should theyhave any queries.

“I now have my HVR-Z1P camera andI am very pleased indeed. UPS’s deliveryservice was excellent; it cleared the par-cel for collection within 12 hours,” saysGordon Hiles, one of Expandore’s manyinternational customers.

According to Steven Sun, director ofExpandore, the company’s growth has beenimpressive since it opted for the UPS Ex-change CollectSM service. He says, “We areable to use UPS Exchange CollectSM to helpturn sceptical buyers around. When pros-pective buyers learn of UPS ExchangeCollectSM as the alternative payment gate-way, they are reassured and keen to buyfrom us. Not only do we get more custom-ers, they are also confident and satisfiedwith our service.”

PICT

URE

S: U

PS

UPS delivers the shipment to the buyer after it receives payment

Buyers will be notified of the transitionof their purchases

SPONSORED STATEMENT

E

Sm_9_S194.pmd 1/12/05, 7:56 pm9


CORPORATE

Boustead gets fired up

| BY GOOLA WARDEN |

W ong Fong Fui spent much of lastweek out of town. The jet-settingchairman and CEO of BousteadSingapore was, as usual, busy se-curing contracts for the company,

in which he has a 30.6% stake. After acquir-ing it in 1996, Wong set out to remake thecompany so that its main businesses can besummed up in two words: oil and water.

The company designs and operates heatersused in oil refining. Wong says the orderbookfor the company’s energy segment rose from$45 million as at end-March this year to $75million by Sept 30. About a quarter ofBoustead’s revenues come from its energy seg-ment, which includes power generation andsolid waste energy recovery. Its half-year re-sults (the company has a March year-end) sawrevenues from the energy sector jump 35%.Separately, Boustead’s subsidiary delivered Sin-gapore’s first dual-membrane-based desali-nation plant to Senoko Power in June.

Rising energy orderbook“China and India are the fastest-growing mar-kets for Boustead as these countries invest sig-nificantly in oil refineries and power plants,”states Phillip Securities in a September report.It reckons that the spending increase wouldcreate demand for heaters and process-con-trol systems, Boustead’s forte.

The long period of refinery construction —from five to seven years — and the refurbish-ing of old ones are all good for Boustead. Itsheaters are central to the refining process.Boustead’s total orderbook has been risingsince the middle of last year. In the six monthsto Sept 30, it jumped by 50% to $330 million.Boustead’s share price reflects the improvingfundamentals. After staying stagnant formonths, prices rose by 48% in a year, from62 cents to its last traded price of 92 cents.

The company designs and operates direct-fired process heaters used in the crude-oil-re-fining process, through its 90%-owned subsidi-ary Boustead Industrial Heaters (BIH). The

manufacturing is outsourced. Investment in thebuilding of new refineries has just started after20 years of neglect. “High crude-oil prices haveencouraged investment in refineries,” notesPhillip Securities Research. The local brokeradds that total exploration and productionspending (including refineries) is likely to grow9% this year.

Another subsidiary, Control & Electrics(C&E), provides wellhead control panels forwell, production and floating platforms, andproduction, storage and offtake vessels thatare used in oil production. C&E’s clients in-clude Larsen & Toubro, Iranian Offshore Con-struction Company, Qatar Petroleum andSaudi Aramco. By the end of financial year(FY) 2006, C&E will have put in place well-head controls for 60% of Oil & Natural GasCorp’s (India) offshore platforms operating inthe Arabian Sea. Phillip Securities Researchanalyst Deng Jiewen says C&E is especiallystrong in designing wellhead control panels.

At the oil-refining end, BIH has completedprojects in 26 countries. CEO Wong says Bous-tead’s heaters are “at the heart of the refiningprocess and petrochemical plants. The heatersare used to distil oil products and are funda-mental to refining”. BIH’s customers includemultinationals Shell, British Petroleum, Exxon-Mobil, Unocal, Texaco and MW Kellogg.

What is Boustead’s edge? “Compared withlarger competitors such as ABB (Asea BrownBoveri) Lummus and Foster Wheeler, BIH hascost competitiveness that gives it flexibility tocompete for projects,” says Phillip SecuritiesResearch, noting that it also has better exper-tise than smaller competitors in direct-firedprocess heaters.

Alternative energyWong says projects are getting bigger. In thepast, $3 million to $5 million contracts wereconsidered medium-sized. These are now seenas small against several enquiries above $10million. “We see this trend continuing into nextyear and beyond,” he says. He sees the com-pany’s revenues growing to $500 million in thenext five years. In the first half of this year

(1H2005), Boustead’s turnover grew 46% to$157.6 million. DBS Vickers, in a Nov 15 up-date, has forecast revenues of $284 million forFY2006 and $349 million for FY2007.

A new area for Boustead, and a side effectof high oil prices, is its foray into alternativeenergy sources. Wong says Boustead is in-volved in a pilot project in Malaysia with Ma-laysian Mining Corp to turn municipal wasteinto energy. The company has managed tobook almost $4 million in sales in the sixmonths to Sept 30 for this segment.

In Indonesia, Boustead converts waste likepalm kernels into energy. Wong says the re-moval of fuel subsidies there means findingalternative sources becomes more urgent.Boustead Maxitherm Industries, the unit thatproduces the boilers to convert waste into en-ergy, is raising capacity.

Phillip Securities Research estimatesgrowth in municipal-waste-generated energyto rise to 29 billion kWh by 2025 from 7 bil-lion kWh currently. Boustead also owns79.5% of Salcon, whose unit Salcon PowerCorp manages and operates the 203.8mwNaga Power Plant Complex, in Cebu, the Phil-ippines. The company is planning to constructa new 200mw coal-fired plant next to Naga.

Salcon builds and operates industrial, mu-nicipal and waste-water treatment plants —Boustead’s second main area of operations.

Boustead Projects, another subsidiary, pro-vides industrial real estate solutions. Profitsfor 1H2006 more than doubled to $26.34 mil-lion, partly because of a surge from its indus-trial property segment.

Unused Section 44 tax creditsRecently, Boustead announced a dividend-in-specie of 83% of its 49.9%-owned associate,EasyCall International, which is listed on theAustralian Stock Exchange. The exercise usesup $2.1 million out of its $6.1 million in taxfranking credits in Section 44 Tax Credit bal-ance. The company has indicated it wouldexplore ways of using the remaining tax cred-its before expiration in December 2007.

The recent half-year announcement alsoshowed strong operating cash flow of $82million, boosted by a reduction in receivablesand inventories. The sale of two industrialproperties to Mapletree Logistics Trust con-tributed partly to a strong cash inflow and re-sulted in a sharp rise in cash and bank bal-ances to $106.8 million. Boustead is in a netcash position of 30 cents per share.

A series of positive developments, from theoil-and-gas sector to a recovery in the local in-dustrial property market, is drawing investorattention to this company. The point of inter-est is whether its energy-related orderbook willcontinue to grow at the current hot pace. E

THE

EDG

E SI

NG

APO

RERevenues from oil refining rose 35% and its energy-related orderbooksurged 66% in the six months to Sept 30. CEO Wong Fong Fui seesthis trend continuing.

Wong says projects are getting bigger, above $10 million, and sees the trend continuing in the near future

Sm_10_S194.pmd 2/12/05, 9:39 pm10


CORPORATE

Cerebos making losses in ChinaBut the maker of Brand’s Essence of Chicken hopes to break even in two to three years

| BY AUDRINA GAN |

A nalysts and reporters were treated tojars of Brand’s Essence of Chickenduring Cerebos Pacific Ltd’s fourth-quarter (4Q) results briefing at theSwissotel Merchant Court Hotel last

Tuesday. Cerebos, best known for its chickentonic drink, also produces sauces, juices, instantcoffee, condiments and health supplements.

The chicken-tonic recipe, which was con-cocted by England’s royal cook H W Brandto boost King George IV’s ailing health, wassuch a success that Brand decided to sell thetonic commercially. Last year, Cerebos soldmore than 140 million bottles of chicken es-sence, which is the company’s key revenuegenerator. Nonetheless, in a recent marketsurvey, the group discovered a surprising yetinteresting find: The taste of this 19th-centurytonic drink is a barrier to attracting potentialcustomers. What’s more, it’s also impedingregular customers from consuming more. Torectify this, Cerebos is working with a hand-ful of universities in Japan and the US to im-prove the taste.

The China quandaryBrand’s Essence of Chicken may be the cate-gory leader in markets like Thailand, Taiwanand Singapore. But there remains one “sore”spot — an outflow of red ink is still evident inCerebos’ Brand’s liquid business in China sinceits first foray in 1996. For its fiscal year endedSept 30, Cerebos posted a pretax loss of $8.44million, up 19% year-on-year in China. Al-though revenue has grown 21% to $13.36 mil-lion, losses have widened due to the substan-tial investment in advertisement and promo-tion. In particular, Cerebos is moving intoChina in a bigger way as it embarks on majortelevision ad campaigns, vice-president andgroup financial controller Koo Nguang Siah tellsThe Edge Singapore at the briefing. “China is avery difficult market... there’s no transpa-rency,” says Koo. Bad debts are a common is-sue facing foreign firms in China.

To be on the cautious side, Cerebos, whichhas a cash and cash equivalent of $233.52 mil-lion at the end of financial year (FY) 2005,rarely extends any credit terms. So far, creditterms are only extended to multinational cor- E

porations such as Carrefour, Watsons andMacro Wholefoods. “Many of our Chinesecustomers prefer credit terms. But we go forcash transactions or through wholesalers whowill bear the credit risks,” says Koo. And hemaintains the company will stick to its cash-dealing policy even if this translates into aslower growth rate for Cerebos in China.

Still, why has penetrating the China mar-ket proven to be such a difficult task?Brand’s did well in Thailand and Taiwan interms of revenues in FY2005. DBS VickersSecurities’ analyst Paul Yong points out thatthe fundamentals in China are “quite dif-ferent” from the rest of Cerebos’ markets.For starters, the geography is vast, with eachChinese city larger than Singapore. “Thus,each city has different requirements andvarious efforts,” says Yong. Cerebos cur-rently has a network of distributors inGuangzhou and Shanghai. Recently, it ap-pointed an exclusive distributor, JDH, forits developing market in Beijing.

From Yong’s perspective, brand buildingis important for markets like China, particu-larly for premium products such as Brand’sEssence of Chicken and bird’s nest — theonly two Cerebos products sold in the coun-try. Chinese companies, including Kangfulaiand Xiyi, also compete with Brand’s Essenceof Chicken for a slice of the market. WhileCerebos has committed to a bigger adver-tising and promotion budget in China thisyear, Koo declined to comment on thegroup’s marketing expenditure. One thing

is for sure, though. The enhanced market-ing blitz via TV commercials would not befrequently repeated in years to come. “It’scostly to do so, not to mention the slew ofTV channels in China,” says Koo.

If the challenges mount, could Cerebosthrow in the towel in China? DBS Vickers’Yong, who sees huge potential for growth inChina, doubts it. “If they can be so successfulin a non-Chinese market like Thailand, it doesnot make sense for it to stop penetrating [the]China [market],” he adds. At Cerebos, Koosays the firm is resolved to “make things workin China”.

During the briefing, Ramlee Buang,Cerebos’ executive vice-president and chieffinancial officer, reiterates that the companywould not go beyond its annual thresholdof $10 million with regard to losses in thecountry. Meanwhile, Koo points to a posi-tive sign — China has recently imposedmore stringent regulation and penalties in abid to minimise false product claims. Now,claims have to be backed up with scientificresearch, which Cerebos purportedly has.When will profits start rolling in? While Koosays the group is more “optimistic” aboutChina than before, he prefers to maintain acautious stance. “It would probably takeanother two to three years before we couldpossibly break even in China,” adds Koo.At DBS Vickers, Yong does not foresee theChina operations breaking even over thenext three to five years, even as he concedesthat revenue growth has been “quite good”.

Bird flu may dampen future growthThe spread of bird flu in the region maypresent another stumbling block for Cerebos.Analysts like Yong reckon the epidemic maystifle growth for its flagship product. Koo,however, feels the impact would be minimal,though he concedes that there was a slightdip in revenue for two months in Thailandlast year when the virus was first reported.“Consumers are aware that our products aresafe... we purchase our chicken from securefarms in Thailand, China, Malaysia and Tai-wan,” says Koo.

Another golden egg lies in the group’s cof-fee and sauces segment in Australasia underbrand names such as Fountain, Gravox,Robert Harris, Riva and Gregg’s. About 50%of total sales are derived from this segmentand Cerebos is looking at further expansionthrough acquisitions and organic growth.These include opportunities in retailingroasted and ground coffee in New Zealand.Presently, Robert Harris, the group’s groundcoffee brand in New Zealand, is profitablebut Ramlee acknowledges it does not have theability to “shift Cerebos” into the premiummarket yet. Franchising opportunities forRobert Harris in Asia is also on the cards.

Cerebos reported a 4% growth in earningsto $64.2 million on the back of 5% revenueexpansion to $694 million. The firm said itwould pay a tax-exempt special dividend of19 cents. For now, investors must be hopingthat its key segments will continue to performand that the red ink will stop in China.

CERE

BOS

PACI

FIC

LTD

Although Brand’s Essence of Chicken is Cerebos’ key revenue generator, the taste of this 19th-century tonic drink is a barrier to attracting potential customers

Sm_12_S194.pmd 2/12/05, 10:17 pm12


Rotol’s new bridge to success

| BY FRANCIS TAN |

Rotol Singapore Ltd has been one ofSingapore’s best-performing stocksthis year. At 19 cents, it is up awhopping 280% from the five-centlevel at the start of the year, when

its loss-making, construction-related alumi-nium coating and fabrication business wasfacing a bleak outlook. The first run-up inthe stock occurred in April, when the pricenearly tripled over one month following theemergence of J Bridge as a possible control-ling shareholder. On Oct 14, J Bridge exer-cised a call option that took its stake to57.3%, or 220 million shares, which werepriced at 10 cents each. The stock touched a51/2-year high of 21 cents on Oct 7, follow-ing the successful completion of the “reversetakeover” on Oct 5.

No divestmentSo, who is J Bridge and why the enthusi-asm over the stock?

Shiro Suzuki, Rotol’s newly appointed ex-ecutive director and J Bridge’s sole Singa-pore-based representative, was eager to ex-plain the nature of J Bridge’s participation inRotol. “It is not a reverse takeover as we arenot doing away with the existing business togain only a shell company,” he says.

The company plans to rehabilitate and re-structure Rotol through a “hands-on restruc-turing approach” and to pursue “new busi-ness opportunities with better profit mar-gins”. Shiro says, “We’ll do what we can but,at the least, we hope to change the money-losing trend by next year.”

Shiro, 31, first cut his teeth in the financialindustry as a credit analyst with the Los An-geles branch of Sumitomo Trust & Banking.He then specialised in distressed assets atKPMG as an accountant-cum-financial con-sultant for four years, mostly in its Japan of-fice. He joined J Bridge in July 2004, follow-ing a brief stint at Shinsei Bank Ltd.

Senior staff returnWhat about Tan Khee Bak, the founder andnow 27.6% shareholder of Rotol (includingshares held by TKB Foundation Ltd)? He isoverseeing Rotol’s Jiaxing factory nearShanghai and exploring business opportu-nities in China which, together with Taiwanand Hong Kong, accounted for only 11% ofturnover in financial year (FY) 2004, or $0.8million. The rest of the turnover came al-most entirely from Singapore. In its interimresults, Rotol said, “Intense competition,both in Singapore and China, is expected tocontinue, which will have a negative impacton pricing.”

On the home front, Rotol’s existing busi-ness is managed by a team of experiencedstaff, including three former employees. Tanand a senior manager managed to persuadetwo former sales managers to return afteran absence of three years. Frederick Lim,59, a 12-year veteran with Rotol, says overa phone interview, “We got offers elsewhere…but Rotol is still the pioneer company [influorocarbon coating]... it still needs us andwe can still contribute to the company. Whynot? Why [do we] need to work in a newenvironment?” Lim and another 13-yearRotol veteran re-joined the company in Sep-tember and persuaded a former sales execu-tive to join them the following month. Limis upbeat over business prospects. “Thereare lots of projects coming up next year,including commercial projects and condo-miniums. Hopefully, some of our customerscan get big projects and we can then workwith them.”

As newcomers to Singapore and with cor-porate governance issues a major concern,J Bridge opted for a large nine-memberboard for Rotol to include four independentdirectors. Perhaps more importantly, itneeds a successful rehabilitation of Rotol towin credibility for its unusual investmentbusiness model. Judging from the stock per-formance since the emergence of J Bridgein April, and at 2.1 times the book valueper share of 9.1 cents now, the market hasevidently placed high expectations on JBridge to achieve some degree of success inSingapore as it did in Japan. However, with85% of the shares held by J Bridge and Tan,the tight stock liquidity means only thesetwo insiders would benefit the most fromany turnaround.

CORPORATE

Impressive recordJ Bridge, which is listed on the Tokyo StockExchange with a market capitalisation ofabout US$825 million ($1 approx US$0.60),is an investment firm that specialises in theacquisition of listed and private companies. Itwas a struggling warehousing and logisticscompany before a takeover led by ToruMasuzawa at the end of 2003. Masuzawa, 44,is the CEO of J Bridge and the executive chair-man of Rotol. The executive vice-president ofJ Bridge, Kenichiro Yamamoto, 43, is the CEOof Rotol. Both are based in Tokyo.

Since the takeover, J Bridge has investedin 14 businesses in Japan and South Korea,of which 10 are listed companies. The busi-nesses include the manufacturing of tofu andnoodle, distribution and retail of apparel, thedesign and installation of IT security systems,and a chain of computer stores.

In the six months ended Sept 30, J Bridgerecorded a 12-fold jump in consolidated netprofit to ¥1.6 billion ($1 approx ¥70). It fore-casts full-year net profit will climb five-foldto ¥7.6 billion. J Bridge has only 60 staff as atMarch. Its stock has risen 72% since the be-ginning of the year.

Rotol is J Bridge’s first “revitalisation” in-vestment in the region, but not its first in theconstruction sector. In May, J Bridge investedin a civil engineering firm, Kidoh Construction,

Tokyo-based J Bridge is highly motivated to succeed in its first‘revitalisation’ investment outside Japan with Rotol. It stands tobenefit from the upturn in the construction industry and returnof key ex-staff. But its free float is a low 15%.

which is listed on Osaka with a market capi-talisation of about US$190 million. Kidoh’sannual sales have halved to ¥11.3 billionover the past three years. However, its stockhas jumped 2.4 times since J Bridge showedup. Kidoh is keen to expand overseas andShiro believes Rotol could act as a conduitfor Japanese companies such as Kidoh tocome to Asia.

Rotol has about $22 million cash and lessthan $5 million debts. It is “exploring oppor-tunities” with regard to a possible sale of itssix-storey factory, which was written downto $13.8 million in August.

It is not a reversetakeover as we arenot doing away withthe existing businessto gain only a shellcompany — Shiro

C HU

JUCK

SEN

G/T

H E E

DGE

SIN

GAP

ORE

E

RotolVolume (‘000) Price ($)

Dec 3, 2004 Nov 18, 20050

1000

2000

3000

4000

0

0.10

0.19

0.30

Sm_14_S194.pmd 2/12/05, 10:58 pm14


CORPORATE

Setting its sights on IndiaJetstar Asia’s next thrust will be in Indian cities like Chennai and Bangalore

| BY AUDRINA GAN |

S itting in a small, windowless room in abuilding at Terminal 1, Changi Airport,Ken Ryan, the 50-something-year-oldCEO of Jetstar Asia and Valuair, looks atad tired. It’s the tail end of his nine-

month stint in Singapore, but he doesn’t let onthat he’s tired, or that he’s leaving his post.Three days after his interview with The EdgeSingapore, JetStar Asia announced that NeilThompson, who is currently general managerof customer relationship marketing at Qantas,will take over as its acting CEO, as Ryan returnsto Australia this month. “Ken’s family has un-fortunately been unable to join him in Singa-pore, which is why he has reluctantly decidedto return to Australia,” said Geoff Dixon, chair-man of Jetstar Asia and Qantas, in a statementlast Friday.

It’s been an eventful year for Ryan andJetStar Asia, which turned one on Nov 28. Tocelebrate, the airline offered cheap air fares,from as low as $18 for a one-way ticket toBangkok and Phuket.

When Jetstar Asia celebrates its secondbirthday, Ryan hopes Orange Star (the newholding company) would have broken even.That’s a lofty goal, particularly since the Julymerger between Jetstar Asia and Valuair is aunion between two loss-making airlines. JetstarAsia reportedly chalked up losses of $51 mil-lion in the first seven months of its operation,while Valuair lost $4.1 million last year.

Little surprise then that Orange Star is for-mulating ways to come out of the red. In Oc-tober, the Australian media reported thatQantas intends to codeshare on Jetstar Asia’sflights from Singapore to Kolkata and the Thaicities of Bangkok and Phuket. Ryan concedesthat the Qantas offspring is mulling over thecodesharing agreement. From Ryan’s perspec-tive, it makes commercial sense to codeshareon several routes, such as Bangkok. Presently,Jetstar Asia’s only codesharing agreement iswith Myanmar International Airways for itsfour-times-a-week flights to Yangon, whichcommenced on Oct 31.

“We foresee we will do that [codesharing] ifit has a financial contribution to the bottom line.The whole idea of codesharing really is tobroaden the scope of passengers you can carry,”explains Ryan. His remarks were made in refer-

ence to the comments by Tiger Airways’ CEOTony Davis, who said, “What the codesharingmeans is that Jetstar Asia will effectively ceaseto operate independently as a low-cost carrier[LCC].” Davis added: “It will become the re-gional services arm of Qantas in Asia…”

Rather than being a LCC, a term often usedto describe Jetstar Asia, Ryan said the carrier“sees itself as a low-fare carrier”. He assertsthat a prospective codesharing agreement withQantas would not affect its low-fare position-ing. “Travellers still want to have a certainlevel of comfort and competitive fares… weare as competitive as any carrier, includingTiger Airways,” adds Ryan.

China dilemmaIn a bid to ride into the black, Orange Starhas also been conducting a series of route ra-tionalisation at Valuair. Unprofitable routes,including those to Perth, Chengdu andXiamen, have been axed in recent months.The first route people expected to be axed wasPerth — indeed, this competitive and seasonalroute was axed in October. Why are popularbusiness-cum-leisure destinations like Cheng-du and Xiamen, which are served by Singa-pore Airlines and a handful of Chinese carri-ers, not profitable? “Valuair could not buildthe load for Chengdu and Xiamen. If we [had],we would have continued. We’re not in thehabit of pulling out routes unless they arecommercially unviable. We didn’t make suchdecisions lightly,” says Ryan.

But AirAsia’s CEO Tony Fernandes hadonce lauded Xiamen as one of Thai AirAsia’smost profitable routes. “I’m not privy to Tony’saccounts,” Ryan retorts with a smile. “Tony’sa very gregarious character. I’m not sure whyhe would say that. I simply know what ourresults are.” In his view, there was no way theroute could continue in a viable manner.

Some market watchers like analyst ChrisEng from Malaysia-based OSK, which tracksAirAsia, think otherwise. “Xiamen is a profit-able route, given the huge amount of busi-ness traffic. There’re a lot of IT companiesthere,” he says. Rather than a lack of demand,he reckons Valuair’s semi-frills model is thecrux of the problem. “They’re caught in be-tween the full-service carriers and the lowerend of the market.”

Is China still on the radar screen for Orange

Star? Ryan’s answer was implicit: “Flights toChina take a long time.” But he surmised thatJetstar Asia would still be interested in flying toShanghai if the Chinese aviation authoritieswould give it the green light. On Nov 25, 2004,Jetstar Asia announced seven new routes —Shanghai, Hong Kong, Taipei, Pattaya, Jakarta,Surabaya and Manila. The plan was dashedwhen China and Indonesia subsequentlyblocked LCCs from flying into key airports inShanghai, Beijing, Surabaya, Medan, Jakartaand Bali.

Incidentally, China and Singapore signed amemorandum of understanding (MOU) lastweek to expand aviation transportation betweenthe two countries. This enables airlines from thetwo countries to fly freely on any route withoutlimits on capacity, routing and aircraft type.

Looking to IndiaFor now, Ryan prefers to cast his bets on In-dia. He feels the Indian aviation market is fac-ing a dearth of capacity. Jetstar Asia currentlyflies to Kolkata. “We hope to fly into moreIndian cities, such as Bangalore and Chennai,in the near future,” says Ryan. In September,Jetstar Asia received flight permits forBangalore from the Civil Aviation Authorityof Singapore (CAAS). It is awaiting trafficrights from Bangalore’s aviation authorities.

However, analysts like OSK’s Eng are scep-tical about India. For starters, India has re-

cently witnessed the emergence of manyLCCs, including Kingfisher Airways and AirDeccan. Ping also perceives poor airport in-frastructure as another stumbling block.

Despite recent new entrants such as Air Sa-hara, Jet Airways and Jetstar Asia, demand forseats has continued to grow dramatically.CAAS figures show that in 2003/04, passengertraffic between Singapore and India grew 25%to 1.5 million passengers. In August, Singaporeand India signed a MOU for more services be-tween Singapore and three Indian cities,namely Bangalore, Hyderabad and Kolkata.The additional capacity afforded were hotlycontested by Singapore Airlines, Jetstar Asiaand Tiger Airways.

But observers point out that the Indiangovernment remains reluctant to increase ca-pacity to the high-demand gateways ofMumbai, New Delhi and Chennai. It’s be-lieved the main concern stems from the im-pact of competition on Indian state-owned car-riers, which are facing a squeeze from domes-tic and foreign competitors.

For now, even if India is not growing atbreakneck speed, routes such as Taipei, whichhas been described as “one of the strongestroutes”, have given Jetstar Asia a much-needed boost. Other recently launched routeslike Phnom Penh, Siem Reap and Yangon alsobode well, given their positioning as emerg-ing tourist destinations.

Ryan says Jakarta is “a major route” forValuair, which is now being used as OrangeStar’s Indonesian vehicle. Even as its otherIndonesian route, Surabaya, is “not asstrong” as Jakarta, he maintains it’s a prom-ising route. “There are a lot of IndonesianChinese on that route,” he reveals. Whatabout Bali, where flights were supposed tobe launched end October? Ryan says it’sputting that route on hold until “some in-ternal problems are sorted out”.

Even if Ryan perceives that the Indonesianmarket could rake in profits for Valuair, itfaces stiff competition, from Adam Air to In-donesia AirAsia (formerly Awair) to Lion Air.“Even AirAsia perceives Adam Air, which hasbeen aggressively marketing itself and buy-ing new planes, as a threat,” says OSK’s Eng.To break even, the new CEO will probablyhave to dish out more options when workingout his sums. E

Ryan: The whole idea of codesharing really is tobroaden the scope of passengers you can carry

CHU

JUCK

SEN

G/ T

HE E

DGE

SIN

GAP

ORE

Sm_16_S194.pmd 2/12/05, 11:15 pm16


1234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678

| BY ASSIF SHAMEEN |

CORPORATE BIG MONEY

T he name is Bond. Sir John Bond. Hemay not have the swagger of RogerMoore, but Bond, chairman of HSBC,has, in his own way, changed the waybanks operate in Asia and around the

world. Last week, HSBC, the world’s third-largest bank, announced that Bond would re-tire next May. In just over seven years, Bondhas transformed what was essentially anemerging-markets and UK bank into a globalfinancial services powerhouse. Few peoplehave had such a profound impact on globalbanking. Indeed, Bond joins such other fi-nancial luminaries as ex-Citibank CEO WalterWriston, who made Citi a global banking gi-ant. Yet, while Wriston had over 17 years toshape what was already a fairly internationalbank, Bond did it in just seven years, remak-ing HSBC “the world’s local bank” in doublequick time.

Just days before his retirement was offi-cially announced last week, I met Bond inKuala Lumpur. It was my third meeting withhim in nearly a decade. He proffered his handbefore I could say a word: “I am John Bond.”Bond is an old Singapore hand, having hadseveral long stints in Southeast Asia, includ-ing Indonesia and even Brunei. When askedwhat he has achieved and how, he shrugs:“You know, I am just an ordinary bloke whogot lucky.” When Bond, 64, leaves HSBC —just before his 65th birthday — the real storywould be how he rode that luck to create abank in his template.

Without a formal college degree or anybanking qualifications, Bond started at thelowest rung of the ladder. Indeed, the twoslow journeys onboard old steamers madehim the patient, methodical person he is today.At 17, as a final-year high-school student, hesailed to California for a one-year stint as anexchange student at Cate College. After highschool, he applied for a trainee job at HSBC(then known as Hongkong and ShanghaiBanking Corp) at the age of 20 becausehaving seen the US as a teenager, he wantedto see the rest of the world. The bank in thosedays was a colonial institution with a strongpresence in Singapore, Malaysia and HongKong. When I first met Bond, he was CEO,which in HSBC speak, is actually more likethe chief operating officer, since the chair-man has executive and strategy functions.Even then, he was fairly focused on helpingcreate the world’s best-performing retail-banking franchise.

Though Citigroup is bigger than HSBC (inboth market capitalisation and assets), theformer’s huge US presence and larger footholdin investment banking make it a smaller glo-bal retail-banking player than HSBC. Yet, 12years ago, when Bond — then the head ofwhat was Marine Midland Bank in the US —was tapped by then HSBC chairman SirWilliam Purves to be his heir apparent, HSBCwas a middling player in the global retail-banking arena. HSBC, under Bond, has spentover $50 billion on more than 50 acquisitions

— mainly in consumer-banking space in LatinAmerica, the US and Europe — even as it haspassed up opportunities to buy banks in Asia,unlike its arch-Asian rival Standard Chartered(which has bought banks in South Korea,Thailand, India and Indonesia).

When Bond took over as chairman ofHSBC, it was a federation of banks with noclear identity and 200-odd entities each with

different names like Midland Bank of the UK,Hongkong Bank and Marine Midland Bankof US. Bond brought them all together undera single name and umbrella. Now, everythingis HSBC. Indeed, HSBC is now the secondfinancial brand behind Citi and the 14th best-known global brand behind the likes of Coca-Cola and Nike.

But Bond will be remembered for his fo-

Building a powerhouse cus on cost controls. He is so famous for per-sonally turning off lights that HSBC officesaround the world are known to have dark cor-ridors. Even today, on most days, Bond takesthe London Underground to his office everymorning. When he visits Paris, he takes themuch cheaper Eurostar train rather than usea corporate jet. Banking, he says, is all aboutcosts. The lower you keep the costs, the bet-ter your margins. Citibank’s Wriston is re-membered for his famous quote: “Informationabout money is becoming almost as impor-tant as money itself.” Bond might be remem-bered for his pontification on cost controls. E

Sm_17_S194.pmd 2.12.05, 11:15 pm17


CORPORATE

| BY GOOLA WARDEN |

C hina state-owned oil and gas producerPetroChina Co Ltd (PetroChina) mayhave grabbed headlines last month foraccidentally spilling benzene intonortheast China’s Songhua river. But

it hit all the right notes with investors in Sin-gapore. A contract secured by Singapore Ex-change-listed media company Fung Choi

Printing and Packaging Group (Fung Choi)with PetroChina sent the former’s stock priceup 10%.

Last week, Fung Choi set up a new unitcalled Weilun JV, which secured a major con-tract with PetroChina to upgrade signage at3,000 petrol stations. It led to a five-cent(10%) gain in Fung Choi’s share price in twosessions. The contract is likely to raise reve-nues and profits by 25% and more in the next

Lai says the whole point of the JVs is to move intofast-growing and high-margin business

PetroChina deal will boost Fung Choi

Joint-venture structure

*Comprising 35 million renminbi plant, equipment and other assets and the rest in cash

Fung Choi Printing Ltd

43.7 million RMBcash

51%

61%

49%

49%

2.55 million RMB cash

2.45 million RMB cash

42 million RMB*

Zhongshan Weilun Co Ltd

Guangzhoushi Liri Co LtdJV1 = Weilun JV

JV2 = Liri JV

three calendar years. Fung Choi, a small-cap,southern China-based company, is a 27.1%-owned associate of Fraser & Neave (F&N). Itis run by Chinese entrepreneur Lai Yuen Ling,who is also its major shareholder, presidentand executive director. Its main business isprinting, which makes up 70% of revenues,and packaging.

Tying up with PetroChinaPetroChina has 40,000 petrol stations inChina. Of these, a Fung Choi-controlled jointventure has secured sole rights to upgrade3,000 of them in southern China. The cost ofeach upgrade is 300,000 renminbi ($1 approx4.8 renminbi). “We expect to upgrade 30 sta-tions a month next year, increasing to 40 sta-tions in 2007 and 55 stations in 2008,” saidLai at an analyst briefing on Nov 30. Thatwould mean revenues of 108 millionrenminbi next year, rising to 198 millionrenminbi in 2008. Lai hinted at profit mar-gins in excess of 25%. Fung Choi’s net profitmargin is 22%.

Fung Choi’s net profits for the threemonths to Sept 30 (1Q2006) stood at HK$33million ($1 approx HK$4.60) on a turnover ofHK$148 million. Revenues and profits rose29.6% and 9%, respectively, year-on-year.The company’s China-based packaging, print-ing and publication business is what makes itattractive to investors. David Toh, senior port-folio manager of equities at DBS Asset Man-agement (DBSAM), says he likes Fung Choibecause “it is a play on the media and adver-tising sector in China”. Toh sees advertising-related spending growing strongly because ofChina’s fast-expanding middle class.

Lynette Tan of DMG & Partners, in a reportdated Nov 14, expects demand for Fung Choi’sproducts and services “to remain healthy withan increasing level of consumer spending”.Fung Choi prints brochures and other adver-tising material for customers like Creative Tech-nology, Haier Group, Qingdao Kerry Vegeta-ble Oil and Tsingtao Brewery. It also has a stra-tegic partnership with Fraser & Neave Invest-ments, a subsidiary of SGX-listed F&N.

Fung Choi will set up a JV company withZhongshan Weilun Co Ltd (Weilun) calledthe Rising Display Products (Zhongshan) CoLtd (Weilun JV), which in turn will set upanother JV company with Guangzhoushi LiriCo Ltd (Liri) called the Liri JV. Fung Choi,which will control the JV, has invested 43.7million renminbi in it. The Weilun JV will,in turn, have a controlling stake in the LiriJV (see chart).

Weilun is a Chinese company with opera-tions in Zhongsha. It designs and manufac-tures point-of-sale display units. Weilun’smain customers are consumer brand namessuch as Procter and Gamble, Unilever andL’Oreal. Liri is one of 20 suppliers of adver-tising designs for signage at PetroChina’spetrol stations, and the only one servingsouthern China. E

The set-up of WeilunJV led to a five-cent(10%) gain in FungChoi’s share price intwo sessions. Thecontract is likely toraise revenues andprofits by 25% andmore in the next threecalendar years.

CHU

JUCK

SEN

G/T

HE E

DGE

SIN

GAP

ORE

Most of the work for the PetroChina con-tract will be done in Zhongshan. The Liri JVwas set up to procure the contract becauseLiri originally did design work for PetroChinabut is unable to produce the signboards, hencethe tie-up with Weilun JV. Fung Choi’s chieffinancial officer Edmond Woo indicated thatthe PetroChina deal’s first year of operation(worth 108 million renminbi) is comparableto Weilun’s current business.

DBSAM’s Toh points out that risks forChina companies are usually related to cor-porate governance issues. However, headds, “Fung Choi’s management has beendelivering on their financials, and valuationsare cheap”. Fung Choi’s Lai says the wholepoint of the JVs is to move into fast-grow-ing and high-margin business. So far, inves-tors are reaping the rewards. But as with allChinese companies, growth doesn’t comewithout risks.

Sm_18_S194.pmd 2/12/05, 11:57 pm18


CORPORATE

| BY VICKI KWONG |

O asis Hong Kong Airlines Ltd, thecity’s first low-fare carrier, won li-cences to operate London, Chicagoand four other routes, becoming thesecond Asian discount carrier to an-

nounce plans to fly to the US and Europe.Oasis will firm up plans to lease Boeing Co

747-400 aircraft after Hong Kong’s Air Trans-port Licensing Authority approved its appli-cation for the routes, CEO Steve Miller said ina telephone interview last Thursday. The air-line plans to start flights to London’s GatwickAirport next June, he said.

The approval “has helped us get back ontrack”, said Miller, a former CEO of HongKong Dragon Airlines Ltd, the city’s second-

biggest carrier. Oasis had originally plannedto start flights this year. “We’ll now proceedwith confirming aircraft and employing crew.”

Oasis, which is among at least 18 discountairlines that have emerged in the region thelast three years, is seeking to win businessfrom budget travellers by charging 40% lessthan economy-class fares offered by CathayPacific Airways Ltd, Hong Kong’s biggest car-

rier, on the Hong Kong-London route.Kingfisher Airlines Ltd, a six-month-old

discount carrier founded by India’s biggestbrewer, has said it plans to fly to the US andEurope. Kingfisher has ordered US$3 billion($1 approx US$0.60) worth of planes fromAirbus SAS, including five A380s, which willbecome the world’s biggest passenger planewhen it enters service next year.

Oasis Hong Kong Airlines gets licences

Cheaper faresOasis may charge as little as HK$1,000 ($1approx HK$5) for a return ticket booked inadvance, Miller said. Average fares may bearound HK$3,000, he said. Cathay Pacific,which last Thursday added a fourth daily serv-ice to London’s Heathrow Airport, chargesHK$5,250 for a trip leaving Hong Kong on Dec5 and returning from London on Dec 12 oneconomy class.

The Hong Kong-based carrier plans to startoperations with one used Boeing 747-400 thatit will lease from Bank of America Corp, Millersaid. Bank of America took over the planefrom United Airlines after the carrier soughtbankruptcy protection.

Oasis plans to put 90 business-class seatsand 270 economy-class seats on the 747-400,Miller said. The four-engine 747-400 can fly amaximum of 8,349 nautical miles (9,601 miles).

Apart from London and Chicago, the air-line also won rights to operate flights to Ber-lin, Cologne, Milan and Oakland. Cathay Pa-cific doesn’t have direct flights to any of Oa-sis’s destinations except London.

Cathay Pacific’s oppositionCathay Pacific had objected to Oasis’ applica-tion for traffic rights before obtaining an air op-erator’s licence, according to a document fromthe Air Transport Licensing Authority. Oasisexpects to get an air operator’s licence in thenext few months, Miller said last Thursday.

Oasis is backed by Raymond Lee, who hasproperty businesses in the US and is chair-man of the airline.

Macau Eagle Aviation Services Ltd is an-other discount airline in north Asia that willoperate in the former Portuguese colony. Itaims to start flights to other Asian cities nextyear, CEO Andrew Pyne said on Nov 14. Hedeclined to name the destinations until anagreement with Air Macau Ltd, the city’s solecarrier, is firmed up.

The new airline, formerly known asWOW!Macau, needs to obtain traffic rightsfrom Air Macau, which has an exclusive op-erating licence in the city. Macau Eagle mayfly to Europe and the Middle East after start-ing Asian flights, Pyne said.

The company dropped the WOW!Macauname as it’s similar to WOW, an allianceformed by the cargo units of DeutscheLufthansa AG, Singapore Airlines Ltd, JapanAirlines Corp and Scandinavian Airlines. —Bloomberg LP

Oasis is seeking to winbusiness from budgettravellers by charging40% less thaneconomy-class faresoffered by CathayPacific Airways Ltd onthe Hong Kong-London route

E

Sm_20_S194.pmd 3.12.05, 12:10 am20


E

likely to be about what’s going on. Surely, atsome point, their “independence” will be re-flected by their own ignorance.

In addition, the less independent directorsare personally involved with the affairs of thecompany and its shareholders — or through lim-ited knowledge, stay silent — the more theycould be claimed to be there just for “windowdressing” or the directors’ fees. And, independ-ent directors who derive the bulk of their in-come from directors’ fees may not be effectivewatchdogs on behalf of minority shareholders.Much like auditors and management consult-ants, they will have to manage their own finan-cial self-interests in following the status quo setby the substantial shareholders and top execu-tives who appointed them versus challengingthem to be better stewards of the company.Would such an individual really be more effec-tive on the board than someone who owns 5%of the company’s shares, representing a signifi-cant portion of his net worth? Wouldn’t the in-dividual holding a significant number of sharesbe more likely to question the rest of the boardand top executives than an individual who is intheir pay?

And, the idea that increasingly onerousstandards of corporate governance will promotea company’s ability to raise capital is simply nottrue. Over the long term, financial markets valuecompanies according to how they actually per-form in terms of delivering shareholder value,with corporate governance rules only helpingto ensure transparency and accountability. Acleanly run company still needs to make moneyto attract the interest of investors.

In the end, an ideal independent directordoesn’t easily fit into the mould that regulatorsin Singapore — and other developed markets,for that matter — are prescribing because it isimpossible to legislate personal ethics. The in-dividual ought to be skilled in business, have agreat deal of boardroom experience, and pos-sess deep insight into the workings of the com-pany and its industry. But such an individual isvery likely to have done some kind of businesswith the company or its majority shareholdersin the recent past. How else would he have ac-quired all the requisite knowledge and skills?

Rather than continue imposing more ruleson public listed companies, Singapore’s regula-tors should perhaps look at other ways of keep-ing top executives and majority shareholdershonest. A good starting point would be to findways to make it easier and cheaper for minorityshareholders and other stakeholders to bringlegal action against their companies when theirinterests have been undermined. That way, in-dependent directors wouldn’t base their conducton a checklist of duties alone, but on an over-arching concern about what is in the best inter-ests of all their companies’ stakeholders.

The SGX has to comply with a stricter definition ofindependent directors. Its independent directorscannot be substantial shareholders of the company.

SHIR

LEY

YE/T

HE E

DGE

SIN

GAP

ORE

EDGEWISE CORPORATE

FROM PAGE 3

E

Oil-storage caverns for Singapore| BY WILL KENNEDY ANDNESA SUBRAHMANIYAN |

S ingapore plans to dig underground cav-erns that can hold 25 million barrels ofoil, expanding the island’s storage ca-

pacity by almost a third, said Choo ChiauBeng, chairman of Singapore Petroleum Co,at the Ascope 2005 conference in Manila lastweek.

The caves, which will cost $800 million,are to be built on Jurong Island, near existingstorage facilities and two of the country’s threeoil refineries. A decision on the project, whichwill be led by Jurong Town Corp, is expectednext year, he said. The new storage will helpend a shortage of tanks in Asia’s No 1 oil-trading centre, Choo adds. Singapore’s threeoil-storage companies outside the refinerieshave been running at 90% of capacity for the

last five years, the US Energy Information Ad-ministration said in a June 2005 report.

Singapore’s three oil refineries, one ofwhich is 50% owned by Singapore Petroleum,have oil tanks that can hold 63 million bar-rels. Independent tank operators have capac-ity of a further 27 million barrels, Choo said,adding that other companies have plans tobuild storage facilities totalling 17 million bar-rels of oil by 2008. — Bloomberg LP

Sm_21_S194.pmd 3/12/05, 12:49 am21


CORPORATE OPINION

1234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678

| BY MANUBHASKARAN |

my say

Will the gloom lift in Thailand?

T he news from Thailand this year hasbeen discouraging. Almost everythingthat could go wrong seemed to havegone wrong: the after-effects of the tsu-nami on tourism, a severe drought, high

oil prices causing inflation to spike up, a harshmonetary tightening by the central bank, pro-tectionist measures by the US on key processedfood exports, an ugly insurgency in the southof the country and mounting political difficul-ties for Prime Minister Thaksin Shinawatra inrecent weeks, despite his landslide victory inthe general elections. Not surprisingly, thestock market has under performed and eco-nomic growth seems to have lost its lustre.

We think it is too soon to write Thailandoff. There are two reasons to think it couldsurprise on the upside next year. First, someof the above negatives were one-off and arealready dissipating or disappearing. Second,the supply-side fundamentals of the economyremain intact — along with the surge in in-vestment spending that we expect, economicgrowth is likely to recover quite sharply.

One-off negatives dissipatingOn the first point, one encouraging developmentis that the drought has ended and reservoirs arefilling up again. The drought has also galvanisedthe government into addressing needed im-provements in drainage and related works sothat the water-dependent sectors such as farm-ing and certain manufacturing industries suchas chemicals will not be hurt so badly the nexttime there is a drought. In addition, tourism isrecovering as visitors put the horrors of the tsu-nami behind them and tourist infrastructure isrepaired. Oil prices have also started to ease,and they are likely to continue to fall next year.What is more, we see the rate increases by thecentral bank as a positive — it shows that it isindependent and will act effectively against in-

flation. We expect more mon-etary tightening in the comingmonths but the bulk of it hasalready happened.

Supply side of economystronger than expectedSecond, despite the cyclicalweakening in the economy thisyear, the supply side of theeconomy — in terms of its abil-ity to attract investment, delivera good return on capital, adjustto intensified competition anddevelop new niches of competi-tiveness — appears to be intact.Our recent visit to Thailandgave us more confidence inthese longer-term factors. Busi-nessmen we met — both Thais and foreign in-vestors — seemed a lot more confident than inour previous visits. We came across severalinstances of how Thai manufacturing busi-nesses had managed to fend off tough compe-tition from China and elsewhere. For instance,there was a Thai firm making flexible packag-ing materials for the food-and-beverage indus-try. Faced with more competition, it upgradedprocesses, took in a Japanese partner with im-proved technology and quality control, and de-veloped a reputation for high-quality productsthat today command a premium price in theChinese market. We saw similar examples in asteel company and in a chemical company pro-ducing intermediate plastics for use in Thai-land’s booming automotive industry.

In fact, a visit to several industrial estatesreinforced this view. It was clear that there isa surge of new foreign investment — much ofit in supporting industries for the automotiveindustry. All three industrial estates we vis-ited were expanding massively because of a

booming demand for factoryspace. Several conversationswith Japanese investors indifferent industries also led usto believe that there is likelyto be a continued rise in Japa-nese investments in Thailand.

Also, it is worth notingthat external demand is prov-ing to be much stronger thanmany of us expected. That isone reason almost all theAsian economies that have re-ported third-quarter GDPgrowth numbers have sur-prised strongly on the upside— the latest being Malaysia.We would not be amazed ifThailand also produced a

pleasant surprise when it reports third-quar-ter GDP. After all, some of the key economicindicators such as consumer confidence havebeen improving lately.

Politics is the main riskWhat, then, are the risks? Our main concern ispolitics. The southern insurgency seems to beworsening. The tough security measures that thegovernment felt it had to take may have hadthe unintended effect of hurting ordinary folksin the south and causing them to become morealienated from the central government. In suchinsurgencies, the key to victory is to secure thesupport of the ordinary people; that providescrucial intelligence and denies the insurgentsmuch-needed refuge and resources. However,while there is always a risk of insurgent attacksspreading to Bangkok or major tourist areas, wesuspect that this will not happen. The insurgentsseem to be calculating that such a widening oftheir campaign would alienate their supportersand bring forth a much tougher and more effec-

tive security crackdown. If a terrorist attack didtake place in Bangkok, it would be the work offoreign terrorist groups and not the local insur-gents. So, the likelihood is of continued violencein the south, but contained in the deep southrather than spreading.

So, that leaves Thaksin’s weakening posi-tion as the key remaining risk. A former sup-porter, media magnate Sondhi Limthongkul,has whipped up an increasingly effective cam-paign against Thaksin. His rallies seem to begaining larger crowds and some of the chargeshe has hurled against the premier seem to behitting home with the crowds. Consequently,there is talk of efforts to unseat Thaksin andeven rumours of a coup. But the fact of thematter is that Thaksin still retains control overvirtually all the instruments of power — he has75% support in Parliament, and tough lawsagainst defections limit the chances of support-ers defecting. He also has loyalists in the secu-rity forces and in the bureaucracy, while alsocontrolling much of the electronic media. Heis a savvy political fighter and will not go downso easily. We suspect that the current agitationagainst Thaksin will peter out — unless hemakes a misjudgement. Our remaining con-cern, however, is that he is now wounded po-litically and may not command the same au-thority that he had before. That exposes himto renewed bouts of agitation in future shouldhe or his supporters make policy errors or pur-sue unpopular but necessary policies.

Still, if the economy does recover well, aswe expect, then the public mood is quitelikely to change for the better. Overall, weexpect Thailand to do better than the con-sensus expects.

Manu Bhaskaran is a partner of and head ofeconomic research at Centennial Group Inc, aneconomics consultancy

E

Yuan still pegged to the dollarThere’s a good chance that this

year will be remembered in thefinancial markets as the one in

which China blinked and made theyuan more flexible. The misconcep-tion should be snuffed out before jour-nalists start compiling their “Thingsthat Shook the World This Year” lists.

What flexibility? All that hap-pened on July 21 was that the yuanmoved from one peg to another,says a new study. Although Chinano longer targets a fixed rate ofabout 8.3 to the dollar, it continuesto hug the US currency almost asfirmly as before.

Economists Ajay Shah and IlaPatnaik and statistician Achim Zei-leis say, “The evidence suggests thatthe new Chinese currency regime isa peg to the US dollar.”

China’s official position is thatthe yuan began its long march toflexibility after it was pegged to abasket of currencies. Apart from thedollar, the basket includes the euro,the yen, the won, the Singapore dol-lar, the British pound and the ring-git. In August, Stephen Jen, MorganStanley’s global head of currencyresearch, computed the impliedweight of the dollar in China’s cur-

Swiss currency starting July 22, thegraph looks like a mirror image ofthe yuan-franc. So far in their analy-sis, the researchers have used sta-tistical techniques that have existedsince 1981. Using a newer approach,known as econometrics of structuralchange, Shah and his team haveruled out the possibility that China’scurrency regime is becoming moreflexible with time.

The authors have set up a weeklymonitoring mechanism at this webpage: www.mayin.org/ajayshah/pa-pers/CNY_regime. Until Nov 21, thelatest date for which Shah has donethe math, “there’s no evidence thatthe currency regime has changedcompared with that prevailing” inthe 68 days to Oct 31, he says.

Shah was a consultant to India’sfinance ministry until late October.His study, however, has nothing todo with the Indian government. Healso has shown that the Indian ru-pee and the Russian ruble are se-verely inflexible.

Eyes on ChinaIt isn’t a predictive study. Itdoesn’t say the yuan will remainpegged to the dollar forever oreven tomorrow. When — and if —China embarks on the road to aflexible currency, the researchersexpect to discern the signs on theirradar. Those signs, or a lack of

them, may have a crucial signifi-cance next year.

If the US Federal Reserve stopsraising interest rates next year andJapan, coming out of deflation,starts increasing them, then theremay be a case for the dollar toweaken against Asian currencies in2006. The authorities in Beijing,some analysts say, will embrace astronger yuan either under pressurefrom the US or after the domesticChinese economy overheats somuch that it becomes imperative toshift the export engine into a lowergear. “China may decide to move itscurrency by about 10% or more inthe next 12 months, thus leading notonly to a weakening of the dollarrelative to the renminbi but also toan appreciation of a wide range ofAsian currencies, including theyen,” says New York Universityeconomist Nouriel Roubini.

Looking at how determined Chinais to hold on to a de facto dollar pegclose to the original level, it’s not atall clear whether it will allow a 10%revaluation next year. A flexible yuanmay still make the list of the world’smomentous financial events —though not this year, nor perhaps thenext. — Bloomberg LP

Andy Mukherjee is a BloombergNews columnist. The opinions ex-pressed are his own.

12345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678

| BY ANDY MUKHERJEE |

rency basket at 85%.“It’s possible the People’s Bank

of China is only gradually allowingthe basket index to be revealed soUS dollar/yuan remains stable inthe initial period,” he speculated.What if a much simpler explanationfor the stability is that the basketjust doesn’t exist? What if the pun-dits who claim to have unearthedsigns of correlated movements be-tween the yuan and the yen have itall wrong?

If Shah and his co-researchers areright, expectations that Asian curren-cies would rise next year on the backof a more flexible — and stronger —yuan may come to naught, just asthey did this year.

Regression analysisTen out of 15 currencies in Asia-Pa-cific that Bloomberg tracks have de-clined this year. The yen has fallenthe most against the dollar (14%),the won the least (0.3%). The yuanhas risen about 2.4% — or another0.3% since the July 21 revaluation.To arrive at their conclusion that theyuan is still pegged, the researchershave computed the daily changes inthe Chinese currency’s value against

the Swiss franc, a clean floater. Ifthe People’s Bank of China has in-deed begun managing the yuanagainst a basket, then fluctuationsin the yen or the euro against theSwiss franc would have a bearingon the yuan-franc.

If, on the other hand, the yuan isstill pegged to the dollar, they wouldboth move in lockstep against theSwiss franc. The first hypothesis issquarely rejected by a regressionanalysis; the second is shown to beoverwhelmingly true.

Still peggedIf one plots the dollar against the

E

Sm_27_S194.pmd 3.12.05, 12:09 am27

CORPORATE OPINION


| DENISE YAM |

Stronger-than-expected growth in the thirdquarter of this year (3Q2005) buoyed bytrade and consumption: Real GDP growth ac-celerated to 8.2% year-on-year (y-o-y) in3Q2005, as Hong Kong’s exports continued toride on China’s investment boom, while pri-vate consumption, especially in services, wassupported by resilient asset prices as abun-dant liquidity helped offset the impact ofsharply higher interest rates.

We stand by our call for a cyclical slowdownled by China: We remain convinced that Chi-na’s economy is slowing as investment comesunder pressure from overcapacity rather thantighter liquidity. The slowdown is being keptat a gradual pace by surplus liquidity but,given the vast excesses created over the boomyears, the slowdown is expected to lastthroughout next year and into 2007. For theHong Kong economy, we forecast an orderlyslowdown in sync with China.

Growth forecasts lifted for this year andnext: Taking into account the strong growthalready realised in 3Q, the upward revisionin the 2Q figure, and the more gradualslowdown in China, we are lifting our 2005real GDP growth forecast to 7.4% from 5.5%.Strong trade growth remains the key driverin 4Q. For next year, we see growth slowingto 5%, though stronger than the 4.2% ratein our previous forecast. Consumer price in-dex (CPI) inflation looks set to reach our1.2% forecast this year, and is expected toaverage 2% next year.

Global monetary tightening remains thebiggest drag: Asset markets and consumersentiment remain haunted by the global mon-etary tightening trend, which is not expectedto end before the second half of next year(2H2006). Leveraged households pay 0.1%GDP more in mortgage interest for every 25basis-point hike in rates. Growth could bekept below full potential until the US Fed-eral Reserve stops tightening.

Growth momentum sustained into3Q2005, real GDP 8.2% y-o-y aboveforecastHong Kong delivered yet another stronggrowth report. Real GDP growth acceleratedto 8.2% y-o-y in 3Q2005, from 7.3% (re-vised up from 6.7%) in 2Q and 6.2% in 1Q,squaring the pace seen last year. This wasstronger than our (+7%) and market (+6%)expectations. On a quarter-on-quarter (q-o-q) seasonally adjusted basis, nevertheless,growth slowed from 3.4% (revised from3%) in 2Q to 2.7%. Nominal GDP growthcame to 8.1% y-o-y (+6.5% in 2Q), thestrongest since 2Q2004.

Private consumption surprised, but tradewas the biggest growth driverPrivate consumption surprised on the upsidein 3Q2005, growing 4.6% y-o-y in real terms,and 2.2% q-o-q (seasonally adjusted). Thisacceleration in consumption came throughdespite sharply rising interest rates, and con-trasts with the lacklustre retail sales data forthe quarter (+6.1% y-o-y versus +7.3% in2Q). Overall consumption was boosted by ro-bust spending on services, up 4.7% y-o-y inreal terms (2.4% in 2Q), more than offset-ting the slowdown in food (+3.3% versus+4% in 2Q) and goods (+5.9% versus+7.1% in 2Q) consumption. It appears that

Hong Kong growth beats expectationsGrowth momentum sustained into 3Q2005, real GDP 8.2% y-o-y above forecast

improving labour market conditions helpedovercome the pressure on households fromhigher interest rates.

Fixed investment maintained slow growth(+2.4% versus +4.5% in 2Q), as the declinein construction in both private (-6.3%) andpublic (-12.6%) sectors upon the completionof some large projects was offset by furtherexpansion (though slowing) in expenditure onmachinery and equipment (+8.1% vs+10.1% in 2Q).

The expansion in the net exports positioncontributed 4.5 percentage points to overallGDP growth, exceeding the contribution fromdomestic demand ex-stocks (+2.9 percent-age points), continuing to dominate as thebiggest driver of growth. Exports continuedto ride on China’s investment and exportboom, up 12.8% y-o-y in real terms forgoods, and 8.2% for services, beating thegrowth seen in imports.

Inbound tourism — Not as bigas expectedContrary to high expectations on thenewly opened Disneyland’s contributionto inbound tourism, visitors to the themepark as well as total inbound travelersin Hong Kong have been disappointingso far. Total visitor arrivals grew a mere7.6% YoY in the first nine months, andonly 4% in 3Q2005. Mainland Chinesevisitors, on which the Hong Kongeconomy had become increasingly de-pendent, only rose 2.2% in the first ninemonths, and even slipped by 0.5% y-o-y in 3Q. Visitor consumer spendingtotaled HK$19 billion ($1 approxHK$4.58) in 3Q2005, up 7.3% y-o-y, lessthan the HK$23.4 billion spent by resi-dents travelling abroad.

Stronger-than-expected growthin 2005…Economic growth so far this year hasbeaten earlier expectations by a widemargin, as Hong Kong’s trade sector con-tinued to ride on China’s investment and ex-port boom, while the positive wealth effect fromasset reflation and robust employment growthgave support to consumption. The rise in inter-est rates was steep, but it had been adequatelyanticipated. China optimism and revaluation ex-pectation continued to draw liquidity into theregion, so the unwinding of the liquidity boomhad been gradual.

…But we forecast slowdown ahead insync with ChinaWe remain convinced that China’s economyis slowing as investment comes under thepressure of overcapacity, rather than tighterliquidity. We expect this slowdown to be keptat a gradual pace by surplus liquidity and lowinterest rates. Economic data out of China,though subject to considerable scepticism re-garding its credibility, suggest a gradualslowdown is underway since the peak in1H2004. We see Chinese authorities maintain-ing effective management of liquidity condi-tions through a combination of credit and ex-change-rate policies so as to achieve a softlanding. Because of the vast excesses createdover the boom years, nevertheless, thisgradual slowdown trend is expected to lastthroughout next year and further into 2007.For the Hong Kong economy, given its de-pendence on China for growth, we also fore-cast an orderly slowdown in sync with China.

upward revision comes from our forecasts ontrade growth. We see exports and importsboth maintaining double-digit y-o-y growthrates in 4Q2005, supported by resilient glo-bal demand and persistent overinvestment inChina. Export growth should still be near12% for the year. We now see the trade sec-tor making a bigger contribution to GDPgrowth (6.4 percentage points) than previ-ously, more than compensating for the softerdomestic demand. The invisible trade sur-plus, in particular, is expected to surpass16% of nominal GDP this year, a new record,as Hong Kong continues to capitalise onChina-related opportunities.

CPI inflation, having averaged 1% y-o-y inthe first 10 months, seems on track to reach our1.2% forecast for the year. Inflation is set to ac-celerate above 2% by year-end, driven prima-rily by private residential rental contract renew-als at higher rates. Asset-price reflation, andhence the increase in rentals, had been the main

driver behind the current reflation. Retailers andrestaurants are starting to feel pressure from thesteep hikes in rents, and are passing the increas-ing costs onto consumers. However, beforewage growth catches up, such increases in rentsrisk crowding out spending in other consump-tion categories. Meanwhile, we have yet to seeany significant impact of the appreciation in therenminbi on Hong Kong’s import prices. Webelieve intense competition among mainlandproducers will mean that a limited portion ofthe burden of the revaluation will be passed onto consumers. Meanwhile, our global team’sexpectation for further strength in the US dol-lar, and our conservative outlook on asset pricegains in Hong Kong upon higher rates also holdus back from looking for a sharp surge in infla-tion in the near term. Looking into next year,we continue to expect a gradual slowdown inline with the mainland economy. Limited break-through is expected of domestic demand growth(+2.7% verss +2.6% this year) amid high in-terest rates, while trade growth is seen dippingto single-digits, the slowest in four years. Over-all GDP growth next year is now forecast at 5%,revised up from 4.2% previously to reflectour expectation for a more gradual slowdownin China.

Denise Yam is a vice-president and memberof Morgan Stanley’s economics team coveringGreater China

Monetary tightening haunts consumersand investors in the short termWe expect steeply higher local interest ratesto remain a drag on the economy in the im-mediate term, although the impact on con-sumption has so far been mitigated by theimprovement in employment conditions andresilient asset prices. Outstanding mortgagesof HK$540 billion represent 40% of GDP;each 25 basis-point interest-rate hike wouldmean an additional 0.1% of GDP (HK$1.4billion) annually in mortgage interest pay-ments by Hong Kong’s leveraged households.From their lows, savings deposit, time de-posit (three months), prime lending andmortgage lending rates have already risen by200, 275, 250 and 290 basis points, respec-tively. Our US economists see a further 100basis points of interest rate hikes by the Fedin the next 12 months, and we remain waryof pressures on asset markets and consumerdemand as rates head up further.

Medium-term growth still dependent onChina’s demand for servicesHong Kong’s medium-term economic develop-ment strategy is straightforward: to further en-hance its role as an international financial cen-tre and the service hub of southern China. Thestrength seen in the export of services over thepast several years is the best evidence of suchdevelopment. Services exports have reached35% of GDP in 3Q2005, and the share in GDP isstill expanding, we believe. Net of service im-ports, the services trade surplus has expandedcontinuously and never failed to contribute posi-tively to real GDP growth since 1999.

In anticipation of more service sector op-portunities from China’s increasing globali-sation, Hong Kong businesses have remainedoptimistic and stepped up hiring this year. Par-ticularly strong growth in headcount was seenin the trade sector, financial services, restau-rants and hotels. We expect to see furthersteady improvement in labour market condi-tions ahead.

Forecasts updateWe are lifting our 2005 real GDP growth fore-cast to 7.4% from 5.5%. The revision takesinto account the strong growth already real-ised in 3Q and the upward revision in the2Q figure. We have made limited adjustmentsto domestic demand components (+2.6%versus +2.8% previously), so the bulk of the

E

In anticipation of more service sector opportunities from China’s increasing globalisation, Hong Kong businesseshave remained optimistic and stepped up hiring this year

BLO

OM

BERG

Sm_30_S194.pmd 2/12/05, 6:37 pm30

OPINION CHINESE BUSINESS


China’s magazine industry opens upand distribution of magazines have notchanged much, and the potential for the maga-zine industry remains untapped, mainly be-cause of the under-developed distributionchannels for newsstand and other retail out-lets. This can be attributed to the lack of com-petent and experienced management of dis-tribution in the publishing industry.

Magazine publishers do not actively engagein market research to find out readers’ demo-graphic data and to improve their circulationdatabases. As a result, most publishers are stillunclear about their target audience. In addi-tion, the over-dependence of magazine pub-lishers on post offices, which undertake 70%of the total distribution for publishers in China,has resulted in their limiting themselves to anarrow range of distribution methods. Con-versely, this also proves that there are oppor-tunities for expansion and growth in China’spublications distribution market.

A segmented populationChinese magazines are starting to target moresegmented population groups to meet theirvarying tastes. The number of magazine ti-tles increased from 6,078 in 1989 to 9,490 in2004 by 56%, but their average circulationdropped from 303,000 copies to 299,000. Ascompetition becomes intense, magazines willtend to specialise to meet the demands ofniche markets.

Some magazines have started focusing onreaders of certain age groups. Start in Life is amagazine that targets fresh university gradu-ates, Seventeen is aimed at the teenage mar-ket, while Elegance attracts the mature womensegment. Some magazines focus on readergroups of certain professions such as Reader(rural edition), which targets rural residents,and Dagong, which targets working people.Others concentrate on urban readers likeShenzhen Weekly in Shenzhen, City Pictorialin Guangzhou, Xinmin Weekly in Shanghai andBrand World in Beijing.

The segmentation of Chinese magazines isstill in its early stages. As readers becomemore segmented, the number of titles will tendto increase, leading to greater variety andhigher standards.

Though publishing may be the hardest ofall businesses in China for foreign investors toenter, given the laws and political concerns, itis also among the least developed and there-fore most promising. There are plenty of indi-cators that the more stringent controls mayease, with more foreign players entering themarket, the easing of government control oneditorial content, and governmental reform ofthe industry and the distribution market. Allthis points to a more positive environment forinvestors in the coming years.

Tan Jin San is a writer with China KnowledgePress, a premier provider of trade and invest-ment research information on China. For moreinformation, please visit www.chinaknowledge.com.

| BY TAN JIN SAN |

O ver the past few years, as the Chi-nese government relaxes its controlsover the economy, it is slowly re-moving the magazine publishingindustry’s financial and editorial

constraints and opening up China’s publish-ing industry to foreign involvement. China’saccession to the World Trade Organization(WTO) means it must admit foreign competi-tors into various industries like banking, autoproduction and especially publishing, in or-der to level the playing field.

In 2003, the government approved US$469million ($1 approx US$0.60) worth of foreigninvestment into 84 Chinese printing enter-prises. Last year, in line with pledges Chinamade upon entry to the WTO in 2001, theState Administration of Press and Publicationsannounced that overseas investors will be al-lowed to form book, newspaper, and periodi-cal wholesale and retail firms. Before, inves-tors had to cooperate with a state-owned en-tity that has a government-issued publishinglicence, but many magazine companies inChina are already looking for foreign partnersas the government eases restrictions.

Industry structureThe State Press & Publication Administration(SPPA) classifies magazines published inChina into seven categories: general interest,social science, science and technology, cul-ture and education, art and literature, chil-dren’s and pictorials.

Despite China’s entry into the WTO, the Chi-nese magazine industry is still strictly supervisedand monopolised by the government. In 2003,about 2,000 magazine titles operated as com-mercial entities, accounting for only 22% of allmagazine titles in China. The others were man-aged by either government or academic institu-tions. The Chinese magazine industry is basi-cally still managed by the government, as far asthe industry structure is concerned.

However, the regulations on magazinesare not as strict as those of other media likenewspaper or TV. It is comparatively easy toget a new licence to publish a magazine.From 2000 to 2003, an average of 245 newtitles emerged in the magazine market. Incontrast, obtaining a new licence to publisha newspaper is difficult since newspapersplay a very important role in directing propa-ganda. In addition, the magazine industry’sentry threshold is relatively low and invest-ment costs are comparatively less than thoseof other media.

Even though government censors havebecome less demanding, the Chinese govern-ment still has the final say on editorial con-tent, typically demanding adjustments to po-litically sensitive or salacious material.

Magazines in China make profit via twochannels — revenue from large circulationnumbers, or from advertisement sales. Thefirst business model targets low-income read-ers, while the second model targets mainlyhigher-income readers like managers andwell-educated and wealthy women.

In 2003, advertising income for Chinesemagazines was 2.3 billion renminbi ($1approx 4.77 renminbi), a 60% surge over the2002 figure of 1.5 billion renminbi. In 2003,gross publication income was estimated at 10billion renminbi. Given that publication ex-penses accounted for 40% of gross publica-tion income, the net publication income couldreach six billion renminbi. As a result, Chinamagazine’s total revenue stood at 8.8 billionrenminbi. The ratio of advertising income, netpublication income to other revenue was26:68:6. Therefore, despite a shift in China’s

magazine market to the advertising sales-driven model, most Chinese magazines stilldepend mainly on publication income. WithChina’s large population of rural people whoseincomes are relatively low, however, maga-zines with low costs and a reliance on saleswill be more likely to have a large marketshare in the long run.

Despite the rise of Chinese fashion maga-zines that entice a new generation of femalereaders with high-end brand-name advertise-ments and the latest fashion tips and peeks atthe rich and famous, the most enduring maga-zine titles in China are still plain-covered pe-riodicals with contributions from the Chinesereaders themselves.

ReaderOne such title is Reader (Duzhe), the mostpopular monthly magazine in China. As atJanuary 2004, the total circulation of Reader, abimonthly magazine, had topped 800 million,ranking fourth among magazines worldwide,after Reader’s Digest, National Geographic andTime, which are published in the US.

First published in 1981, Reader has rankedin the top 10 highest circulated Chinese maga-zines for 13 consecutive years, with itsmonthly circulation exceeding eight million inOctober and November 2003. Known for itshigh quality and heart-warming style, Read-er’s content is mainly contributed by its mil-lions of readers. In 2003, Gansu ProvincialPeople’s Press, Reader’s publisher, signed afive-year contract, involving a total of US$4.5

million, with US-based company Big WayMedia Inc in Lanzhou to push the magazinein the North American market.

The StoriesThe Stories, published by the Shanghai Litera-ture and Art Publishing House, is still, afterfour decades of history, one of China’s mostwidely read monthly magazines, with a cir-culation of four million nationwide, secondonly to Reader. Beginning last year, thepocket-sized magazine became a bimonthlymagazine. Priced at 2.5 renminbi, The Storiesbrings in net profit of more than 30 millionrenminbi annually. Two-thirds come fromsubscriptions, with the rest from advertise-ment revenue. In 1985, The Stories was themost popular magazine in China, with an all-time high monthly circulation of 7.6 million.

No stars appear on its plain covers. Oralliterature and word-of-mouth tales fill itspages. It publishes mysteries, adventures, oldChinese legends and jokes. The editorial boardchooses stories for both entertainment and lit-erary value. Ordinary individuals and theirachievements are celebrated in the stories.Some stories are a reflection of Chinese soci-ety and behind nearly every story is a tradi-tional moral, which seems to speak to audi-ences across the country.

ProblemsDespite the many opportunities that themagazine industry offers, there are someproblems inherent in the system. One is pla-giarism. In China, where imitation is consid-ered the sincerest form of profitability, thereis a lack of product differentiation in the na-tion’s 9,000 licensed magazines, stemmingfrom the reluctance to create original con-tent. Titles from the US are merged into oneanother, losing their unique identities whenimported to China. Producers look to eachother to decipher market demand, followingthe safe and tested route. As a result, manymagazines look alike, and all the free Eng-lish-language monthlies, like That’s Beijingand Beijing This Month, are virtually inter-changeable to consumers and advertisersalike. As competition and foreign investmentgrow, though, magazine publishers will soonlearn that brand loyalty and product identi-fication are vital to magazines.

Distribution is another problem. As distri-bution channels are not developed as com-mercial business enterprises, circulation salesvia newsstands and other retail outlets are notall there yet. Therefore, the market for con-sumer magazines has developed neither asquickly nor as widely as it should have overthe past few years. In the last decade, the sale

China Knowledge is a premier provider oftrade and investment research informationto foreign businesses keen on the Chinamarket. Its wide range of China businessintelligence is available on multipleplatforms — print, online and televisionmedia. For more information, visitwww.chinaknowledge.com.

Circulation of magazinesin China

NO AVERAGEOF CIRCULATION CIRCULATION

YEAR TITLES (BIL) (MIL)1989 6,078 1.84 0.31990 5,751 1.79 0.311991 6,056 2.06 0.341992 6,484 2.36 0.361993 7,011 2.35 0.341994 7,325 2.21 0.31995 7,583 2.34 0.311996 7,916 2.31 0.291997 7,918 2 0.251998 7,999 2.09 0.261999 8,187 2.85 0.352000 8,725 2.9 0.332001 8,889 2.9 0.332002 9,029 3 0.332003 9,704 2.9 0.32004 9,490 2.84 0.3

Note: All magazines refer to those published in mainland China

E

Even though government censors have become less demanding, the Chinese government still has the finalsay on editorial content, typically demanding adjustments to politically sensitive or salacious material

BLO

OM

BERG

Sm_32_S194.pmd 2/12/05, 6:38 pm32

CORPORATE MALAYSIA


Saving national iconsA monumental task lies ahead for the two new CEOs of Malaysian Airline System and Proton

| By P GUNASEGARAM,LEELA BARROCK AND MARYANN TANof The Edge Malaysia |

I dris Jala began his first day as CEO ofMalaysian Airline System Bhd (MAS, theowner of Malaysia Airlines) on Dec 1with a flourish. He reported at HQ, thebuilding on Kuala Lumpur’s posh Jalan

Sultan Ismail which may be sold, just as thesun was rising at 7am.

Before the day was out, he had presentedhis turnaround plan to the board and an-nounced the appointment, effective nextmonth, of Peter Read, a 32-year veteran withBritish Airways, as director of operations. Readwill have wide-ranging responsibilities for op-erational efficiency, just the area which needsto be fixed for MAS to make that turnaround.

At Proton Holdings Bhd, chairman DatukMohammed Azlan Hashim tempered the an-nouncement of Proton’s largest quarterly losseswith the appointment, effective next month,of a new CEO, Syed Zainal Abidin Syed MohdTahir, currently executive director of the othernational car project Perusahaan OtomobilKedua Sdn Bhd (Perodua).

Both Idris and Syed Zainal have monumen-tal tasks ahead of them, turning around twoof the most prominent national icons, both ofwhich are currently facing their most seriousoperational problems. For MAS, it is the sec-ond turnaround attempt in less than threeyears and for Proton, it is its first major one.

For both, it could have been avoided if theright measures had been taken and the rightpeople put in place to begin with. That wouldhave made both organisations competitive.What has happened must serve as a lesson, abitter one, for the nation to ensure that thereis no repeat performance.

First, MAS. In a misguided move, the gov-ernment privatised it to Tan Sri Tajudin Ramli,then controlling shareholder of mobile opera-tor Celcom (currently under Telekom Malay-sia) in the 1990s. When the airline plungedinto problems at the turn of the millennium,the government bought back Tajudin’s stakeat twice the market price then.

After years of mismanagement, MAS lostmuch of its core competencies in many areasof operations and was burdened by an over-ambitious route expansion programme and arapid and questionable fleet expansion pro-gramme, accompanied, in some instances, byexcessive cost-cutting which sliced servicequality and hampered marketing.

Eventually, MAS reported what was prob-ably its worst ever loss, RM836 million for theyear ended March 2002. Enter Datuk (now TanSri) Md Nor Yusuf, who was then special ad-viser at the Ministry of Finance, and the firstrevival plan. By the end of 2002, MAS had putin place the Widespread Unbundling Exercise(WAU), effectively disposing to PenerbanganMalaysia Bhd (PMB, wholly owned byKhazanah and which is MAS’ holding com-pany) its aircraft assets and pushing all domes-tic losses to this entity. It made profits soonafter, but not on an operational basis and notif you include the results of PMB, which thegovernment and Khazanah still do not disclose.PMB carries the losses from aircraft ownershipand domestic operations. The same MAS, aswe knew it, is yet to turn around.

Md Nor left for the Securities Commissionin April 2004 and Datuk Ahmad FuaadDahlan, a person who had spent much of his

what it is all about, insiders say. Hopefully,Idris will be given the free hand that he needsto do all that.

At Proton, financially things are not thatbad. But the implications of operational prob-lems are horrendous. The key problem is thatnone of Proton’s recent launches, not theWaja, not the Gen.2, not the Savvy, has elic-ited the kind of public response that wouldgive enough volume for reasonable profit.

Does Proton have the capability to bothdevelop and produce cars of quality which willbe accepted by the public? There is no doubtthat it can produce them but there is consid-erable doubt that it can develop them.

The inescapable conclusion from this isthat Proton needs a foreign partner of reputeand it needs it fast. And the government mustbe prepared to give up at least managementcontrol and probably equity control as well.Will it be prepared to do so?

If MAS loses a billion ringgit annually on re-ported results, it won’t be far wrong to doublethat figure to get the real loss for the nation.

But Proton’s task may prove to be moredifficult — there is a serious structural prob-lem here. That would be mainly because themanagement has read it wrong all this while, Proton needs a foreign partner and will needto allow that partner to take control in termsof equity and management. That’s a hard de-cision to take politically.

But the longer that tough decision is de-layed, the greater the loss is going to be andthe harder it is going to be to get a partner. IfChrysler and Nissan can be taken over byDaimler and Renault respectively, there is noreason why we should not let go of Proton,for the right terms, of course, and keep ameaningful stake.

That stake may eventually be worth a lotmore than the controlling interest we are try-ing so hard to preserve right now, whosevalue will continue to go down if Proton’s for-tunes don’t change.

P Gunasegaram, Leela Barrock and MaryannTan are executive editor, associate editor andsenior writer respectively at The Edge Malaysia

time in overseas postings in regional sales of-fices in MAS, took his place as managing di-rector. Subsequent events showed that ap-pointment was a mistake.

For the first quarter to June 2005, barely ayear after Fuaad had taken over, the airlineslid precipitously to a loss of RM275 million.Fuaad resigned and MAS chairman Datuk DrMunir Majid stepped into the MD’s shoespending the entry of new MD Idris.

Munir had the unpleasant task last weekof announcing that for the first six months ofits current financial year, it made net lossesof over RM600 million, clocking over RM300million of losses in the second quarter.

But neither MAS nor Khazanah NasionalBhd, its ultimate holding company, saw it fitto disclose the total extent of losses to the na-tion as PMB’s results were not disclosed si-multaneously.

It is clear what MAS’s problems are. Its fuelcosts are insufficiently hedged and it has notbeen able to pass on the spiralling fuel coststo customers by efficient pricing. Fuaad, ac-cording to MAS insiders, did not put in placea mechanism for effective fuel hedging theway some other airlines did.

During Fuaad’s tenure, sources say, salesagain became supreme and revenue manage-ment, which aims at revenue maximisationthrough appropriate pricing, took a back seat.Marketing and selling of seats became su-preme without sufficiently looking at the over-all impact of measures such as route expan-sion on yields.

There are problems in other areas as well.Revenue per employee is low relative to otherairlines, less than half SIA’s, for instance. Staffneed to be cut or to be made a lot more pro-ductive. All of which point to a sorry state ofaffairs that Idris is trying to put right.

Not only did he announce the appointmentof a highly experienced director of operations,the very next day, he got the Prime Ministerto talk to MAS staff and then he spoke to themhimself. True to his reputation as a man whoengages, he has gone to the staff, asking themto address him as plain Idris. First impressionsof him are good, he seems to have a grasp of

SBB chairman quits ahead of crucial votecaught other members of the SBBboard by surprise, was nonethelessinevitable. Observers say it would beextremely difficult for him to continueas chairman and director when, as asubstantial shareholder, he is againstthe acquisition and is in favour ofmerging SBB with Bumiputra-Com-merce Holdings Bhd (BCHB).

“He cannot be part of a board thatsupports the acquisition but has ashareholder vote against it,” says anobserver.

His resignation, therefore, is clearindication that he and the Sultanwill use their blocks of shares tovote against the proposed acquisi-tion of AGHL, despite talk in recentdays that they may have changedtheir minds, industry sources say.

The outcome of the Dec 12 EGMis key to whether a merger between

| By ANNA TAING ofThe Edge Malaysia |

The ante has been raised in thetussle over the future of South-ern Bank Bhd (SBB).While SBB has launched a media

blitz to get shareholders to vote infavour of the acquisition of Asia Gen-eral Holdings Ltd (AGHL) when theymeet on Dec 12, Syed Mohd YusofSyed Nasir quit last Friday as chair-man and director ahead of the ex-traordinary general meeting.

Sources say Syed Yusof — whowith his business partner, the Sultanof Selangor, are against the acquisi-tion of AGHL — has submitted his res-ignation to SBB and Bank Negara. Anaide confirmed his resignation whencontacted by The Edge Malaysia.

Syed Yusof’s resignation, which

and the Sultan of Selangor, SultanSharafuddin Idris Shah.

ECM Libra, a boutique investmenthouse, also made an announcementto that effect on behalf of the Sultanand Syed Yusof on Oct 21.

Both the Sultan and Syed Yusofhave a combined direct stake of 9%in SBB. They also own an indirectstake of about 17% in SBB, viaKillinghall (M) Bhd. The major share-holder in Killinghall is Ramuda SdnBhd with a 32% stake, in which SyedYusof and the Sultan collectively own52%. Tan Teong Hean, CEO of SBB,owns the remaining 48% in Ramuda.

Last Friday, the board of Killinghallmet, most likely to discuss how itwould vote at the EGM. The outcomeof the meeting is uncertain.

In October, BCHB also madeovertures to SBB to begin merger

talks but it wasn’t until Nov 11 thatthe board of SBB responded.

Since then, only two meetingsbetween representatives from bothsides have been held, but nothingconcrete has emerged. Industrysources say both meetings were con-sidered “preliminary”, enablingboth sides to find out what eachwants from the deal.

Further merger talks on holdBe that as it may, it is learnt thatfurther merger talks have been puton hold, pending the outcome of theDec 12 EGM.

“If shareholders vote ‘yes’ to thedeal, it could make the proposedBCHB-SBB merger more complex,largely because BCHB is unlikely towant to buy SBB with AGHL. Itwould have implications on the pric-ing of SBB,” says a banking source,pointing to the fact that the acquisi-tion of AGHL will erode the net tan-

SBB and BCHB will take off.Prior to Syed Yusof’s resignation,

the balance was tipped in favour ofSBB being able to get shareholders’approval for the purchase.

“Shareholders, when they voteon AGHL, are also in effect votingon whether they want to merge[with BCHB]. If they vote ‘yes’ toAGHL, the merger will not happen,”says a source.

This is because BCHB is unlikelyto want an SBB merger that includesAGHL. An industry source says it ishighly probable that BCHB will walkaway from the merger if the AGHLdeal goes through.

News that the two banking groupsmay merge came on Oct 21, whenBCHB announced that it had obtainedcentral bank approval to start talks tobuy stakes in SBB from Syed Yusof CONTINUES ON PAGE 34

New MAS CEO Idris Jala

E

Sm_33t34_S194.pmd 3/12/05, 2:27 am33


CORPORATE MALAYSIA

| By RISEN JAYASEELAN of TheEdge Malaysia |

T hree months after investing inSingapore, TM InternationalSdn Bhd (TMI) still comes un-der fire for that deal. Why buyinto the smallest player in a

saturated market, detractors keepasking? But to Yusof Annuar Yaacob,TMI’s CEO, the acquisition of a 25%stake in MobileOne (M1) has been acoup of sorts.

“Many others wanted to buy intoM1 but they did not think it waspossible to get from [a stake of]12.1% to under 30%. We did ourhomework before the exercise andknew exactly where the shares wereand went and bought the blocks.”

To recap, the M1 stake that hadbeen on the market for a long timewas a 12.06% block owned byHong Kong’s PCCW and Britain’sCable & Wireless. But it drew littleresponse. One reason cited was thatregulatory approvals would beneeded to breach certain levels ofshareholding in a Singapore mobileoperator, which kept prospectivebidders less interested.

But TMI managed to secure allthe necessary approvals from theSingapore regulators to grow thestake to below 30%.

“Many potential bidders thoughtthat Singapore’s IDA [Infocomm De-velopment Authority] would notgive the approvals if they raisedtheir stake [in M1] to beyond 12%.But we secured the approvals as wemade sure that all our bases werecovered,” Yusof says.

Still, having only a 25% stake doesnot give TMI control over M1. Indeed,this is contrary to TMI’s modus oper-andi of preferring to buy majoritystakes in their overseas investments.

But as Yusof points out, Singa-pore is peculiar in that sense. “To

be a significant regional player, weneed a foothold in Singapore. But togo past a 50% stake in a telco inSingapore, the authorities woulddeem you to be an operator in thatmarket. This would mean being sub-jected to many tests before you aresuccessful. We did not want to gothat way and indeed we do not needto. The management and the board[of M1] are friendly [to TMI]. Therehas been no issues with my and aKhazanah Nasional Bhd representa-tive’s appointments to the board ofM1.” (TMI owns 80% in a joint-ven-ture company with Khazanah,which bought into M1.)

Aside from the presence in a keyregional market like Singapore, M1offers the possibility of technical andoperational tie-ups with other com-panies in the Telekom Malaysia Bhd(TM) group.

“We cannot discuss this publiclybut there are numerous initiatives weare working on, such as in the areaof roaming. We are looking at tie-upsbetween M1 and Celcom, and M1and PT Excelcomindo Pratama [Ex-cel], for example,” says Yusof.

The friendliness of M1’s manage-ment to TMI, adds Yusof, meansthere could be people from the TMgroup who could be seconded to M1to understand their work cultureand the way they do business.

TMI’s future marketsTMI has set its sights on investingin three markets close to home: Viet-nam, the Philippines and Thailand.However, each of these markets hasits own risks and challenges.

“Every other telco is queuing upfor Vietnam and the Vietnameseparties are in no hurry to do anydeals quickly. In the Philippines, itis unlikely that the GSM [global sys-tem for mobile communications]space will open up, so our invest-

ment will be in some other techno-logy such as CDMA [code divisionmultiple access]. In Thailand, weare looking to be in the mobile sec-tor,” explains Yusof.

TMI missed an opportunity toinvest in India when its joint effortwith Singapore Technologies Tele-media Pte to buy into India’s IdeaCellular Ltd, the fifth-largest opera-tor in the world’s fastest-growingmajor mobile market, fell throughbecause of regulatory issues.

And while India still remainsvery much on TMI’s radar screen,valuations of telco assets there havesky-rocketed, says Yusof.

“India in the last 12 months hasbecome really expensive. We werewilling to pay an enterprise multi-ple of 6.5 times for Idea. But, later,the same sellers were willing topay up to 10 times the enterprisevalue to buy back the stake,” re-calls Yusof.

(Enterprise multiple is a ratio used

Yusof: TMI’s revenue and profitcontributions to parent will keepgrowing

to determine the value of a companyand takes debt into account. It is cal-culated as enterprise value dividedby earnings before interest, tax, de-preciation and amortisation.)

Citing another example, Yusofpoints out that Vodafone recentlypaid an enterprise multiple of 15times to buy a 10% stake in BhartiTele-Ventures Ltd, a mobile player.

Similarly, valuations are reachingsuch astronomical heights in otherbig markets. The ongoing auction ofTurkey’s mobile-phone operatorTelsim Mobil TelekomunikasyonHizmetleri AS has seen prices risingfrom its floor price of US$2.8 billion($1 approx US$0.60) to around US$5billion now, points out Yusof. Thus,TMI’s strategy in markets like thosewill be to partner other players tomake joint bids, joining a growingtrend.

TMI is increasingly becoming theonly growth prospect for its parent,TM. This is obvious when seen inthe light of decreasing revenues inTM’s fixed-line business and an in-creasingly competitive and saturateddomestic mobile sector.

A quarter of TM’s profits nowcome from TMI, and Yusof says thecontributions of TMI to its parent’sbottom line will only grow. With atotal of 10.3 million subscribers fromits combined overseas assets, TMIhas already surpassed Celcom’s sub-scriber base of 6.3 million.

“In the next few years, TMI willgrow to having 20 million subscrib-ers. Thus, TMI’s challenge is that itis increasingly very important to thegroup and there is virtually no roomfor slip-ups,” says Yusof.

A key market where Yusof andTMI have to make sure things go ac-cording to plan will be Indonesia.Early this year, TMI paid almost RM3billion ($1 approx RM2.24) for a57% stake in Excel, while Khazanah

HARI

S HA

SSAN

/THE

EDG

E M

ALAY

SIA

FROM PAGE 33

Acquisition part of strategy to be strong niche player

paid about RM890 million for a16.8% stake.

However, Excel is the third playerin a market where major names likeSingapore Telecommunications Ltdand ST Telemedia are involved withthe two largest players. The Hutchi-son group and Maxis Communica-tions Bhd also have investments insmall mobile operators in Indonesia.Indeed, Yusof himself admits that Ex-cel faces a huge challenge in the In-donesian market. “After TM hasspent a lot of money buying into Ex-cel, the expectations are high for itto succeed.”

TMI faces a similar challenge inBangladesh, where it has investedabout US$21 million since 1995 tohelp set up TM International (Bang-ladesh). A mobile operator with a28% market share, it faces stiffcompetition from other operators,all of which are mainly run by for-eign telcos.

TMI is also in talks with TM totake over Celcom’s last remainingoverseas asset: a 49% stake in Iran’sMobile Telecommunications Com-pany of Esfahan. Celcom has exitedall its other overseas ventures.

Although TMI’s focus is theAsian region, it may buy into assetsin other markets such as the MiddleEast. “There is no clear focus to getinto that market, but because Ma-laysia is seen by the Middle East asa progressive Islamic country, we al-ways get invitations and solicita-tions to acquire assets there. Butthese markets are not cheap.”

Meanwhile, TMI will continue dis-posing of its investments in Africa,which were made between 1995 and1997. TMI has US$1.3 billion capitalemployed in all its foreign assets.

Risen Jayaseelan is an assistant edi-tor with the Capital Markets and Com-panies desk at The Edge Malaysia

gible asset (NTA) value of SBB.An industry source says Syed Yusof’s res-

ignation also makes sense if he does not in-tend to vote ‘yes’ on the proposed AGHL ac-quisition. “It would be difficult for Syed Yusofto chair the EGM if his intention is to voteagainst the AGHL purchase,” an industrysource says.

Can SBB get the simple majority at theEGM to push the AGHL acquisition through?“It’s still 50:50 at this point in time,” industryobservers say.

Syed Yusof, who holds a 4% direct stake inSBB, was appointed chairman of the board lastyear. Sources say the Sultan and Syed Yusofare especially unhappy with the commitmentby SBB to put a $50 million downpayment forthe proposed purchase of AGHL.

The $50 million is non-refundable if theregulatory bodies such as Bank Negara do not

approve or reject the deal by Dec 17, and ifdesignated shareholders don’t vote “yes”.However, the money is refundable if any regu-lator rejects the deal before Dec 17.

“Basically, it means the Sultan and SyedYusof will have to vote yes on the deal [asthey are among the designated shareholders],otherwise the downpayment will be forfeited,”says a source close to the two shareholders.

SBB, on the other hand, has insisted thatthe proposed acquisition of AGHL has theunanimous endorsement of the full board. Theresignation of Syed Yusof appears to show thatis no longer true.

SBB needs a simple majority of 51% to passthe deal. SBB is proposing to buy 51.58% ofAGHL at $12.25 a share, or for a total consid-eration of $473.9 million. SBB will also even-tually make a mandatory general offer for theremaining shares in AGHL, which will bringthe total cost to $993 million.

The move to acquire AGHL is part of thebank’s strategy to become a strong nicheplayer, especially in wealth management, notjust in Malaysia but in the region as well.

Although SBB has agreed to merger talks,pricing is expected to be a major stumblingblock. SBB has already indicated that thebank’s intrinsic value, as assessed by US in-vestment house Goldman Sachs, is RM5 toRM5.50. Thus, it is unlikely to sell below RM5,an industry source says.

Banking sources say if AGHL is includedin the equation, SBB’s NTA will see erosionof about 30%, which means it is unlikely thatBCHB will offer anything higher than twotimes that NTA, they say. But SBB believesthat AGHL will be earnings enhancing for thebank and create value for shareholders.

That the Dec 12 EGM is important for SBBis reflected by the advertising blitz that thebank embarked on last week in the run-up to

the meeting. Says an industry observer: “Sucha blitz in the media is unprecedented. Wehave not seen anything like this in Malaysia’scorporate scene, before although it is not nec-essarily bad. The bank has to put its caseacross. Those shareholders who oppose thedeal should do the same to put forward theirarguments that it’s bad for SBB.”

With the major players stepping up theirmoves ahead of Dec 12, some observers won-der whether Bank Negara could change thesituation by announcing before Dec 12whether it is approving or rejecting the deal.

“It will be interesting,” says one observer.“The deal still needs Bank Negara’s approvalno matter how SBB shareholders vote. So, willit wait till after Dec 12 or make a decisionbefore shareholders meet?”

Anna Taing is an associate editor at The EdgeMalaysia

E

M1 a key link for TMI’s regional planAfter Indonesia and Singapore, TMI has set its sights on Vietnam, the Philippines and Thailand

E

Sm_33t34_S194.pmd 3/12/05, 2:28 am34

CORPORATE MALAYSIA


Global funds snap up Starhill REITEnthusiastic response partly due to projected yield of above 6%

| By LIM AI LEEN of The Edge Malaysia |

T he market has spoken. Despite localfunds’ gripes that YTL Corp’s Starhillreal estate investment trust (REIT) offers staid yields and a capped upside,institu-tional investors oversubscribed

the issue by 8.8 times at RM1.01 ($1 approxRM2.24) per unit last week.

Out of the 479.6 million units on offer, 65%was allocated to foreign funds, while 35%went to local institutions. Meanwhile, the re-tail tranche of 29.99 million units was over-subscribed by 10.2 times at 96 sen per unit.In total, the REIT raised RM513.2 million.

This enthusiastic global response is vindica-tion enough for lead financial adviser ECM Li-bra Capital Sdn Bhd, which fielded questionsfrom disgruntled local investors during Starhill’sprospectus launch a couple of weeks ago.

These investors were concerned about ris-ing interest rates in Malaysia and that the YTLgroup contributes about 60% of the REIT’s an-nual revenue. One analyst is still perturbed thatthe lease with JW Marriott hotel (one of the threeREIT properties) only provides for a 5% rentalhike every five years, a rate of 1% per annum.“It doesn’t even cover inflation,” she says.

Yet, it appears that the foreign funds haveno problem with these issues.

“They [local funds] are still talking aboutissues that no one in the international marketis griping about,” says David Chua, managingdirector of ECM Capital. “Even with Malay-sia’s interest-rate hike, and the launch of theworld’s largest REIT [the Link REIT in HongKong], global funds are into Starhill. Theseare investors who can buy any asset they likeanywhere in the world.”

Kuala Lumpur’s high-end malls, Lot 10 andStarhill Gallery, and thefive-star JW Marriott Hotelwill be injected into thetrust at RM1.2 billion.These properties are cur-rently owned by YTLCorp’s wholly owned sub-sidiary YTL Land Sdn Bhd.YTL Land will retain a51% stake in the REIT,while the remaining 49%will go to the public. May-ban Trustees Bhd will actas trustees while PintarProjek Sdn Bhd, a 70%subsidiary of YTL Land, will provide manage-ment services to the trust.

Roadshows for this trust were held in Singa-pore, Hong Kong, the Netherlands and the UK.YTL Corp’s effusive chieftain Francis Yeoh usesthe words “sensational” and “groundbreaking”to describe the roadshow results.

“This is a marvellous result for StarhillREIT, YTL Corp and Malaysia. Investors havedemonstrated overwhelming support for thisgroundbreaking transaction, and they havedone so at the top end of the pricing range.International investors have voted with theirpockets, outpacing domestic demand by twoto one. Our international investor list is a top-tier list,” he says.

For ECM’s Chua, the Starhill performance isalso proof that foreign investors are not shun-ning the country.“Malaysia is the worst-perform-ing market in Asia this year. So, the demandfrom foreign investors demonstrates something.If it’s a big issue that has quality — for exam-

ple, the YTL brand name that people can iden-tify with — they will buy,” he says. “The suc-cess of Hong Kong’s Link is setting the pace.This is a long-term initiative to develop our capi-tal markets. We need sizeable transactions.”

There is no disputing that REITs are theflavour-of-the-month asset among regional in-vestors. But other offerings have been greetedwith more thunderous applause.

The Hong Kong government’s US$2.5 bil-lion ($1 approx US$0.60) Link REIT, listedon Nov 25, soared 28.6% as at its HK$13.2close last Friday. Institutions oversubscribedthe issue by 19 times, while retailers’ demandwas 18 times the number of units offered.

“Both REITs are very successful,” saysChang Tou Chen, HSBC’s managing directorof investment banking, Singapore, when askedhow the response to Starhill REIT was com-pared to that for Hong Kong’s Link REIT. HSBCis one of the joint book runners for Starhill andwas also joint global coordinator on Link.

Meanwhile, Malaysia’s only other REIT, theAxis-REIT, was oversubscribed 18.4 times bythe institutions. It listed in July at RM1.25 perunit and has climbed 30.4% as at last Friday.

Local fund managers shrug their shoul-ders at the book-building results and concedethat they still subscribed to the Starhill of-fering despite their worries.

“It’s a matter of not having a choice. This isa big investment with over RM1 billion [worthof] assets, whereas the Axis-REIT was onlyabout RM260 million. You buy it to hold for the6% yield. But we still have concerns about theupside,” says the analyst. Starhill will be listedon Dec 16, and investors will be watchingclosely to see how the units perform then andin the years to come. One fund manager contin-ues to fret about yield enhancement prospects.

“This REIT still needs to set out a seriousacquisition policy and the timeline for it,” shesays, drawing comparisons with Singapore’sMapletree REIT.

At RM1.01, the Starhill REIT is projected toyield 6.24% for financial year (FY) 2006 and6.56% for FY2007. This is lower than Axis-REIT’s projected 8%, but slightly above the 6%promised by Link. It is also above Hong Kongtycoon Li Ka-shing’s Prosperity REIT, which isexpected to yield between 5.3% and 5.7%when it is listed later this month.

While YTL has not stated if other assetswill be injected into the trust, observers haveidentified the Ritz-Carlton Residences, situatedclose to the current REIT properties, as a po-tential acquisition.

Lim Ai Leen is an assistant editor with theCapital Markets and Companies desk at TheEdge Malaysia

| BY MALAR VELAIGAM |

The REIT that Malaysia’s Permo-dalan Nasional Bhd (PNB) is mull-ing over will be Syariah-compli-

ant, sources say. It will not only bethe first Islamic REIT in the country,but probably also the world’s first Sya-riah-complaint asset-type of this class.

PNB’s move to lump all its assetsinto an Islamic REIT came about af-ter guidelines on that asset classwere released by the Securities Com-mission (SC) of Malaysia two weeksago. The guidelines had long beenanticipated by the industry.

PNB had recently signalled its in-tention to enter the REIT market toconvert its fixed assets to liquid ones.Its CEO and president Tan Sri HamadKamah Piah is reported to have saidthat the group aims to grow its prop-erty business and that PNB couldlater transfer these properties to aREIT, which it will manage itself.

However, PNB going into a REITdoes not seem to have captured theimagination of the investing public.Hence, would an Islamic REIT by PNBbe well received?

Considering that the investmentmanagement company has been in

Will PNB’s Islamic REIT take off?the property business for over 20years, PNB should be able to pulloff the REIT. Moreover, it has a poolof buildings and other assets, suchas Stadium Merdeka and StadiumNegara, at its disposal.

PNB’s entry into the propertysector came in 1984, which saw theconstruction of its flagship building,the 40-storey Menara PNB, on JalanTun Razak, KL. Since then, thegroup has built up its portfolio ofproperties and now has eight in itsstable. These include the 39-storeyPNB Darby Park Executive Suitesserviced apartments on Jalan Binjaiand the 27-storey Menara TunIsmail Mohd Ali, both in the city,Plaza IBM in Taman Tun Dr Ismailand Wisma KPMG in Damansara.

PNB manages total lettable spaceof 1.1 million sq ft in its own port-folio and a further 694,000 sq ft un-der two property trust funds (PTFs).This makes it the largest investmentmanagement group in the country.

According to its website, thegroup manages RM58 billion worthof funds, which are invested in over360 listed companies. PNB also hasa number of other operations underits belt, including asset management,

well utilised. “How much rental canyou get from a stadium? It’s not thatbig and I doubt they would includethose [the stadiums] in the REIT,”says an industry observer.

So, what’s special about an Is-lamic REIT compared to a conven-tional one? The trust is merely a tax-advantage tool used to convert anasset to cash. Hence, there are noreal Islamic issues in REITs. The Is-lamic issues only crop up when theREIT includes property that isunacceptable to Islamic investors,such as gaming and insurance.

According to the guidelines re-leased by the SC, an Islamic REITcan include real estate where ten-ants operate non-permissible ac-tivities, according to Syariah law.However, the Islamic REIT’s fundmanager has to adhere to addi-tional compliance assessments be-fore acquiring real estate that in-volves tenants who operate mixedactivities. An Islamic REIT mustalso use takaful schemes (unlessthese are not available) to insureits real estate.

Industry players are also specu-lating that PNB’s Islamic REIT couldbe linked to the newly establishedYayasan Amanah Hartanah Bumi-putera (YAHB), or Bumiputera Pro-perty Trust Foundation, which wasannounced in the budget in Septem-ber. The foundation was created to

education and unit trusts.It is an established equity fund

player, with a number of popularfunds in its stable, including Ama-nah Saham Wawasan 2020 and theAmanah Saham Bumiputera funds.But the entity is better known forits listed PTFs, namely AmanahHarta Tanah PNB (AHP) and Ama-nah Harta Tanah PNB 2 (AHP2).There is only one other listed PTF,which is AmFirst Property Trust.

Still, analysts remain scepticalabout the quality of properties in thegroup’s portfolio. “On the surface,it may look like it [the REIT] couldbe big, but it all depends on thequality of the assets,” says the headof research at a foreign researchhouse. The main concern expressedby analysts is that not all of PNB’sassets are commercial or retail prop-erties. “The flavour now [for a REIT]is commercial or retail property, notreally residential or even hotels,”says an analyst.

Even with the likes of StadiumMerdeka and Stadium Negara underits belt, PNB’s prospective REIT isnot exciting analysts. The reasonoffered is that although these assetsare substantial in size, they are not

increase the wealth and participationof bumiputeras in the property sec-tor. Towards this end, some RM2 bil-lion was allocated in Budget 2005.Malaysian Prime Minister AbdullahAhmad Badawi had said that theRM2 billion would be utilised to pur-chase commercial properties, prima-rily in major towns, with the objec-tive of providing greater opportuni-ties for bumiputera entrepreneurs atprime business locations.

YAHB has also been associatedwith Prokhas Sdn Bhd, the companythat will take over the residual as-sets of Pengurusan Danaharta Na-sional Bhd. Danaharta will shutdown at the end of this month andits residual property assets, worthRM530 million, will be taken over byProkhas, owned by the Malaysiangovernment. The assets comprise152 properties, of which 65 are situ-ated in central Peninsular Malaysia.

Nevertheless, if any group issuited to offer a Syariah-complaintREIT, it has to be PNB, having suc-cessfully managed properties andtrusts. In terms of financial stand-ing, the group posted RM568 mil-lion in net profit on the back ofRM1.5 billion in revenue for theyear ended Dec 31, 2004.

Malar Velaigam is a writer with theCapital Markets and Companiesdesk at The Edge Malaysia

ABDU

L G

HAN

I ISM

AIL/

THE

E DG

E M

ALAY

SIA

High-end malls Lot 10 and Starhill Gallery (above), and the five-star JWMarriott Hotel will be injected into the trust at RM1.2 billion

E

E

Sm_35_S194.pmd 2/12/05, 11:59 pm35

SPORTS BUSINESS


Wembley may miss FA Cup final‘Soccer church’ delays tarnish London’s image as it prepares for 2012 Olympics, say critics

| BY BRIAN LYSAGHT |

L ondon’s new Wembley stadium, de-scribed by Brazil’s Pelé as “the church”of soccer, may be empty for the sport’sbest-known English contest next year.Multiplex Group, which is building the

90,000-seat stadium on the site where Eng-land won the 1966 World Cup, will fail to meeta January deadline for completion. Bookmak-ers have stopped taking bets on a new Marchdeadline because the chances of a miss aretoo high, said Simon Clare, a spokesman forCoral Racing Ltd.

Wembley, the world’s most expensivesports stadium, will cost £757 million ($1approx £0.33), five times forecasts and 62%more than New York’s proposed Yankee base-ball park. Critics say delays, caused by dis-putes with contractors, have tarnished Lon-don’s image as it prepares to spend US$16billion on hosting the 2012 Olympics. The FACup final will be held on May 13.

“It seems to be a very grandiose design,and the costs have spiraled out of control,”Bob Blackman, a lawmaker for the GreaterLondon Assembly, the city’s local parliament,said in an e-mail on Nov 28. “What’s going tohappen with the stadiums that are going tobe built for the Olympics?”

The London-based Football Associationsays it needs two months after building endsto prepare Wembley for the FA Cup final. Thegoverning body has Cardiff’s Millennium Sta-dium on standby for the showpiece.

Sydney-based Multiplex “is still saying theywill make” the completion deadline, WembleyCEO Michael Cunnah said on Nov 24. “Thereare no changes” to Multiplex’s plan to com-plete the stadium by its March deadline, saidMathew Chandler, a Sydney-based spokes-man, in a Nov 28 e-mail.

Wembley will finish on time “if theweather holds”, said Tom Kelly, an organiserwith the London-based GMB steelworkersunion, on Oct 18.

Nine cranes and 3,000 workers are onWembley’s site. Multiplex said on Nov 2 thatsteel costs may rise by £25 million and in Feb-ruary said it probably won’t make a profit onthe project. In April 1996, the cost was fore-cast to be £180 million.

Wembley will be restricted by local lawsto 25 sports events a year, forcing it tohost concerts by stars like Robbie Williams topay off debts of £426 million. It will sell luxuryseats for as much as £588 a soccer match.

“It’s going to be challenging” to make thefinancing work, said Michael Siebold, a Frank-furt-based lawyer specialising in sports projects,in a telephone interview on Oct 21. “It’s a uniquesituation because football-related income willmake up a fraction of what’s needed.”

The troubled project follows the Millen-nium Dome, a saucer-shaped entertainment

Soccer historyOther funding came from government grantsand lottery proceeds. The stadium may re-finance the WestLB loan or sell bonds to payit off, said Wembley’s Cunnah, 47. The Pre-miership, the top English soccer league, in-creased revenue by 6% to £1.3 billion lastseason and was more profitable than anyother European league, according to ac-countancy firm Deloitte & Touche. Thatpopularity may help Wembley succeed,said Siebold.

“There wasn’t any point in building justanother Premiership stadium because thereare a lot of good ones,” Cunnah said. “Wehad to be a step above that.”

A 133m (436 ft) steel arch was installedabove Wembley last year and is visible acrossLondon. It’s two meters shorter than the Lon-don Eye, the Ferris wheel near the Thames.

Cunnah’s challenge is to maintain the

site that cost £491 million to build in 1999and embarrassed Prime Minister Tony Blair’sgovernment when it failed to attract tourists.

Funding difficultyLondon was chosen by the InternationalOlympics Committee in July to host the 2012games. Wembley and the Millennium Domewill host Olympic events, according to organ-izers who are also planning to build an 80,000-seat Olympic stadium and a 500-acre parkwith facilities for 15,000 athletes.

Bets are off on Wembley’s completion datebecause demand for the wager has “set ouralarm bells ringing”, Clare, the spokesman forBarking, England-based Coral, said in a Nov17 telephone interview.

The proposed US$800 million Yankee base-ball park, due to open in 2009, will have50,800 seats and host 80 games a year. Lon-don’s Arsenal soccer club will open the60,000-seat, £357 million Emirates Stadium inAugust and have about 30 events annually.

The Football Association, the stadium’sowner, had difficulty raising funds. Ger-many-based WestLB AG provided a £426million loan after JPMorgan Chase & Cobacked out. WestLB syndicated the loan andnow holds £55 million of Wembley debt,said John Godfrey, a bank spokesman.

Wembley, the world’s most expensive sports stadium, will cost £757 million, five times forecasts and 62% more than New York’s proposed Yankee baseball park

reputation of the stadium’s predecessor,which was known for twin white towers andthe prestige of its soccer matches. The build-ing will host home games of England’s na-tional team, whose players include DavidBeckham and Wayne Rooney, soccer leaguedeciders and rugby matches.

‘Riddled with inefficiencies’A crowd of 200,000 swarmed the first FA CupFinal. Held there in 1923, it was known asthe White Horse Final for the police horse thathelped clear the field. Bolton beat West Ham2-0. England’s national team defeated WestGermany 4-2 at Wembley in 1966 to win thecountry’s only World Cup.

“The name Wembley is famous all overthe world, certainly the football world,” saidMatthew Holt of the University of London’sFootball Governance Research Center. —Bloomberg LP

Wembley will be restricted by local laws to25 sports events a year, forcing it to host concertsby stars like Robbie Williams to pay off debt of£426 million. It will sell luxury seats for as muchas £588 a soccer match. The troubled projectfollows the Millennium Dome, whichembarrassed Prime Minister Tony Blair’sgovernment when it failed to attract tourists. E

PICT

URE

S: B

LOO

MBE

RG

The Millennium Dome, a saucer-shaped entertainment site, cost £491 million

Sm_36_S194.pmd 2/12/05, 11:27 pm36

SPORTS BUSINESS


Beckham’s income up amid waning appeal| BY ALEX DUFF |

D avid Beckham, soccer’s richestplayer, increased his income lastyear by about 33% from off-fieldactivities such as endorsing GilletteCo razors, the latest accounts of his

Footwork Productions Ltd company showed.The Real Madrid midfielder earned £17.3

million ($1 approx £0.33) in the year to Dec31, 2004, after receiving 8.7 million in the 12months to April 2003, according to the ac-counts made public recently at CompaniesHouse in London. He made £9.96 million inthe eight months from May 2003.

The England captain also endorses Adidas-Salomon AG, the No 2 maker of sportinggoods; Coty Inc, the world’s biggest maker ofperfume and cologne; and PepsiCo Inc, thesecond-largest soft-drink producer. Beckham,30, may not have many years left as a top-level professional athlete and he’s never wona trophy in his two years at Real Madrid.

“Beckham’s image is evolving,” OliverButler, an account manager in London forsports consultant Sport & Markt AG, said in aphone interview. “It’s not just only footballthat attracts companies, there’s the wholeBeckham package: his looks, fashion, hisglamorous wife and children.”

Beckham, a father of three, is married to 31-year-old Victoria, a former member of the SpiceGirls pop group. She is listed as the companysecretary in the accounts and her father, An-thony, a 57-year-old electrician, is one of its two

directors. Still, there are signs that Beckham’sattraction for advertisers may be waning.

Not No 1Vodafone Group plc, the world’s largest cel-lular-phone company, four months ago saidit wouldn’t renew his three-year endorsement

contract. A survey in Mayby Sport & Markt showedthat about 76 million peo-ple in Europe’s five big-gest soccer markets foundhim “appealing”, a lowerrating than for Real Ma-drid teammates ZinedineZidane and Ronaldo.

Beckham earns 6.4million euros ($1 approx0.5 euros) in salary fromReal Madrid, the sameamount as its other so-

called “galacticos”, including Zidane, accord-ing to Spanish media.

Real Madrid, which says it’s soccer’srichest team by revenue, is trying to avoida third straight season without a trophy forthe first time in 53 years. It already quali-fied for the last 16 of Europe’s Champions

BLO

OM

BERG

League and is sixth in the Spanish league,six points behind leader Barcelona.

The commercial standing of Beckham, whohas been criticised by some UK media for hisrecent performances as England captain, mayhinge partly on whether he leads the nationalteam to success at the 2006 World Cup inGermany, according to Butler.

Beckham is beginning to plan for his lifeaway from top-level sport. Two days ago, heopened his soccer school in Greenwich nextto London’s Millennium Stadium. The DavidBeckham Academy is the largest sports facil-ity of its kind in Europe, with two full-sizeindoor pitches, classrooms, a dining hall andmedical facilities.

“This academy is something of a dream ofmine, and has been for a number of years, but Inever dreamt it would be as big as it is,”Beckham told reporters. “This is for my future,after I finish playing.” — Bloomberg LP

Beckham is beginning to plan for his life away from top-level sport

The commercial standing of Beckham,who has been criticised by some UKmedia for his recent performances asEngland captain, may hinge partly onwhether he leads the national team tosuccess at the 2006 World Cup inGermany — Butler, Sport & Markt AG

E

AVAILABLENOWPP 13404/9/2006 MICA (P) 331/05/2005

arts and culture for the businessperson

SUBSCRIBER COPYNOT FOR RESALE

> ‘i will be the standard bearer to make sure anwar doesn’t come back to umno’mukhriz mahathir on kj, his father, family, business, rabbis & more> free map! galleryw/owalls: unrealised projects #1> dato’ in love part 2> the triad business> hisham rais’ sign of the yeast> patrick teoh’s bottom line

three curious views of an attempted makeover of malaysian entertainment. meet bodilicious hannah, giganormous khir & archangel doreen

arts & culture for the businessperson the all-new off the edge

available at > borders > kinokuniya > mph > times and all major newsstandsfor enquiry and subscription call 603-7660 3838 ext 509 fax 603-7660 9286 email [email protected]

‘i will be the standard bearer to make sure anwar doesn’t come back to umno’mukhriz mahathir on Anwar Ibrahim, KJ, his father, family,

business, rabbis and more dato’ in love part 2, monte carlo 1947 More fun in the hay! Swiss

milkmaids, Russian femme fatales and the family jewels

infernal affair Closer than we think: An inside

look at Mah Cai lifestyles and the triad business model

centrefold!hannah tan, khir rahman, doreen tang On celebrity and Malaysian entertainment

free map!gallery w/o walls Unrealised Project #1Membina Masjid, lebuhraya and much, much more in our exploration of what can be

tapai Hishamuddin Rais and the Sign of the Yeast

teohlogyPatrick Teoh on Big Business, bottom lines and our behinds + your animal zodiac forecast for the year of the dog by joey yap

Sm_37_S194.pmd 2/12/05, 11:41 pm37

Raising the barBoutique-hotel business to get more challenging

Bangkok slowdown Luxury-condo market losing steam in Thai capital

Loh Lik Peng, entrepreneur and owner of the upcoming New Majestic Hotel

MAJESTIC THE NEWTHE NEW The Majestic Hotel makes way for a swankier hotel, with all the heritage and old charm preserved

&CCiittyy CCoouunnttrryyWEEK OF DECEMBER 5 — DECEMBER 11, 2005THE EDGE

Scc_Cover_S194.indd 1Scc_Cover_S194.indd 1 12/2/05 6:34:01 PM12/2/05 6:34:01 PM

CC2 • THEEDGE SINGAPORE | DECEMBER 5, 2005

(

CITY&COUNTRY PROPERTY BRIEFS

EDITOR/REGIONAL MANAGING DIRECTOR

Tan Boon Kean ([email protected])

SECTION EDITORCecilia Chow

([email protected])

STAFF WRITERDenise Wee

([email protected])

COPY-EDITING DESK Dorothy Teoh, Elaine Lim,

Koay Sook Kuan,Evelyn Tung, Wong Ee Laine

SENIOR PHOTOJOURNALIST

Chu Juck Seng ([email protected])

PHOTOJOURNALIST Shirley Ye Yingyu

([email protected])

DESIGN DESKCalvin Yuen, Christine Ong,

Nik Edra Ridthwan Anuar, Chan Yoke Lin

PRE-PRESS DESKThomas Chin, Hong Kin Siang,

Yong Onn, Zamri Razali,Kuah Choon Eng,

To Yen Suang

ADVERTISING + MARKETING

REGIONAL GENERAL MANAGER | Edward Stanislaus

([email protected])MANAGER | T Shanmugaratnam

([email protected])Colin Tan

([email protected])Simon Wong

([email protected])Wendi Yang

([email protected])COORDINATOR | Sumi Ateck (sumi.

[email protected])

CIRCULATION-SUBSCRIPTIONS

REGIONAL SENIOR MANAGER | Suresh Kumar

([email protected])ASSISTANT MANAGER |

Rosniati Selamat ([email protected])EXECUTIVE | Naziela Nasir

([email protected])ASSISTANT | June Cheong

([email protected])

PUBLISHERThe Edge Publishing Pte Ltd


Tel: (65) 6232 8622Fax: (65) 6232 8620

PRINTERKHL Printing Co Pte Ltd

57 Loyang DriveSingapore 508968

Tel: (65) 6543 2222Fax: (65) 6545 3333

We welcome your comments and criticism.

Send your letters toThe Edge, Raffl es City Post

Offi cePO Box 218

Singapore 911708Tel: (65) 6232 8622Fax: (65) 6232 8620

e-mail: [email protected]

Pseudonyms are allowed but please state your full name, address and

contact number for us to verify.

HomeOffshore

Prosperity REIT plans HK$1.92 billion IPOCheung Kong’s Prosperity REIT plans to raise HK$1.92 billion ($1 approx HK$4.58) in an IPO this month, fol-lowing the US$2.6 billion Link REIT. The company is raising money to buy seven offi ce and industrial properties from Cheung Kong and other share-holders for HK$4 billion, a Bloomberg report says.

The REIT plans to sell 888.2 million shares at between HK$2 and HK$2.16, according to sale arrangers. Yields range between 5.31% and 5.73%. Pros-perity REIT plans to fi x the price of units on Dec 8, the wire report adds. Cheung Kong will gain about HK$2.43 billion from the sale, which is being ar-ranged by JPMorgan and Merrill Lynch. Cheung Kong plans to subscribe as much as 18.58% of Prosperity REIT, while Hutchinson plans to purchase up to 10.42%.

Hong Kong property sales slackenProperty sales in Hong Kong slack-ened further, with no units sold for major launches, according to a JP-Morgan Hong Kong property update issued Nov 28. By comparison, 25 units were sold the previous week. Recent launches like Harbour Green and Chianti were frozen due to unat-tractive pricing, compared with the secondary market. Much attention was focused on seven projects, in-cluding Grand Promenade and Chel-sea Court, with 5,000 units to be handed over to buyers. According to Hong Kong media reports, some 3,000 units have not arranged for mortgage fi nancing and buyers are under pres-sure to dispose of units to avoid mort-gage payments.

Meanwhile, developers are hold-ing fi rm on selling prices for unsold inventories. As a result, primary sales prices were 30% higher than second-ary market prices and liquidity was channelled into the secondary market, the report says. “But given that most developers have achieved their sales targets, we expect primary sales to remain sluggish until early next year,

when there would be more hints on the interest-rate trends,” the JPMorgan report adds.

Shanghai’s prime-offi ce rents to rise Prime-offi ce rents in Shanghai are ex-pected to rise 25% this year, while rents in the mid and lower end are de-clining and vacancy rates rising, says a recent Jones Lang LaSalle (JLL) report. The rise in prime rents would be the highest in recent years. Sales prices have already exceeded US$3,000 psm ($1 approx US$0.60).

The JLL report forecasts that growth in next year’s prime-offi ce rents will slow to about 10% in the Puxi district due to this year’s high base and also because companies are trying to cut down on offi ce space. It also predicts that by 2008, the vacancy rate in Shang-hai’s prime sector will rise to 20% due to two big projects in Pudong — the World Financial Centre and Sun Hung Kai’s Mei Shi Cheng — which will add 320,000 sq m to the market.

Japan construction scandal sparks quake fearsSusumu Ojima, president of Japanese property developer Huser Manage-ment Ltd, has denied that he was complicit in fraud. Ojima is among a number of Japanese developers who are being questioned in parlia-ment about a construction scandal this month, when architect Hidetsugu Aneha admitted that he had falsi-fi ed data to cut costs, says a media report. This has raised fears that the buildings he has designed may not be earthquake proof.

It has been found that Aneha falsi-fi ed data for at least 21 buildings. It is also believed that Aneha designed nearly 200 buildings in at least 20 pre-fectures. He has admitted that in the course of a moderate earthquake, his buildings “might crumble”, the report added. The architect told reporters he was under pressure to speed up projects and cut cost. There’s fi erce competi-tion to win contracts in Japan, even though the construction industry is recovering. — Compiled by Denise Wee

Sim Lian buys LincolnsvaleSim Lian has bought Lincolns-vale, a 39-apartment develop-ment, for $50.53 million in an en-bloc sale. The site is about 35,392 sq ft and the selling price works out to be $511 psf per plot ratio. In addition, the niche devel-oper bought an adjoining 1,802 sq ft strip of land for $2.2 mil-lion. Six developers took part in the tender and winner Sim Lian intends to build a 90-unit luxury development on the site. Accord-ing to CBRE, which brokered the deal, the expected breakeven cost is $730 psf and new launches in the vicinity have achieved pricing above $900 psf.

DBS sells two offi ce buildingsDBS Group Holdings will sell two office buildings — DBS Buildings Tower One and Tower Two — to funds managed by Goldman Sachs for $690 million. The two buildings have a net let-table area of about 875,000 sq ft. Under the agreement, DBS will lease back the areas that it occu-pies for eight years. Thereafter, it has the option to renew the lease for two three-year periods. The buildings will be paid for in cash, with 10% already depos-ited and the remaining 90% to be paid on completion. Net book value was $240 million as at Nov 30. DBS will retain naming rights for the buildings.

CapitaLand Japan fund buys Hokkaido mallCapitaRetail Japan fund, a Capi-taLand-sponsored private retail property fund, bought its fourth Japanese mall for $79 million from Japanese developer Central Leasing System K K. The mall, called Ito-Yokado Chitose, is the second-largest shopping mall in Chitose city in Hokkaido, Japan. With this latest acquisition, the asset size of the fund has grown to $583 million. “We have the capacity to grow the fund’s port-folio size to approximately ¥150 billion ($1 approx ¥68.10) with-in the next three years,” says Liew Mun Leong, president and CEO of CapitaLand. The prime freehold two-storey mall has a gross fl oor area of over 277,000 sq ft, and is master leased to Ito-Yokado, the second-largest retail group in Japan. — Compiled by Denise Wee

Government to release nine new sitesThe government will release eight new reserve list sites and one con-fi rmed list site at Collyer Quay for the fi rst half of next year (1H2006). Under the reserve list, there will be three hotel sites located at Clemenceau Avenue/Unity Street, Sinaran Drive and Bencoolen Street.“The improved regional econ-omy and new tourist products of-fered in Singapore will boost tourist arrivals,” says the Ministry of Na-tional Development in its release. “More hotel sites will be needed to support the growth.”

In addition, three residential sites on Simei Street 4, Bishan Street 22/Street 25 and Westwood Avenue and two commercial sites on Orchard Road/Somerset Road and New Bridge Road/North Canal Road will be released. According to Soon Su Lin, executive director for investment properties at CB Ri-chard Ellis, this is refl ective of the more optimistic market sentiment and lends support to several of the government’s strategic plans for the country. “These include the planned development of at-tractions around the waterfront of Marina Bay, the revitalisation of Orchard Road and more hotel sites to support the increased tour-ist arrival targets,” she adds. The total sites available in 1H can yield about 4,320 private residential units, 125,500 sq m of commercial space and 1,305 hotel rooms.

Keppel Land to set up $631 million offi ce REITKeppel Land will set up a real es-tate investment trust (REIT) called K-REIT Asia, with an initial port-folio of four offi ce buildings worth $631 million. The four buildings are Keppel Towers, GE Tower, Bu-gis Junction Towers and Prudential Tower (in which Keppel Land has a 44% stake). Keppel Land plans to distribute 60% of the units to shareholders, who will receive one unit for every fi ve shares they own. Meanwhile, Keppel Land will retain a 40% stake in K-REIT Asia. “The establishment of K-REIT Asia is in line with our focus on unlocking the value of shareholders, our growth thrusts in the region and growing our fee-based property fund-man-agement business,” Kevin Wong, managing director of Keppel Land, said in a release. Trading of units is expected to start in the fi rst quarter next year (1Q2006).

(PicCJS)

PICT

URES

: CHU

JUCK

SEN

G/T

HE E

DGE

SIN

GAP

ORE

-d -n e o a

CCiitty

Coouunn

ttrryy&&

Scc_2_S194.indd 2Scc_2_S194.indd 2 12/2/05 6:54:57 PM12/2/05 6:54:57 PM

CITY&COUNTRY

Raising the bar New competitors in the boutique-hotel business may face diffi culty entering the market

| BY CECILIA CHOW |

The talk of the town the past year has been The Scarlet, an 84-room, fi ve-star, luxury bou-tique hotel on Erskine Road in Chinatown. The Scarlet, which

was acquired and restored at a total cost of US$35 million ($1 approx US$0.60), opened last December.

The Scarlet is located at the site of the former Inn of Sixth Happiness boutique hotel, which was in ope-ration from 1988 to the mid-1990s. The new owner who took over the site of the Inn of Sixth Happiness, Geeson Lawadinata, an Indonesian-Chinese, has since converted it into The Scarlet — a trendy, opulent boutique hotel that is housed in a row of 13 two-storey shophouses and a four-storey shophouse. The shophouses, built in 1868, were the living quarters of immigrant Chinese women servants. The hotel won the Urban Redevelopment Authority Heritage Awards this year, and has effectively set a new standard for luxury boutique hotels.

Lawadinata is not new to the boutique-hotel business. He also owns The Royal Peacock Hotel, a 79-room boutique hotel on Keong Saik Road, located across the street from the 32-room Hotel 1929, owned by entrepreneur Loh Lik Peng. Loh is currently doing up the 30-room Majestic Hotel (renamed the New Majestic Hotel) on Bukit Pasoh Road for launch early next year (see pages CC4 and CC5).

Few players in the marketBoth Loh and Lawadinata do not feel the boutique-hotel business has be-come more competitive. “I think the market hasn’t necessarily become more competitive because there are still very few players out there,” says Loh. “There is really only Hotel 1929, the Majestic Hotel and The Scarlet and the total number [of rooms] of all three is still quite small — less than 200. So, there is a lot more room for other entrants.”

“We feel there are too few play-ers and not enough competition to put Singapore on the international map as a boutique-hotel capital,” Lawadinata tells The Edge Singapore in an e-mail interview. Lawadinata is the executive director of his newly formed hospitality company Grace International. “There is only one luxury-boutique hotel in Singapore — The Scarlet. At this point, The Scarlet has no direct competition because of its unique positioning and offerings.”

However, Loh feels the bar as to what a new market entrant needs to do to create an impact has been raised substantially. “Given the high-quality incumbents, new entrants will have to do something really spe-cial and that could present quite a high barrier to entry,” he adds. “But it [also] means that Singapore is likely to see more high-quality bou-tique hotels. This can only be good

news. I think with rates starting to rise, we will see more high-quality boutique hotels coming onstream in the next few years — and that’s assuming room rates increase.”

Shaun Poh, director and auc-tioneer at DTZ Debenham Tie Leung, who had brokered the sale of the former Regal Inn (now Hotel 1929) and Majestic Hotel, as well as budget hotels in areas like Joo Chiat and Geylang, has also been fi elding more enquiries from new entrants looking to buy boutique hotels in the Chinatown area.

“Newcomers will fi nd it diffi cult, with strong competitors like Loh and Lawadinata who have already established a name for themselves, unless you’re better than they are,” he observes. “It’s not diffi cult to come into the market, fi nd a hotel and do it up. But if you want to be more successful than [the incum-bents], you have to come up with something very different. Otherwise, you will be seen as just another copycat. The moment you come up, people will automatically compare you with the incumbents.”

Incumbents looking to expandThe improvement in the hospitality market in Singapore in the last 12 months has spilled over into the rest of the hotel sector, including the boutique and budget-hotel mar-kets.Room rates have also increased. Both Lawadinata and Loh are on the lookout for more properties in Singa-pore and also in the region. “We are reviewing some potential sites in the

region, but nothing is confi rmed at this moment,” Lawadinata says.

Loh is also looking for another property in Singapore, and has also been scouting around in Kuala Lumpur and Bangkok. His second property, the New Majestic Ho-tel, is pitched as a more upmarket product compared with Hotel 1929 on Keong Saik Road. Hence, it won’t be a direct competitor to the existing property. “But ha ving said that, even if their [Hotel 1929 and

ered selling the hotel a few years ago to spend more time with her family. “But our thinking is that if our business continues to grow, we may just consider taking on another property,” says Tang. “Perhaps it’s easier to manage if it’s within this area, or Chinatown.”

In fact, new entrants and incum-bents in the boutique-hotel business have been focusing on the China-town area, observes Poh of DTZ. “For the boutique-hotel business, [the buildings] need to have a kind of charm,” he says. “And China-town’s shophouses have that.”

Incumbents also know Chi-natown well, given that they al-ready have properties there. When it comes to Little India and Arab Street, “there are already people who [are] probably doing a good job there because they know that area”, says Tang. “But given a choice, I would rather stick to an area I know

New Majestic Hotel’s] positioning was the same, I don’t think there would be any ‘cannibalism’,” he says. “We only have 32 rooms in Hotel 1929 and there is a substan-tial demand we just cannot meet. I would love to [have] another hotel pitched at the same level as Hotel 1929 but the New Majestic Hotel had a confi guration that called out for something different.”

Loh and Lawadinata aren’t the only ones on the lookout. Anita Tang, owner of the 42-room Chi-natown Hotel, located on Teck Lim Road (off Keong Saik Road) and ad-jacent to Hotel 1929, is also toying with the idea of adding one more hotel to her fl agship. “At the mo-ment, we’re just sending out feelers and exploring,” she says.

The Chinatown Hotel has been around for a decade, having opened its doors in 1995. As the hotel busi-ness took up a lot of her time, Tang, who has four children, had consid-

Grace International invested US$35 million in The Scarlet

Lavish, one of the fi ve themed suites in the hotel, is priced at $500 a night

The lobby of The Scarlet

Poh: Newcomers will fi nd it diffi cult, with strong competitors like Loh and Lawadinata who have already estab-lished a name for themselves

PICT

URES

: GRA

CE IN

TERN

ATIO

NAL

THE

EDG

E SI

NG

APO

RE

CONTINUES ON PAGE CC6

THEEDGE SINGAPORE | DECEMBER 5, 2005 • CC3

CITY&COUNTRY

Scc_3n6_S194.indd 3Scc_3n6_S194.indd 3 12/1/05 10:23:05 PM12/1/05 10:23:05 PM

The Majestic Hotel makes way for a newer and trendier luxury boutique

hotel, but with all the history and old charm preserved

| BY CECILIA CHOW |

Work is ongoing at the Majestic Hotel on Bukit Pasoh Road, a sleepy road at the edge of Chinatown. When The Edge Singapore visited the site two weeks ago, seven huge crates

that had just arrived from Europe were sitting in front of the hotel. The crates contained antique bathtubs from France and England. The bathtubs weighed 200kg each, and it took eight men to lift just one.

The Majestic Hotel is being refurbished and has been renamed the New Majestic Hotel, which “should open by the fi rst week of Janu-ary, and in any event, no later than Chinese New Year”, says owner Loh Lik Peng, 33. Loh is renowned for the success of his fi rst bou-tique hotel, Hotel 1929, two years ago.

Hotel 1929 on Keong Saik Road opened at the end of February 2003 in the midst of the SARS outbreak. But the 32-room hotel managed to break even within the fi rst eight months of operation. Today, Loh estimates that his return on investment at Hotel 1929 is “easily above 15%”. He had purchased the former Regal Inn at an auction for $3.4 mil-lion in 2002, and spent another $1.5 million doing it up. His total investment was just under $5 million then. “The building was acquired through a mortgagee sale at the bot-tom end of the property market,” he says.

Loh is confi dent he will achieve equally high returns on investment for the Majestic Hotel, which was also a mortgagee sale he had snapped up at an auction in late 2003 for $7.2 million. “I would expect to do just as well from the New Majestic Hotel as it was a similar purchase,” says Loh. “Con-

fi rst before expanding it into the boutique-hotel business. In the old days, the restaurant had been famous for its Cantonese cuisine, namely its sharks’ fi n dishes and yee sang(raw fi sh). It was also the place for high so-ciety to hold wedding dinners in the 1970s and 1980s.

Loh bought the building with its contents intact so he could continue running the hotel while drawing up plans for his new concept. The New Majestic Hotel will comprise 30 rooms. Loh will also revive the Majestic Res-taurant and turn it into a trendy 100-seater restaurant that serves a wide array of Chinese cuisine. “A hotel and restaurant by the name of Majestic has been on the site for 70-odd years. So, I am looking to preserve the history of the building both in physical form and in spirit,” he says.

Two months ago, Loh also bought the adjacent three-storey shophouse for $2 mil-lion in a private-treaty sale. He intends to turn the fi rst fl oor into a bar, to be named Majestic Bar. As for the upper fl oors, there are plans to convert them into more rooms, but the plans are not confi rmed and will be subject to planning approval. Loh had pur-chased the historic shophouse at 41 Bukit Pasoh Road from the family of the late Ong Tiang Wee, a partner in the distinguished law fi rm Laycock & Ong, one of the oldest law fi rms in Singapore. (Minister Mentor Lee Kuan Yew practised law at Laycock & Ong from 1950 to 1959 as a legal adviser to trade unions after his return to Singapore from Cambridge, England.) The fi rm will vacate the premises in early January.

The quiet, sleepy Bukit Pasoh area is known as “the Street of Clans” as a number of Chinese clan associations are still located there. But with the opening of the New Ma-jestic, Loh is set to transform the area into a trendy place, just as he has successfully turned

MAJESTIC

thetricHotheaw(STismimp

CapForon shofor SunBayresdirethetel.lou

struction cost has gone up fractionally since, but on a per-square-foot basis, it’s marginal. But because this [New Majestic Hotel] is twice the size [of Hotel 1929], of course [the former is] much more expensive.” He declined to disclose how much he spent on restoration works, except to say that the amount spent is “substantially more than that spent on Hotel 1929”, given that the

New Majestic Hotel will have more facilities and new structures.

Buying a piece of historyThe historic, 56-room Majestic Hotel had been operating as a boutique hotel since 1928. The family that owned it had started with the Ma-jestic Restaurant

The newThe new

SHIR

LEY

YE/T

HE E

DGE

SIN

GAP

ORE

The original 56-room Majestic Hotel was a mortgagee sale Loh had snapped up at an auction for $7.2 million

PICT

URES

: SHI

RLEY

YE/

THE

EDG

E SI

NG

APO

RELoh: The New Majestic Hotel caters to the traveller who wants more frills, luxury and space and is prepared to pay a little more for them

Loh

of epeofrorooanders(fa199wadesSonogrThthehotTh


CITY&COUNTRY COVER STORY

Scc_4t5_S194.indd 4Scc_4t5_S194.indd 4 12/1/05 11:14:58 PM12/1/05 11:14:58 PM

ue-ant ne, angso-70s

nts otel ept.

30 Res-ater ese me

odd ory

d in

the mil-

to med ere ms, be ur-

ukit Ong hed est Lee Ong ade om ate

is ber ted

Ma-

the Keong Saik Road (a former red-light dis-trict) into a hip boutique-hotel location with Hotel 1929. He was one of two recipients of the New Tourism Entrepreneur of the Year award given by the Singapore Tourism Board (STB) in March to new entrants in the tour-ism industry who have made a signifi cant impact on visitors to Singapore.

Capitalising on local talentFor the New Majestic Hotel, he intends to ride on STB’s “Uniquely Singapore” campaign, and showcase local talent. DP Architects, renowned for its design of Singapore landmarks such as Suntec City and Esplanade — Theatres on the Bay, is responsible for the architectural and restoration works. Singaporean Colin Seah, director of Ministry of Design, was appointed the interior designer for the New Majestic Ho-tel. Seah is renowned for his work at Hu’u club lounge and restaurant in Bangkok.

and they can just do their own thing. So, every room is different,” says Loh.

After numerous discussions with the Ur-ban Redevelopment Authority, Loh has also received permission to turn the old air-well of the hotel into a swimming pool.

With an average room size of 40 to 45 sq m (430 to 484 sq ft), the rooms at the New Majestic are also larger than those at Hotel 1929. There will be 30 rooms, six of which will be loft units, the largest rooms in the hotel. Eight of the rooms will also feature outdoor baths, which Loh had made famous at Hotel 1929. Room rates at the New Majestic Hotel will range from $200 to $350 a night.

Target audienceThe overarching theme for both hotels is “old shophouse with a modern take”. He sees the New Majestic Hotel and Hotel 1929 catering to a similar market but pitched at

PICT

URES

: KM

C HO

LDIN

GS

the more trendy business travellers.” The New Majestic, on the other hand, is

likely to see more high-end corporate guests. All rooms will feature fairly large work desks and other relevant services, such as full wire-less Internet broadband access. However, it will probably appeal to the more design- and lifestyle-conscious guests, he adds.

“I guess [Hotel] 1929 is for the younger traveller and the New Majestic Hotel is for his older brother or sister who can pay a little more!” continues Loh. “The concept is an urban, [stylish] Singapore hotel that has cutting-edge design and aesthetics. And yes, I was also involved in the concept [for the New Majestic], [right] through to the fi nal furniture [selection].”

Expansion plansLoh plans to manage the New Majestic him-self, just like what he is doing for Hotel 1929. “The thing about a 30-room hotel is that you can manage it yourself,” he says. “If you have 500 rooms, you have to think twice.”

He expects to have at least 30 staff, in-cluding a hotel general manager, at the New E

SHIR

LEY

YE/T

HE E

DGE

SIN

GAP

ORE

SHIR

LEY

YE/T

HE E

DGE

SIN

GAP

ORE

Majestic. But there could be some economies of scale achieved in terms of sharing resources with Hotel 1929.

Although he has received many offers to buy Hotel 1929, due to its high profi le, he has no intention of selling. “[Hotel] 1929 is not for sale,” he says fi rmly. “It is very profi table for me. So, I am sure given the dismal returns in most of the property market, the returns I get would certainly justify a substantial capital appreciation.” Neither does he intend to sell the New Majestic. “I don’t think so — not given the amount of work that’s gone into it,” he says.

The former lawyer has indeed turned into a full-fledged boutique-hotel entre-preneur and a savvy property investor in a few short years. And he is on the lookout for more hotel properties in Singapore and in the region. “I’m not really into resorts. I prefer the city because it’s easier for us to cross-market,” he says. “Resorts are a differ-ent type of market.” He had been looking at Bangkok and Kuala Lumpur “but it’s really tough to fi nd the right property [with] the right combination of things”.

oh

Loh purchased the shophouse next door at 41 Bukit Pasoh Road for $2 million two months ago

All the 30 rooms in the New Majestic will have different designs by local Singapore designersI guess [Hotel] 1929 is for the younger traveller and the New Majestic Hotel is for his older brother or sister who can pay a little more! The concept is an urban, [stylish] Singapore hotel that has cutting-edge design and aesthetics. — Loh

An artist’s impression of the revived Majestic Restaurant, which was famous for its Cantonese cuisine in the old days

An artist’s impression of one of the six loft rooms at the New Majestic Hotel

However, when it comes to the design of each room, Loh has chosen to work with people who are not interior designers but are from different creative fields. Hence, every room at the New Majestic will be unique and carry the signature of 10 local design-ers. They include film director Glen Goei (famous for his hit movie Forever Fever in 1998); furniture designer Patrick Chia (who was discovered by Philippe Starck); fashion designer Wykidd Song (of the fashion label Song and Kelly); famed fashion-show chore-ographer Daniel Boey; and creative director Theseus Chan (famous as the illustrator for the Sarong Party Girl series). “This whole hotel is about showcasing Singapore talent. That’s why we have 10 Singapore artistes

different ends of the spectrum. “They are both highly individual, design-oriented ho-tels but [Hotel] 1929 caters to the traveller looking for something really hip and af-fordable and the New Majestic caters to the traveller who wants more frills, luxury and space and is prepared to pay a little more for them,” he explains.

At Hotel 1929, 40% of patrons are corpo-rate guests, although this fi gure fl uctuates according to the time of the year. “This is relatively low for a hotel but [Hotel] 1929 is hip and more likely to attract lifestyle-con-scious guests,” he says. “Also, Hotel 1929 is not really confi gured for business travellers but we do have broadband Internet access and other facilities. So, we do still appeal to


CITY&COUNTRY COVER STORY

Scc_4t5_S194.indd 5Scc_4t5_S194.indd 5 12/1/05 11:16:16 PM12/1/05 11:16:16 PM

CITY&COUNTRY

Bangkok slowdownSingapore developers don’t expect luxury launches to be affected but capital gains may be muted

| BY DENISE WEE |

Bangkok’s sizzling luxury-condo market appears to be losing steam. Launches for the luxury condo, priced above 80,000 baht psm ($1 approx 24.38 baht) have slowed sharply, say con-

sultants. Demand has also tapered off, hurt by rising interest rates and oil prices.

During the third quarter (3Q), only one luxury project with 54 units was launched in the central business district and upmarket area of Sukhumvit (popular with expatriates and wealthy high-society Thais), according to property consultant Jones Lang LaSalle (JLL) (Thailand). This contrasts sharply with the fi rst half of last year (1H2004), when a total of 15 new projects and 1,601 units were launched (see table).

There are several reasons for the slow-down in demand for luxury condos. Accord-ing to Benjawan Suewongprayoon, associate director of research and consultancy at JLL (Thailand), in the past years, there’s been huge pent-up demand for luxury condos, as projects were held off during the Asian fi nan-cial crisis. But Bangkok’s residential market started to pick up in 2000 and demand has already been met. In addition, there are now fewer investors in Bangkok’s residential market, as condo prices have exceeded pre-crisis levels and there’s far less opportunity for capital gains.

On top of this, oil prices have spiked since. As Thailand imports a lot of its oil, the rise in prices has a direct impact on the economy. Buyers, worried about the economic outlook, are more cautious about buying big-ticket items like houses. Along with this, interest rates have risen from 5.5% at the beginning of this year to above 6%.

Singapore developers move into BangkokAgainst this backdrop, a handful of Singapore developers will soon launch luxury condos or have already launched them in Bangkok. They include the likes of CapitaLand, Hotel Properties Ltd (HPL), City Developments Ltd (CDL) and Fraser & Neave (F&N). While these developers are new entrants in the Bangkok residential market, some of them are already active in other sectors of the property market, or have joint ventures with Thai partners.

For instance, HPL owns the Hard Rock Café Bangkok, Hard Rock Hotel Pattaya and The Metropolitan hotel in Bangkok. Last year, F&N formed a joint venture with Krungthep Land. Giant developer CapitaLand has teamed up with TCC Land and jointly launched luxury projects Athenee Residence and Villa Rachkru last December and this February respectively, under the name of TCC Capital Land.

So far, sales have been steady. According to a CapitaLand spokeswoman, Athenee Residence is fully sold, while the 70-unit, low-rise condominium Villa Rachakru, is more than 90% sold. Meanwhile, The Met, a 66-storey condo with 370 units, by Singa-pore businessman Ong Beng Seng’s HPL, is 60% sold. And, it has set a new pricing benchmark for luxury condos. Launched in September, The Met costs from $445 psf to $573.5 psf (150,000 baht per sq m) for pent-house units, says James Pitchon, executive director of marketing agent CB Richard Ellis (CBRE) (Thailand).

Generally, luxury condos by Singapore developers command a premium in Bangkok due to their prime locations and high-quality

fi nishing. And, Singapore developers are also known for their expertise in property devel-opment, notes JLL’s Suewongprayoon.

There aren’t many other overseas devel-opers in the luxury-condo arena. However, a few Thai developers compete with the Singa-pore developers. These include Golden Land plc, listed on the stock exchange of Thailand. Golden Land launched the ultra-luxurious

The Infi nity at One Sathorn Square, which sold out within six months. Prior to the launch of The Met, it was the most expensive condo in town, priced at 120,000 to 130,000 baht per sq m. Other players include Land & Homes, Thailand’s biggest home-builder, and Metro Machinery, a listed property and construction company.

Upcoming launchesAmid the slowdown, Singapore developers are set to roll out even more luxury condos. Soon, F&N will launch The Pano, a 397-unit luxury freehold project at Rama III Road on the banks of the Chao Phraya river, Pitchon tells The Edge Singapore in a phone interview from Bangkok. Presently, the show suite at the riverside has been completed and the project is at the pre-launch sales stage, he adds. Pricing will be between 78,000 and 126,000 baht per sq m.

In 1H2006, CDL plans to launch a 600-unit, luxury condo project in Sukhumvit through its private real-estate fund, Real Estate Capital Asia Partners LP. On Dec 8, TCC Capital Land will launch its 443-unit luxury condo in prime area Narathiwad. It will launch another condo

in Sukhumvit in 1Q2006, says a CapitaLand spokeswoman. Pre-sales for its site in Soi Mayalab, which will house 79 luxury units, will start this month.

Will this slew of launches be affected by the slowdown? “The timing is quite impor-tant,” says Suewongprayoon. “We don’t know [whether upcoming launches will be affected]

CONTINUES ON PAGE CC8

Total condominium supply,demand and vacancy ratein downtown Bangkok

Units %

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 1Q‘05

2Q‘05

3Q‘05

45,000

40,000

30,000

20,000

10,000

0

60

50

40

30

20

10

0

35,000

25,000

15,000

5,000

Total supplyTotal take-up

Vacancy rate

CB R

ICHA

RD E

LLIS

RES

EARC

H

Luxury projects — CBD and Sukhumvit areas

1H2004 2H2004 1H2005 3Q2005New sales (units) 1,502 872 1,553 NANew supply (units) 1,601 651 1,424 54New supply (projects) 15 5 5 1

Fraser & Neave will soon launch The Pano, a 397-unit, luxury freehold condo at Rama III in Bangkok

Chia: The super high-end segment of the [Thai] market is less affected

CBRE

JON

ES L

ANG

LAS

ALLE

CHU

JUCK

SEN

G/T

HE E

DGE

SIN

GAP

ORE


CITY&COUNTRY


UK mortgage approvals upBank of England sees ‘broad stability’ continuing in the housing market amid increased turnover

| BY CRAIG STIRLING |

Home-loan approvals by UK mortgage lenders reached the highest in al-most a year and a half in October, suggesting a pickup in the US$6 tril-lion ($1 approx US$0.60) property

market is being sustained after a year-long slowdown. Approvals rose to 113,000 when adjusted for seasonal swings, the most since May last year, from a revised 108,000 in Sep-tember, the Bank of England said last Tues-day. That exceeded the six-month average of 100,000 and the 108,000 median estimate in a Bloomberg survey of 26 economists. Europe’s second-biggest economy is on course for its slowest pace of annual growth since 1992 after the end of a decade-long housing boom helped curb consumer spending. Policy-makers say a recovering housing market may help household spending regain momentum and underpin a gradual economic expansion next year.

“They’re a lot stronger than expected and it tells you the housing market is improving,” says George Buckley, an economist at Deut-sche Bank AG. “There’s defi nitely a recovery, but it’s still not particularly strong.”

The implied rate on the interest-rate futures maturing in June next year rose one basis point after the release of the report to 4.5%. The contract settles to the three-month London interbank offered rate for the pound, which has averaged about 15 basis points more than the central bank’s target for the past decade. The pound was little changed at US$1.72 as at last Tuesday morning in London.

The British Bankers’ Association (BBA) said on Nov 25 that home loans rose to the highest level in 16 months in October, gaining 40% in the past year. The mortgage market

“seems particularly resilient”, BBA director of statistics David Dooks said.

Nationwide, Rightmove Housing market reports have also pointed to a pickup in prices in recent months. Nation-wide Building Society, the country’s third-big-

gest mortgage lender, reported last Tuesday that they were un-changed last month after rising 1.3% the month before. Property website Rightmove said on Nov 21 that they gained for a second month in November.

Bank of England governor Mervyn King said on Nov 16 that the bank sees “broad stabil-ity” continuing in the housing market amid increased turnover. The revival in the housing mar-ket comes amid signs of im-provement in consumer spend-ing, which has helped fuel 53 consecutive quarters of eco-nomic growth. Household ex-penditure rose 0.5% in the three months through September, the most since the second quarter of 2004 (2Q2004), the government said on Nov 25. Retail sales rose in October for a third month by 0.2%, fi gures released on Nov 17 showed.

Consumers are still willing to take on more debt to fi nance their spending, according to last Tuesday’s report. Net consumer credit, which includes debt not secured against property, bank loans and credit-card borrowing, rose to £1.27 billion pounds ($1

approx £0.33) from £1.21 billion in September. That was in line with the average in the previ-ous six months of £1.3 billion. Credit-card lend-ing in October rose to £617 million, the highest since May, from £439 million.

The gains added to record household debt of £1.14 trillion during the month, compared

with £1.13 trillion in September, the Bank of England said.

There are signs that households are strain-ing to service their debts as bankruptcies increase. Insolvency declarations by people in England and Wales rose 46% in 3Q from a year earlier, the government said on Nov 4. Barclays, the country’s third-biggest bank, last Tuesday said profi t at its credit-card business fell 17% amid rising costs, including provi-sions for bad debts.

Trailing confi dence Consumers’ willingness to borrow and spend has yet to be refl ected in a resurgence in con-fi dence, which slid to its lowest level in 21/2 years in October, a survey by GfK NOP for the European Commission showed on Oct 31. Nationwide Building Society said on Nov 9 it fell to an 18-month low.

Confi dence may be tested further in De-cember with the advent of the Christmas season. Consumers spend £10 billion more in December than any other month, according to the British Retail Consortium, which repre-sents 80% of retailers.

Retail industry views on the season’s pros-pects are mixed. Stuart Rose, CEO of Marks and Spencer, the country’s biggest clothing retailer, says the company expects a “tough” Christmas as it avoids discounts and spending wanes.

Figures released Nov 22 by Footfall, a re-tail industry researcher, showed store visit increased 8.5% in the week to Nov 20 as shop-pers sought discounts. “Hopefully, increased numbers of shoppers on the high street will be retained by rolling promotions across a wide variety of stores and consumers will continue to shop early for Christmas,” says Natasha Burton, Footfall’s marketing manager. — Bloomberg LP

Home-loan approvals by UK mortgage lenders reached the highest in almost 11/2 years in October

BLO

OM

BERG

FROM PAGE CC3

Speculative demand seems to have evaporatedbecause next year, oil prices could be more stable,” she adds.

CBRE’s Pitchon is more optimis-tic. He believes there’s a healthy level of demand for luxury condos from local Thais who are buying to live in as well as for investment. And, in his view, the mass and mid-end of the market (pricing between 40,000 and 50,000 baht psm) has been more severely affected, as af-fordability is key and buyers are more price sensitive.

Capital upside limitedEven so, Bangkok’s luxury market is looking less attractive now than two years ago. The residential sec-tor has posted a full recovery since the Asian fi nancial crisis. Presently, a luxury project at the very top-end costs 50% more than pre-crisis pric-es, says Pitchon. For some of the older projects, prices have increased about 20%, he adds.

Prices have been pushed up by a near-doubling of construction costs in the past decade and better-qual-

ity offerings. “Bangkok is one of the few real estate markets in the world where pricing still bears a close cor-relation to cost of construction,” says Pitchon.

Next year, gains are likely to be muted. JLL’s Suewong prayoon expects prices of luxury condos to rise by less than 5% per annum on average. That’s hardly stellar. “I don’t think there will be signifi -cant capital appreciation, except for projects that are good,” she says. Meanwhile, speculative de-mand seems to have evaporated. “Over the past two years, I think, yes [there were speculators], but now I don’t think so,” she says.

Pitchon estimates that roughly half of the buyers of luxury proper-ties are owner-occupiers, more than other regional markets like Hong Kong. Indeed, many of the bigger units of The Met have already been snapped up. Bigger units, which of-fer lower returns, are generally less popular with investors.

On the bright side, there are fewer players in the market. Since

Thai banks tightened up on project fi nancing mid-last year, there’s been an exodus of smaller property players. This means there will be fewer launches. “We don’t have the bub-ble frenzy, where you have lots and lots of developers launching projects at the same time,” says Pitchon. He expects to see just four to fi ve luxury-condo launches next year.

Developers unfazed by slowdownFor now, Singapore develop-ers are seemingly unfazed by the slowdown. A Capi-taLand spokeswoman says the Bangkok residential market has been performing strongly over the past two years, supported by pent-up demand for housing and strong economic fundamentals. “Generally, home sales in Thailand continue to be encouraging, although not at the

pace seen in 2003 and 2004,” she says. “This is healthy for the market as it does not build up the property bubble,” she says.

But CapitaLand plans to venture

outside of Bangkok. “The company intends to pick up the pace of its new projects, the bulk of which are condominium developments, in the next few years in Bangkok, Chi-ang Mai and Pattaya,” the spokes-woman adds.

Chia Ngiang Hong, group gener-al manager of CDL, doesn’t expect the group’s upcoming Sukhumvit luxury condo, which has a project cost of more than 700 million baht, to be affected by the slowdown. “The super high-end segment of the market is less affected. We believe the development will have its own unique iconic appeal,” he says. “In addition, with the project’s stra-tegic location in a conveniently accessible and prime district of Sukhumvit, we are optimistic it will be well received by the Thai com-munity and investors,” he adds.

Although Singapore developers don’t seem too worried by the slow-down. One thing’s for sure — while Bangkok’s luxury-condo market may not hit the ground next year, it isn’t likely to fl y either.

HPL’s The Met is 60% sold, and recently achieved pricing of 150,000 baht of its penthouse units, a new benchmark, according to CBRE, its marketing agent.

CBRE


CITY&COUNTRY


M A N A G I N G Y O U R M O N E Y

Dividenddiscipline

THEEDGE SINGAPORE | THE WEEK OF DECEMBER 5 — DECEMBER 11, 2005

ABN Amro’s Wouter Weijand buys low and sells high

by focusing on dividend yields

| BY KELVIN TAN |

W outer Weijand doesn’t like anglingfor stocks in crowded waters. AsABN Amro Asset Management’sglobal head of High Income Equi-ties overseeing some US$1.5 bil-

lion ($1 approx US$0.60) of assets, Weijandprefers markets in which other institutionalinvestors rarely venture, such as New Zealandand Finland. He says the hallmark of many ofthese under-researched markets is exception-ally high-dividend-yielding stocks. “In 2004,when we told people that we liked Finland,they would tend to say, ‘Oh, come on. Fin-land! Finland is so small and it is not even inthe [global] benchmark,’” the 47-year-oldfund manager says in a recent interview withThe Edge Singapore. “But a lot of companiesin Finland were offering dividend yields ofover 8% at that time.”

By contrast, sticking to the well-troddenpath of choosing stocks that are componentsof market benchmarks like the MorganStanley Capital International (MSCI) familyof indices is a sure way of missing out onattractive bargains. “[MSCI] picks things thatare big,” says Weijand. “That’s the Ameri-can way, right? If you are a really big, bigstock, then you go into the MSCI.” And, bigstocks aren’t always cheap, he adds. In fact,the biggest stocks during a bull market areoften the most expensive.

In 1989, for example, at the height of Ja-

pan’s real estate and stock market bubble, Japa-nese banks accounted for about one-sixth ofthe world’s stock-market capitalisation, recallsWeijand. “The 10 biggest Japanese banks werereally big in the MSCI [World Index], and eve-rybody wanted to buy them just before theyfell 90% in value in 1990.” The same thinghappened 10 years later with technology andtelecommunications stocks. In early 2000, justas the Nasdaq market was peaking, theyformed a large part of key market benchmarks,Weijand says. “Unfortunately, investors wereall crushed by these big stocks.”

Not that Weijand has anything against sizeper se. “We are not married to size; we aremarried to yields,” he explains. And, that fo-cus on yields often prevents him from includ-ing stocks with swollen market caps in hisportfolio, because stocks the market is mostexcited about usually don’t offer attractivedividend yields. Certainly, Japanese banks inthe late 1980s and technology stocks in late1990s wouldn’t have been of interest to himas they “yielded nothing” in dividends. In gen-eral, Weijand confines his portfolio to stocksthat offer dividend yields exceeding 3%.

Conceived during tech bubbleIronically, it was in early 2000 — as many ana-lysts were coming up with all manner of valua-tion techniques to justify ever-higher stock priceson Nasdaq — that Weijand started ABN AmroAsset Management’s high-income equity depart-ment. “The idea came about from my concerns CONTINUES ON PAGE PW2

CHU

JUCK

SEN

G/T

HE E

DGE

SIN

GAP

ORE

Weijand: We are not married to size; we are married to yields

in the late 1990s that growth might not last for-ever,” he recalls. In October 2003, he launchedhis fund house’s first high-dividend-oriented glo-bal equity fund in the Netherlands. Called theABN Amro High Income Equity Fund, it was aninstant hit. “It was the largest equity fundlaunched in the history of our bank in [the Neth-erlands],” says Weijand, who has been in theinvestment business for 22 years and lives inAmsterdam. As at the end of October, the ABNAmro High Income Equity Fund was worth 840million euros ($1 approx 0.50 euro).

Since its inception two years ago, the ABN

Amro High Income Fund has generated totalreturns in excess of 45%, beating the 38%gains of its benchmark — the S&P/CitigroupHigh Income Equity Index. Weijand attributesthe good performance to the “disciplined pro-cess” of his income-oriented equity strategy,which begins with a “benchmark methodol-ogy” that helps in the initial screening of stocks.

Any stock around the world that providesa dividend yield of more than 3% for threeconsecutive months is added to the fund’sbenchmark and universe of investable stocks.

Spw_1n2_S194.pmd 2/12/05, 6:15 pm1

M A N A G I N G Y O U R M O N E Y

PW2 • THEEDGE SINGAPORE | DECEMBER 5, 2005

PERSONAL WEALTH

Fund active during crises

E

If their dividend yields drop below 3% for three con-secutive months, however, they are kicked out ofthe S&P/Citigroup High Income Equity Index, andWeijand’s fund avoids them. “That is a disciplinethat adds a lot of value to our portfolio,” he says.

Weijand and his team then screen all the stocksthat are included in the benchmark, and considerthe sustainability of their dividends, their financialhealth and their valuations. Short-listed counters arethen further evaluated using fundamental analysisand qualitative assessments like company visits be-fore Weijand decides which ones to include in thefund. “We screen for stocks every month. And ifsomething crashes and it has attractive dividends andis still a decent company, we will buy into it.”

Buying distressed stocksWeijand says the troubled pharmaceutical giantMerck is among the stocks that have been includedin his portfolio recently. The company’s dividendyield spiked up to 5% as its share price plunged toa low of US$26 in the wake of reports that its block-buster drug Vioxx increased the risk of heart at-tacks and strokes. “When Merck was trading atUS$90 [in late 2000], people were saying how fan-tastic it was. Now, at US$30, everybody doesn’twant to be associated with it,” says Weijand, some-what amused. “Growth-fund managers want Merckout of their portfolios so that they wouldn’t needto explain to their clients why they are still holdingon to that stock.” While Merck potentially facesthousands of lawsuits from past users of Vioxx,Weijand believes that the litigation risks have al-ready been factored into its share price. “Yes, theyare in litigation, but fighting at the share price ofUS$25 to US$30, not US$90.”

Indeed, Weijand says his fund, which owns about135 stocks, tends to be very active during crises,because that is when the dividend yields of stocksbecome very attractive. Much like Merck, Weijandpicked up tobacco and food company Altria Groupin a “crisis moment” when its share price plungedto an all-time low of US$19 in 2000. “At US$19, itwas yielding at 7% to 8%, and people still saidthat was a terrible price to pay for the stock,” herecalls. “Where have those people gone? Theyhave all gone silent because the stock [currentlyat US$72 a share] is now trading four times as highas it once traded.”

Of course, buying stocks as they collapse can berisky. “If you buy a stock at 5% dividend yield, no-body knows if it will yield 6% tomorrow,” concedesWeijand. “But when we buy distressed stocks, we

wild about Nokia. At nine euros [atits all-time low in August last year]when it was yielding over 3%, itcame into our universe.”

Another growth stock thatWeijand says he is “sniffing and buy-ing a little” is global telecom giantVodafone. Its share price slumped11% in a single day on Nov 15, whenthe company revealed during its first-half financial results briefing that itmay have an unexpected US$8.6 bil-lion potential tax liability arisingfrom its purchase of Germany’sMannesman several years back.While other investors are panicking,Weijand has been watching the com-pany’s cash flow and dividends.“Vodafone is raising its dividends,and it is now yielding more than3.5%,” he says. “We take a very dif-ferent approach.”

Bullish on AsiaGeographically, Weijand says he is bullish about divi-dend-paying stocks in Asia, especially those in Japan.“We are actually overweight in Asia at the momentby 4% in our global portfolio, and we see a particu-larly strong cyclical environment in Japan, which wethink is finally coming out of the doldrums.”

Within Asia, Weijand notes that Japanese stockscurrently pay the lowest dividends. But that is fastchanging. He reckons that many Japanese compa-nies have almost finished cleaning up their balancesheets, and will begin raising their dividend payoutswhen they are done. “That will happen over thenext few years,” he says. And at the same time,Japan’s zero-rate policy will have to stop, he adds.“They will have to raise interest rates from zero,and when that happens, you will see a pick-up inthe general yield level of every asset class in Ja-pan, including dividends.”

Reflecting Weijand’s bullishness on Asia and Ja-pan, his fund house has launched the ABN AmroAsia Pacific High Dividend Equity Fund. This newfund, launched on Nov 18, is currently available onlyto high-net-worth investors in Singapore. Weijandsays his new dividend Asian equity fund — currentlywith a portfolio of 50 Asian stocks — will adopt thesame investment process as his global fund. “Wewill look for high-dividend-paying Asian stocks withearnings momentum, and we hope some of that earn-ings momentum will translate into dividend momen-tum as well.”

FROM PAGE PW1

don’t buy at US$90, but at US$30.” He reasons thatthe low stock prices and high dividend yields act asa form of risk control. To further reduce risks,Weijand says his teams will engage in averagingstrategies when a stock falls further. “What you dois you buy a chunk, and when it falls more, youclose your eyes and buy another chunk.”

More importantly, Weijand emphasises that hedoesn’t just buy into any stock that offers a highdividend yield. “We do our homework before buy-ing. We check the dividend stream, dividend policyof the company, and try to talk to the managementabout its financial position,” he explains. “If thesecompanies are really in financial trouble, they willnot be able to pay the dividends, so you have tomake sure the dividends are assured.”

Are high dividends a fad?With growth investing making a comeback in recenttimes, some observers suggest that the dividend styleof investing may soon go out of favour. “Yes, onespecific climate when dividend stocks will do lesswell is in a very high-growth environment,” admitsWeijand. But he isn’t convinced there will soon beanother period of high growth as seen in the late1990s. “Growth managers have been talking abouta growth comeback for the past five years.”

At any rate, dividend-oriented investing doesn’tnecessarily preclude the buying of growth stocks,he adds. “Is Nokia a growth stock? At 60 euros [dur-ing its heyday in 2000], everybody was once going

EDITOR/REGIONAL MANAGINGDIRECTOR

Tan Boon Kean([email protected])

SECTION EDITORBen Paul

([email protected])

STAFF WRITERKelvin Tan

([email protected])

COPY-EDITING DESK Dorothy Teoh, Elaine Lim,

Koay Sook Kuan, Evelyn Tung,Wong Ee Laine

SENIOR PHOTOJOURNALISTChu Juck Seng

([email protected])

PHOTOJOURNALISTShirley Ye Yingyu

([email protected])

DESIGN DESKCalvin Yuen, Christine Ong,

Nik Edra Ridthwan Anuar,Chan Yoke Lin

PRE-PRESS DESKThomas Chin, Hong Kin Siang,

Yong Onn, Zamri Razali,Kuah Choon Eng,

To Yen Suang

ADVERTISING +MARKETING

REGIONAL GENERAL MANAGER |Edward Stanislaus

([email protected])MANAGER | T Shanmugaratnam

([email protected])Colin Tan

([email protected])Simon Wong

([email protected])Wendi Yang

([email protected])COORDINATOR | Sumi Ateck

([email protected])

CIRCULATION-SUBSCRIPTIONSREGIONAL SENIOR MANAGER |

Suresh Kumar([email protected])

ASSISTANT MANAGER | Rosniati Selamat([email protected])

EXECUTIVE | Naziela Nasir([email protected])

ASSISTANT | June Cheong([email protected])

PUBLISHERThe Edge Publishing Pte Ltd


Tel: (65) 6232 8622Fax: (65) 6232 8620

PRINTERKHL Printing Co Pte Ltd

57 Loyang DriveSingapore 508968

Tel: (65) 6543 2222Fax: (65) 6545 3333

We welcome yourcomments and criticism.

Send your letters toThe Edge, Raffles City Post Office

PO Box 218Singapore 911708

Tel: (65) 6232 8622Fax: (65) 6232 8620

e-mail:[email protected]

Pseudonyms are allowed but please stateyour full name, address and contact

number for us to verify.

Fund briefsIMAS hires new executive directorThe Investment Management Association ofSingapore (IMAS), which represents theinterests of fund management companies inSingapore, has appointed local fund-management veteran Venkatagiri Mudeliaras its new executive director. Mudeliar wasgeneral manager at Dresdner AssetManagement from 1996 to 2003. Before hisstint at Dresdner, he worked for DBS Bankand DBS Asset Management for 24 years.According to IMAS, Mudeliar will coordinatethe association’s work on regulatory, investoreducation and development issues. Heofficially joined IMAS last Thursday.Mudeliar’s predecessor at IMAS, AndrewKwek, resigned in October to take up theposition of head of institutional sales atDeutsche Asset Management.

Fund managers still like drugsProfessional investors view pharmaceuticalstocks as the most attractive sector in terms

of valuations, and utility stocks as leastappealing, according to the latest MerrillLynch Survey of Fund Managers.

The survey, which was carried out fromNov 3 to 10 and polled 290 global fundmanagers managing some US$945 billion($1 approx US$0.60) in assets, found that39% of global asset allocators areoverweight the pharmaceutical sector.Technology and insurance stocks are thesecond and third most favoured sectors,respectively. In fact, investor sentimenttowards insurance stocks saw the biggestimprovement among all 11 sectors featuredin the survey. According to Merrill Lynch,26% of fund managers polled say they arenow overweight insurance stocks, up from9% in October.

At the other end of the spectrum,telecom stocks seem to be losing favourwith many global fund managers,slumping from a 5% overweight positionin October to a 13% underweight

position last month. The least appealingsector is utilities. Some 52% of fundmanagers recently surveyed say they areunderweight the sector.

In terms of geographical plays, Japan islikely to be the hottest market over the next12 months. Some 44% of managers polledsay they would “most like” to overweighttheir portfolios in Japan relative to the US,Eurozone, UK and emerging markets overthe next year. Merrill Lynch says Japan alsoremains the market that most institutionalinvestors believe has the best outlook interms of corporate profits. Besides havingcheaper stock valuations than the US, Japanis also seen as having the most undervaluedcurrency, adds the investment bank.

More rate hikes for MalaysiaMalaysia raised its overnight interest rates by30 basis points to 3% last week, in the face ofpersistent outflows of capital. Some analystssay it could be just the first in a series of

interest-rate hikes over the next few months.Malaysia’s foreign reserves fell RM5.2 billion($1 approx RM2.20) during the first half of lastmonth. That followed a RM12.4 billion declinein October and a RM1.5 billion fall inSeptember. This persistent outflow of capitalhas negatively affected the Malaysian stockmarket, which is the world’s sixth worst-performing bourse on a year-to-date basis.Malaysian equities measured by the KualaLumpur Composite Index have lost about 1%since the beginning of the year. “Another 50to 75 basis points can be expected in 2006 toclose the gap with US interest rates andstabilise capital outflows,” notes a researchreport from DBS Bank.

Malaysia’s real economic activity seemsreasonably robust, with third-quarter GDPgrowth coming in last week at 5.3%,stronger than the second quarter’s 4.1%.That could further support the view that thecountry’s interest rates are on the way up.— Compiled by Kelvin Tan

Weijand says he is bullish about dividend-paying stocks in Asia, especially thosein Japan, ‘which we think is finally coming out of the doldrums’

BLO

OM

BERG

E

Spw_1n2_S194.pmd 2/12/05, 6:16 pm2


PERSONAL WEALTH

| BY SUZANNE MCGEE |

W hen it comes to giving, the richare increasingly like FrankSinatra: They want to do it theirway. They want to give theirmoney to their causes on their

schedules. And they want to make sure thelegacy lives on. That’s why they’re rushing toset up their very own foundations.

Over the past six years, the number of fam-ily foundations in the US has increased bymore than 60%, to about 33,000. In otherwords, roughly six new ones have sproutedevery day.

The Bill & Melinda Gates Foundation, witha cool US$28.8 billion ($1 approx US$0.60),is the most visible. Most of the others quietlypursue their own customised giving pro-grammes, with decidedly more modest fund-ing. In fact, studies by the New York-basedFoundation Center suggest that more thantwo-thirds of all family foundations have lessthan US$1 million. Although foundations likethose are sometimes dismissed as too smallto be efficient, for either the donors or thegrant seekers, looks can be deceiving. Manyof today’s small fry could become tomorrow’sgiants. Millionaires, says Virginia Esposito ofthe National Center for Family Philanthropy,are creating “shells” of foundations with theaim of shifting more of their assets, and ulti-mately big chunks of their estates, into thevehicles. As the baby-boom generation gearsup for the hereafter, those inflows could soonswamp the US$195 billion in family-founda-tion assets in 2003, the last year for whichthere is complete data.

“We’re entering an era of mega-philan-thropy,” declares Stephen McCarthy, a trus-tee of a US$8 million foundation set up by hisfather, a former managing partner of invest-ment firm Lord Abbett & Co.

Don’t believe it? It’s already happening.The Gates foundation, renowned for its effortsto improve the health of poor children world-wide, took just five years to become gargan-tuan. But within the next decade or so, it maybe dwarfed by the now relatively small foun-dation of financier Warren Buffett. The bulkof the estate of Buffett’s late wife Susan —shares of Berkshire Hathaway stock currentlyworth some US$2.6 billion — are due to flowinto that foundation soon, bringing the totalto US$2.7 billion. Meanwhile, Buffett hasmade it clear he intends to leave the bulk ofhis own estate to charity, with much of it go-ing to his own foundation. His net worth isestimated at US$40 billion.

The thousands of other family foundations— set up by everyone from captains of indus-try and movie stars to hedge-fund managersand owners of family businesses — are alsobrimming with possibilities. At their best,newly minted foundations may improve theworld in ways that can’t even be imaginedtoday. Many of these foundations are wellpositioned to provide patient, long-term sup-port for risky or controversial projects atwhich other donors turn up their noses.

“The organisations that we fund know wewill be there through thick and thin, regard-less of what the new, new thing is or of theeconomic environment,” says Alfred Castle,executive director of the country’s oldest fam-ily foundation, the Honolulu-based Samuel Nand Mary Castle Foundation.

Alfred is the fifth generation to oversee thefoundation, which was launched nearly 112years ago by the family matriarch — thewidow of a New Englander who arrived in

Power donors in the USAging boomers deploy their formidable wealth to charities and good causes

Hawaii as a missionary and then accumulateda fortune from agriculture and land-holdingsin both California and Hawaii.

While her husband battled to save soulsand make money, Mary Tenney Castle col-laborated with renowned educators like JohnDewey and began to fight for the creation of aracially and ethnically integrated kindergar-ten system in Hawaii. In 1943 — exactly acentury after Mary’s arrival — Hawaii becamethe first US territory to introduce a state-funded universal kindergarten system.

The US$50 million Castle foundation nowhas a lot more company in Hawaii. These days,meetings of big, regional grant makers arelikely to include new residents like financialentrepreneur Charles Schwab, who launchedthe US$144 million Charles & Helen SchwabFoundation in September 2001, and Intel co-founder Gordon Moore, who a year earlierfounded the Gordon & Betty Moore Founda-tion, now with some US$5 billion in assets.

The rise of such philanthropy is a naturalresult of the US’ burgeoning wealth. Last year,2.7 million people in North America had a networth of at least US$1 million, up 23% in justtwo years as markets firmed, according to theconsulting firm CapGemini.

“When people build their wealth, they in-evitably realise there is only so much they canconsume,” says Charles A Lowenhaupt, man-aging partner of Lowenhaupt & Chasnoff, a StLouis, Missouri-based law firm, and a veteranphilanthropic adviser. “Eventually, they end uptrying philanthropy because it gives some mean-ing to their wealth, and then only after time dothey realise they need to have a process and astructure to make that work effectively.”

Family foundationsSure, there are other vehicles that a bud-ding philanthropist can turn to, such as do-nor-advised funds and charitable remaindertrusts. But the lure of one’s own founda-tion can be irresistible.

For starters, there’s the cachet. You mightnever be as wealthy as Bill Gates or fellowMicrosoft co-founder Paul Allen, possess theglamour and allure of Richard Gere or the busi-ness savvy of Jack Welch, let alone the politi-cal connections of former President Bill Clinton.But, just like them, you can have your ownphilanthropic foundation. It can be named af-ter you and grant money in your name to arange of causes you fervently believe in — nowand for decades after your death.

But the biggest reason to set up a founda-tion is to exert firm control over the process ofgiving. A foundation allows the donors and the

trustees they name to dispense charitable lar-gesse to the causes of their choice. The mainrequirements: that they pay out at least 5% oftheir assets each year in grants and pay 2% oftheir net investment income in an excise tax.

“If you have chosen to set up a foundation,it’s because you see having control as a bigplus,” says Tim Walter, CEO of the Associationof Small Foundations in Bethesda, Maryland.

That incentive has moved to the fore asmany charitable groups that were often therecipients of individual largesse have endedup in the spotlight because of conflicts of in-terest, incompetence or outright fraud andabuse. Most donors vividly recall the fall fromgrace of William Aramony, the former CEOof United Way of America, who in 1995 wasconvicted of fraud and sentenced to sevenyears in a federal prison.

Three years ago, the head of the Washing-ton, DC branch of United Way was found tohave stolen US$497,000 from the organisation.Even the Red Cross hit a bumpy patch whenit was disclosed that it allocated donations inthe wake of the Sept 11 terrorist attacks to areserve fund, a long-standing practice that ithadn’t publicised to donors. “It’s hardly sur-

prising that distrust has grown among donorsand that they want as much control as possi-ble over their giving,” says Eugene Tempel,executive director of the Center on Philan-thropy at Indiana University.

Many matriarchs and patriarchs zero in onfamily foundations as a way to create or ex-press a set of common values among the dif-ferent generations of a family. Simply writinga cheque to an art gallery or college doesn’tachieve that. “The foundation can be vital ingetting children to understand the family phi-losophy when it comes to wealth, and as away to perpetuate family values,” says RodWood, executive vice-president of WilmingtonTrust’s wealth-advisory services.

The boom in family foundations began inearnest in the tech boom of the late 1990s.The number of foundations jumped nearly20% in 2000 alone, according to the NewYork-based Foundation Center. In the fouryears through 2003, the number grew at acompound annual rate of 10.5%. While dataisn’t yet available for 2004 and 2005, the totalwill top 33,000 this year if the growth comesin at a more modest 5% a year.

Opportunities and dangersThe growth has brought not only new oppor-tunities for families and charitable causes butalso some new dangers. Every philanthropicconsultant or adviser has anecdotes about afoundation founder who was overly ambitious,poorly organised, badly advised or — worst ofall — corrupt. While corporate miscreants havedominated the newspaper headlines, founda-tions have been among those tarnished by gov-ernance scandals of the last few years.

The Missouri attorney general told theEwing Marion Kauffman Foundation tochange the way its board operates and rewriteits ethical rules in the wake of a compensa-tion-linked controversy. Compensation is afrequent source of controversy: In the wakeof the deaths of the founders, the two trus-tees of the US$7 million Lucille and Vic WertzFoundation of Chicago paid themselves US$1million in compensation while donating onlyUS$175,000 to charities.

Paul C Cabot Jr of Boston boosted his com-pensation from a foundation established byhis father to US$1.4 million in 2001 in orderto pay for his daughter’s lavish wedding,while donating a mere US$400,000 or so tocharities. Since then, Cabot has agreed to re-imburse the foundation to the tune of US$4million that he used to pay his mortgage andfinance his yacht.

Tighter controlIf many more cases like those come to light,there could well be a regulatory backlash. Twoyears ago, William Josephson, then supervi-sor of charities under New York Attorney Gen-eral Eliot Spitzer, proposed outlawing all pri-vate foundations with less than US$20 mil-lion, saying they were too hard to police. Theidea didn’t take hold, and Josephson has sinceretired. But a similar plan could well comefrom another regulator at some point.

Already, foundation operators face agoodly amount of legal requirements and ad-ministrative headaches. Foundations mustconvene formal meetings, create a board, filetax returns and manage assets, as well as re-search their giving activities.

Running a foundation also means keepingan eye on how the funds are invested and en-suring that the investment policy will yieldenough return to keep funding the programmesthat trustees designate. That’s something that

Heavy hittersHere’s a sampling of the most prominent familyfoundations

Silicon ValleyBill & Melinda Gates Foundation US$28.8 bilWilliam & Flora Hewlett Foundation US$6.47 bilDavid & Lucile Packard Foundation US$5.3 bilGordon & Betty Moore Foundation US$5 bil

Old guardFord Foundation US$10.5 bilLilly Endowment US$8.6 bilRobert Wood Johnson Foundation US$8.3 bilWK Kellogg Foundation US$6.8 bilAndrew W Mellon Foundation US$5.3 bil

Fast growersBuffett Foundation US$2.7 bilIncluding US$2.6 billion of BerkshireHathaway stock it is due to receive fromthe late Susan Buffett’s estateJohn Templeton Foundation US$895 milIt recently received US$550 millionfrom Sir John TempletonJack Kent Cooke Foundation US$541 milIt grew 50% after receiving a bequestfrom Cooke’s estate

CHRO

NIC

LE O

F PH

I LAN

THRO

PY; F

OU

NDA

TIO

N W

EBSI

TES;

I RS

FILI

NG

S

Bill and Melinda Gates’ US$28.8 billion foundation, the most visible and renowned for its efforts to improvethe health of poor children worldwide, took just five years to become gargantuan

BLO

OM

BERG

Spw_4n5_S194.pmd 30/11/05, 9:04 pm4

THEEDGE SINGAPORE | DECEMBER 5, 2005 • PW5

PERSONAL WEALTH

can easily be overlooked in the excitement offinding new philanthropic ventures to back.Only a tiny fraction of all foundations — just13% of those with assets of more than US$2.5million — have any paid staff, says the Foun-dation Center. So, the work falls squarely onthe backs of the philanthropists.

“Donors who haven’t really thought abouttheir objectives when they set up their foun-dations have sometimes decided it’s simplytoo much effort or expense,” says Susan Priceof the Council on Foundations. For them, afrequent tactic is to roll the foundation into adonor-advised fund, an alternative vehicleoffered by community foundations and agrowing number of financial-advisory firms.Donors have less control, but get more guid-ance and less paperwork.

Some experts maintain that foundationsmake sense only if they have at least US$3million to US$5 million. But the level of as-sets isn’t the only consideration. “I don’t thinkI’d ever consider creating a foundation,” saysPhilip Smith, a Tulsa, Oklahoma-based en-ergy-industry entrepreneur, even though theUS$10 million donor-advised fund he createdunder the auspices of the Tulsa CommunityFoundation is larger than most foundations.

“I don’t want to leave behind a foundationthat will get hijacked by its trustees and havethe money put into things I don’t support orbelieve in; that idea just drives me crazy,” hesays. Instead, Smith is rapidly deploying hiscapital by helping to establish microfinanceinitiatives in India, Africa and Eastern Europe,as well as contributing to the Tulsa BibleChurch, all through the donor-advised fund.

Another burden of foundations: makingsure the organisations that you back use themoney effectively. “Foundation members loveto talk about the giving; they feel like whenthey have done that, they have done it all,”says Eric Thurman, CEO of Geneva Global, aphilanthropic advisory firm based near Phila-delphia. “They forget about checking whethertheir money has been spent wisely andchanged lives. It’s a bit like patting themselveson the head for being good investors withoutchecking to see how all the stocks have per-formed in their portfolio.”

Despite all the obstacles, the swelling ranksof family foundations seem sure to reshapethe philanthropic landscape. “At the end ofthe day, anyone who is intent on going be-yond being a chequebook philanthropist issignalling their purpose to become a morethoughtful and strategic donor,” says LisaPhilp, head of philanthropic services atJPMorgan Private Bank.

Charitable organisations, in turn, undoubt-edly will have to become more strategic in iden-tifying and approaching potential donors. Withthousands of foundations to choose from, theorganisations will need to find the ones thatreally show interest in particular causes.

The well-managed foundations will help outby clearly signalling the kinds of projects theyfavour. “It’s not a hallmark of success when afoundation gets 20 times more proposals thanit can fund,” says Indiana University’s Tempel.“It’s a sign of a poorly run or understaffed foun-dation that either doesn’t have clear objectivesor hasn’t communicated them properly. It’s asign of something going wrong that could ulti-mately prove harmful to the organisation orthe foundation — or the sector.”

Effective through the yearsThe rewards of good management can extendfor generations. Alfred Castle is grateful to hisgreat-great grandmother, for instance, for nottying the hands of her descendants but leav-ing them with a flexible yet structured man-date under the terms of the foundation.

“She knew that whatever changed, therewould always be some kind of need to improvethe lives of very young children, and that’s thelanguage that is written into our trust docu-ment that means we’re able to continue beingeffective,” he says. Today, that translates into

grants to build playgrounds, fund music-edu-cation programmes and press for the creationof effective pre-kindergarten education.

David Nee, executive director of theUS$100 million William Caspar GrausteinMemorial Fund, joined what was then a verysmall foundation in 1991. While it had a tinyendowment, its mission was potentially im-mense, and unfocused: funding pre-collegiateeducation initiatives in the US Northeast. Butthe son of the foundation’s creator was aboutto redirect a large trust fund into the founda-tion, and wanted to ensure the money wouldbe well spent.

“We established an advisory group, andwent to interview a wide array of individuals

E

to help us think creatively about how wecould have an impact,” Nee says. Nearly 18months later, the foundation had refocusedand narrowed its strategy, targeting elemen-tary-school education in Connecticut. It alsoactively reached out to other community andphilanthropic organisations, seeking to lever-age its gifts by tying them to other initiatives.

The result? “We have seen cities set up re-gional education-service centres, study parent-ing, and issue report cards and action pro-grammes on the condition of children in theircommunities,” says Nee. “We’re willing to fundthe unglamorous things so they can do morefund-raising and tell those donors that everydollar of their donations goes to programmes.”

The flexibility, long-term commitment andthe willingness to fund these “unglamorous”capacity-building or capital projects may endup being the best legacy of foundations, sayphilanthropy veterans.

“It’s all part of our national character, ourwillingness to try to solve problems that looklike long shots,” says Claire Gaudiani, a pro-fessor at the Heyman Center on Philanthropyat New York University. “We’re really lucky[to] have this pool of crazy rich people whoare willing to jump in and take action.” —

© 2005 Dow Jones & Co, Inc

Suzanne McGee is a financial journalist basedin New York City

Spw_4n5_S194.pmd 30/11/05, 9:04 pm5


The Edge-Lipper Fund Performance Table, compiled byfund analysis company Lipper Asia Ltd enables existing in-vestors to monitor the performance of their unit trusts andassists first-time investors in their selection of unit trusts.

How to read the tableThe table shows the performance of each of the funds overthe last one and six months, in addition to one, three andfive years. The performance is calculated on an NAV (netasset value)-to-NAV basis with all dividends reinvested. TheNAV per unit is calculated daily by most funds by takingthe current market value of the unit trusts’ total assets, de-ducting all outstanding charges and then dividing the netassets by the total number of units issued.

By measuring the change in the NAV over time (af-ter adjustment for reinvestment of dividends), one canmeasure the investment ability of the fund managementcompany and the approximate returns an investor wouldhave received after deducting any front-end load or salescharges.

To ensure that fair comparisons are being made, thefunds are broken down by type or sector of investment.Within each sector, the funds are listed alphabetically withtheir ranking, which shows the position of each fundagainst its peers for each time period.

Average indicates the mean performance of all the fundsin the sector and the number of funds with data over thattime period. Wherever NA is displayed, it means that eitherthe fund has not been in existence over that time period orthe fund company has not supplied the necessary data.

How to read the Lipper RatingsThe Lipper ratings are subject to change every month

Lipper Asia LimitedE-mail: [email protected]

Tel: (852) 2973 6600 Fax: (852) 2973 6622

/

PERSONAL WEALTH LIPPER FUND TABLE SINGAPORE

Singapore-registered unit trust fundsLIPPER RATINGS

YTD RETURN (%) CAPITAL CONSISTENTFUND 1-YEAR 3-YEAR 5-YEAR PRESERVATION RETURN

SIZE 12/31/2004 11/25/2004 11/25/2002 11/27/2000 SCORE SCORENAME ($ MIL) 11/25/2005 11/25/2005 11/25/2005 11/25/2005 10/31/2005 10/31/2005

LIPPER RATINGSYTD RETURN (%) CAPITAL CONSISTENT

FUND 1-YEAR 3-YEAR 5-YEAR PRESERVATION RETURNSIZE 12/31/2004 11/25/2004 11/25/2002 11/27/2000 SCORE SCORE

NAME ($ MIL) 11/25/2005 11/25/2005 11/25/2005 11/25/2005 10/31/2005 10/31/2005

and are based on an equal-weighted average of percen-tile ranks for Consistent Return, Preservation and TotalReturn metrics over three-year periods. The highest 20%of funds in each peer group are named Lipper Leaders,the next 20% receive a score of 2, the middle 20% arescored 3, the next 20% are scored 4, and the lowest 20%are scored 5. Lipper ratings are not intended to predictfuture results, and Lipper does not guarantee the accu-racy of this information. More information is availableat www.lipperleaders.com.

Total Return: Lipper ratings for Total Return reflectfunds’ historical total return performance relativeto peers.

Consistent Return: Lipper ratings for Consistent Re-turn reflect funds’ historical risk-adjusted returns, ad-justed for volatility, relative to peers.

Preservation: Lipper ratings for Preservation reflectfunds’ historical loss avoidance relative other fundswithin the same asset class.

About LipperLipper, a wholly owned subsidiary of Reuters, is a leadingglobal provider of mutual fund information and analysisto fund companies, financial intermediaries and media or-ganisations. Founded in 1973 and headquartered in NewYork, the firm tracks 125,000 funds worldwide through itsoffices in major financial capitals in North America, Eu-rope, and Asia.

Renowned for the high standard of accuracy in thefund markets of US and Europe, Lipper today provides in-formation to fund companies representing more than 95per cent of US fund assets. Lipper entered the Asian mar-kets more than five years ago, and now operates in nineAsian countries.

RANK

RANK

RANK

RANK

RANK

RANK

RANK

RANK

HENDERSON PACIFIC DRAGON 9.9 14.29 28 17.24 27 67.9 25 37.37 26 4 4

LEGG MASON ASIAN ENTERPRISE TRUST 184.21 11.65 30 16.24 28 62.3 29 41.92 23 5 5

SCHRODER ISF ASIAN EQUITY YIELD A ACC 765.16 12.88 29 16.11 29

SHENTON ASIA PACIFIC 141.8 9.73 31 14.34 30 88.65 6 80 5 4 2

FIDELITY FUNDS - ASEAN FUND 435.96 7.52 32 9.76 31 64.01 27 38.7 25 LEADER 4

SHENTON TWIN CITY 11.89 6.46 33 9.32 32 94.23 4 59.27 10 2 2

LEGG MASON SOUTHEAST ASIA SPECIAL SITS TRUST 33.87 4.16 35 5.99 33 68.2 24 33.98 30 2 5

OCBC SOUTH EAST ASIA SGD 9.1 3.36 36 5.61 34 84.87 7 59.78 9 2 4

HSBC GIF ASIA PACIFIC EX JAPAN EQ HIGH DIV AD 369.03 4.65 34 5.33 35

DBS ASIA KNOWLEDGE 17.15 0.66 37 5.23 36 77.97 13 56.96 12 5 5

APS ALPHA SGD 61 0 38 0.94 37

SCHRODER ASIAN EQUITY YIELD 207.21

INTERNATIONAL OPPS FDS ASIAN EQUITY A 0

CITI FCP CITIEQUITY ASIA EXJAPAN ANALYST A ORD USD 175.72 15.67 25

SCHRODER ISF ASIAN SMALLER COMPANIES A ACC 0.17

AVERAGE (41) 259.91 15.83 38 18.91 37 75.78 33 56.52 32

EQUITY: EMERGING MKTS GLOBAL

FIDELITY FUNDS - EMERGING MARKETS FUND 470.02 38.59 2 48.13 1 123.8 2 96.54 3 4 2

ING (L) INVEST EMERGING MARKETS P CAP 201.27 31.78 5 39.6 2 111.49 5 94.78 4 4 5

AVIVA EMERGING COUNTRIES EQUITY P1 2415.97 32.04 3 39.53 3 128.93 1 111.54 1 3 LEADER

ABN AMRO GLOBAL EMERGING MARKETS EQUITY A USD 1437.9 31.94 4 37.96 4 109.89 8 92.19 6 3 4

HSBC GIF GLOBAL EMERGING MARKETS EQUITY AD 280.75 28.85 8 36.67 5 97.4 10 84.83 8 4 5

SCHRODER ISF EMERGING MARKETS A ACC 114.56 29.18 7 35.89 6 114.69 4 75.05 9 4 3

SCUDDER GOF-EMERGING MARKETS EQUITY A2 155.49 29.75 6 34.8 7 123.01 3 90.38 7 3 2

SCHRODER EMERGING MARKETS 65.12 28 9 34.45 8 111.32 6 67.16 10 4 3

TEMPLETON EMERGING MARKETS A DIS 662.99 24.86 10 31.04 9 110.27 7 102.16 2 2 3

FIRST STATE GEM LEADERS SGD 13.38 23.47 12 30.09 10

FTF - EMERGING MARKETS A 53.67 23.6 11 29.6 11 105.59 9 94.48 5 2 4

ABERDEEN GLOBAL EMERGING MARKETS SGD 76.3

HSBC GIF BRIC FREESTYLE M2C 1561.56

HSBC GIF BRIC FREESTYLE M1C 265.92 38.72 1

DWS INVEST BRIC PLUS LC 992.65

AVERAGE (15) 584.5 30.07 12 36.16 11 113.64 10 90.91 10

EQUITY: EUROPE

FIDELITY FUNDS - EUROPEAN AGGRESSIVE FUND 3345.24 18.66 1 26.71 1 109.78 1 50.49 2 3 LEADER

FIDELITY FUNDS - EUROPEAN GROWTH FUND 38579.79 14.91 2 19.31 2 90.64 2 71.55 1 2 LEADER

SHENTON GREATER EUROPE 11.56 11.65 4 18.43 3 51.32 18 0.67 13 2 4

HENDERSON HF PAN EUROPEAN EQUITY DIVIDEND A2 556.72 10.54 7 16.98 4

HENDERSON HF PAN EUROPEAN EQUITY A2 1454.06 10.94 5 15.95 5 77.92 3 2 LEADER

INVESCO PAN EUROPEAN EQUITY A 1409.58 9.89 10 15.5 6 68.19 6 -10.7 16 2 LEADER

FIDELITY FUNDS - EUROPEAN LARGER COMPANIES FUND 528.62 9.68 11 14.81 7 74.13 4 2 LEADER

INFINITY EUROPEAN STOCK INDEX SGD 25.2 9.31 14 14.4 8 60.65 9 12.4 7 2 3

M&G PAN EUROPEAN A EURO ACC 33.55 9.39 12 14.34 9 63.63 7 4 2

INDUSTRIA 4332.16 10.17 8 14.25 10 54.6 14 -2.04 15 3 4

PRU PAN EUROPEAN 25.97 8.3 15 13.92 11 56.45 10 3 4

SCHRODER ISF EUROPEAN EQUITY ALPHA A ACC 2635.66 7.59 19 13.68 12

HSBC PAN-EUROPEAN GROWTH 8.65 9.33 13 13.44 13 52.1 17 12.51 6 3 4

HSBC GIF PAN EUROPEAN EQUITY PD 693.4 10.07 9 13.44 14 54.33 15 14.83 4 3 4

ABN AMRO EUROPE EQUITY GROWTH A 15.39 10.88 6 13.09 15 43.18 22 -22.42 19 3 5

UNITED EUROPEAN EQUITY FUND 23.7 8.14 16 12.2 16 47.88 20 2.01 12 2 5

SCHRODER ISF EUROPEAN EQUITY YIELD A ACC 76.18 7.54 20 12.03 17 54.74 13 0.04 14 3 4

ING (L) INVEST EUROPEAN EQUITY P CAP 477.06 7.76 18 11.82 18 55.05 12 7.2 8 3 4

SCHRODER EUROPEAN LARGE CAP EQUITY 38.44 6.21 26 11.26 19 49.58 19 2.44 10 3 4

DWS INVEST EUROPEAN DIVIDEND PLUS LC 566.01 6.41 24 10.9 20

SCHRODER ISF EUROPEAN LARGE CAP A ACC 100.14 6.76 22 10.84 21 52.77 16 3.66 9 2 4

ABN AMRO EUROPE EQUITY A EUR 492.79 7.95 17 10.79 22 41.51 23 -15.87 17 3 5

TEMPLETON EUROPEAN A DIS USD 229.37 7.12 21 10.31 23 69.8 5 44.49 3 3 LEADER

CITI PAN EUROPE EQUITY 6.27 6.5 23 10.08 24 47.19 21 2.34 11 3 5

ABN AMRO STAR EUROPE EQUITY 8.83 6.36 25 10.06 25 35.83 24 -21.53 18 4 5

ABERDEEN EUROPEAN OPPORTUNITIES 13.6 4.22 28 9.02 26 55.97 11 13.62 5 3 3

FTF - EUROPEAN EQUITY A 4.6 5.07 27 8.38 27 61.83 8 3 3

SCHRODER ISF EUROPEAN ABSOLUTE RETURN A ACC 227.26 -1.57 29 2.55 28

SCHRODER EUROPEAN EQUITY ALPHA 39.02

INTERNATIONAL OPPS FDS PAN EUROPEAN A 0

ABN AMRO EUROPE OPPORTUNITIES A 34.59 12.99 3

AVERAGE (31) 1806.24 8.72 29 13.16 28 59.54 24 8.72 19

EQUITY: EUROPE EX UK

HENDERSON HF CONTINENTAL EUROPEAN EQUITY A2 743.9 11.77 1 16.93 1 68.18 3 12.81 2 3 2

HENDERSON EUROPEAN 33 10.23 2 16.87 2 64.41 4 8.99 4 3 3

HORIZON EUROPEAN EQUITY SGD 17.06 9.89 3 14.82 3 57.86 5 12.8 3 4 4

INVESCO CONTINENTAL EUROPEAN EQUITY A 501.87 9 5 14.49 4 80.5 1 30.45 1 3 LEADER

M&G EUROPEAN (EX UK) A EURO ACC 0.12 9.37 4 14.21 5 68.57 2 4 2

AVERAGE (5) 259.19 10.05 5 15.46 5 67.9 5 16.26 4

EQUITY: EUROPE SM&MID CAP

FIDELITY FUNDS - EUROPEAN SMALLER COMPANIES FUND 2368.08 14.26 1 24.35 1 119.67 3 17.24 2 3 2

SCHRODER ISF EUROPEAN SMALLER COMPANIES A ACC 237.76 13.37 3 23.09 2 130.24 2 22.45 1 LEADER LEADER

ABN AMRO SMALL COMPANIES EUROPE EQUITY A EUR 269.93 14.21 2 21.06 3 93.54 5 9.44 4 3 4

M&G EUROPEAN SMALLER COMPANIES A EURO ACC 1.85 12.97 4 20.81 4 130.91 1 2 2

FIDELITY FUNDS - EUROPEAN MID CAP FUND 394.34 9.95 5 15.49 5 85.95 6 5 4

UNITED EUROPEAN SMALL CAP FUND 48.64 5.01 6 9.55 6 96.07 4 15.17 3 LEADER 5

AVERAGE (6) 553.43 11.63 6 19.06 6 109.4 6 16.08 4

EQUITY: EUROZONE

SCHRODER ISF EURO DYNAMIC GROWTH A ACC 1272.34 12.51 1 18.89 1 89.86 2 3 2

FIDELITY FUNDS - EURO BLUE CHIP FUND 1694.96 11.33 2 17.25 2 68.06 4 15.95 3 4 3

AVIVA EUROPEAN EQUITY P1 566.5 9.48 3 14.68 3 63.91 5 19.63 2 4 3

SCHRODER ISF EURO EQUITY A ACC 4055.05 7.04 4 13.1 4 84.08 3 32.47 1 LEADER 2

FIDELITY FUNDS - EURO STOXX 50 FUND 788.21 6.96 5 11.34 5 56.38 6 -0.11 4 4 4

ABN AMRO EURO EQUITY A 170.86 6.52 6 9.95 6 42.82 7 -14.24 5 4 5

SCHRODER ISF EURO ACTIVE VALUE A ACC 878.94 4.03 7 9.33 7 98.91 1 LEADER LEADER

AVERAGE (7) 1346.69 8.27 7 13.51 7 72 7 10.74 5

EQUITY: FRANCE

FIDELITY FUNDS - FRANCE FUND 154.46 16.06 1 24.95 1 84.81 1 18.83 1 4

AVERAGE (1) 154.46 16.06 1 24.95 1 84.81 1 18.83 1

EQUITY: GERMANY

FIDELITY FUNDS - GERMANY FUND 1860.09 13.74 1 19.8 1 98.93 1 8.24 1 4

ABN AMRO GERMANY EQUITY A EUR 339.63 9 2 13.64 2 57.88 2 -9.98 2 5

AVERAGE (2) 1099.86 11.37 2 16.72 2 78.4 2 -0.87 2

BOND: ASIA PACIFIC

ABN AMRO ASIA BOND A USD 31.31 8.19 2 8.86 1 20.26 2 50.02 4 2 3

ING (L) RENTA FUND ASIAN DEBT P CAP 8.75 8.97 1 8.74 2 18.94 4 60.09 2 2 4

ABN AMRO STAR ASIA BOND SGD 1.94 6.48 3 7.25 3 15.94 6 40.15 5 3 5

UOB OPTIMIX ASIAN BOND FUND 28.96 6.17 4 6.33 4 15.7 7 57.17 3 2 5

SCHRODER ISF ASIAN BOND A ACC 895.25 3.04 6 3.87 5 22.82 1 62.8 1 2 2

LEGG MASON ASIAN BOND TRUST 3.67 3.04 5 3.45 6 18.64 5 31.25 8 LEADER 4

ABERDEEN ASIAN HIGH YIELD SGD 4.2 2.13 7 2.49 7 20.08 3 39.81 6 LEADER 3

SCHRODER ASIAN BOND 502.07 1.12 8 1.89 8

DEUTSCHE PREMIER ASIAN BOND SGD 11.04 -1.39 9 -1.65 9 7.02 8 34.66 7 2 5

INTERNATIONAL OPPS FDS ASIAN BOND A 2.86

ABF PAN ASIA BOND INDEX 1888.58

DBS ASIA BOND A SGD 25.96

AVERAGE (12) 283.72 4.19 9 4.58 9 17.42 8 46.99 8

BOND: GLOBAL

SCHRODER ISF STRATEGIC BOND A ACC 49.78 8.44 1 8.2 1

PIMCO GIS GLOBAL REAL RETURN H RET ACC 28.8 7.15 2 7.83 2

PIMCO GIS TOTAL RETURN BOND H RET ACC 3480.84 5.1 3 4.88 3 5.94 18 3 5

SHENTON INCOME SGD 1137.04 1.95 4 4.16 4 27.83 2 47.27 2 2 LEADER

UNITED INTERNATIONAL BOND FUND 66.93 1.87 5 2.46 5 16.33 5 35.79 4 LEADER 3

CITI GLOBAL BOND 4.67 0.91 6 1.12 6 6.18 17 16.75 16 2 5

GROWTHPATH TODAY 26.09 -0.23 9 1.11 7

SCUDDER GOF-GLOBAL BOND A2 53.89 0.76 7 1.03 8 11.49 11 30.43 10 2 4

TEMPLETON GLOBAL TOTAL RETURN A ACC 101.14 -0.82 11 0.93 9

DEUTSCHE LION BOND SGD 139.99 0.25 8 0.28 10 3.05 19 13.11 17 LEADER 5

LEGG MASON GLOBAL BOND TRUST 220.51 -2.33 15 0.27 11 18.02 4 34.98 5 3 3

UOB OPTIMIX WORLDWIDE BOND FUND 1.87 -0.47 10 0.11 12 9.13 16 24.75 15 LEADER 4

TEMPLETON GLOBAL BOND A DIS USD 1766.84 -1.81 13 -0.32 13 31.08 1 64.39 1 2 LEADER

FTF - GLOBAL BOND 34.29 -2.12 14 -0.66 14

OCBC GLOBAL BOND A SGD 58.6 -1.49 12 -0.92 15 14.92 6 31.93 7 LEADER 3

SIS INTERNATIONAL FIXED INTEREST 86.24 -2.75 16 -1.69 16 12.23 10 32.63 6 3 3

FIDELITY FUNDS - INTERNATIONAL BOND FUND 630.22 -3.08 17 -2.39 17 18.12 3 38.23 3 2 2

HSBC GIF GLOBAL INVESTMENT GRADE BOND AD 152.48 -3.83 18 -2.75 18 11.44 12 28.87 11 2 4

SHENTON DYNAMIC BOND 83.2 -5.58 20 -3.97 19 14 7 31.59 9 4 4

UNITED GLOBAL BOND FUND SGD 22.83 -5.46 19 -4.45 20 12.6 9 31.65 8 4 4

HENDERSON GLOBAL BOND A 3.6 -6.2 21 -4.72 21 13.08 8 3 3

AVIVA GLOBAL AAA BOND P1 65.19 -6.57 22 -5.31 22 9.92 14 25.59 14 4 4

HSBC GLOBAL FIXED INCOME 7.83 -6.68 23 -5.45 23 10.3 13 25.63 13 3 4

DWS INVEST TOTAL RETURN BONDS LC 431.01 -7.8 25 -5.67 24

TEMPLETON GLOBAL BOND EURO A ACC 38.04 -8.15 26 -5.79 25

UNITED GLOBAL BOND FUND USD 2.95 -6.87 24 -6.01 26 9.22 15 28.13 12 4 4

SCHRODER STRATEGIC BOND 32.09

BNP PARIBAS EIFFEL FUNDS - EIFFEL ABS 42.5

AVERAGE (28) 313.2 -1.76 26 -0.68 26 13.42 19 31.87 17

BOND: SGD

AIG INTL FUNDS - SINGAPORE BOND 235.02 3.39 1 5.17 1 16.19 1 LEADER LEADER

DBS ENHANCED INCOME SGD 153.22 1.7 2 1.93 2 6.19 3 11.46 2 LEADER 3

UOB OPTIMIX SGD FUND 37.72 0.32 3 0.47 3 4.26 5 10.55 4 LEADER 4

HORIZON SINGAPORE FIXED INCOME ENHANCED SGD 106.55 0 5 0.35 4 4.7 4 14.17 1 LEADER 3

HSBC SINGAPORE BOND R 0.34 0.09 4 0.29 5 2.04 7 LEADER 5

OCBC SINGAPORE FIXED INCOME INVESTMENT A 15.9 -1.23 7 -0.62 6 6.22 2 LEADER 2

CITIBOND SINGAPORE A 29.95 -1.01 6 -0.78 7 1.27 8 11.24 3 LEADER 5

COMMERZBANK SINGAPORE BOND 6.43 -1.24 8 -0.8 8 3.91 6 LEADER 4

ING SINGAPORE DOLLAR BOND 3.09 -2.1 10 -1.54 9

ABF SINGAPORE BOND INDEX 452.88

UNITED SINGAPORE BOND FUND 67.1 -2.08 9

SCHRODER SINGAPORE FIXED INCOME 13.98

AVERAGE (12) 93.52 -0.21 10 0.5 9 5.6 8 11.85 4

EQUITY: ASIA PACIFIC

FIDELITY FUNDS - PACIFIC FUND 904 24.66 1 30.31 1 82.42 3 28.22 4 3 LEADER

UNITED ASIA TOP 50 FUND 129.05 19.19 2 23.56 2 56.79 6 22.29 6

SCHRODER PAN ASIA 71.5 18.62 3 22.86 3 65.78 5 25.28 5 2 3

UNITED REGIONAL GROWTH FUND 57.71 16.8 4 20.33 4 76.07 4 43.41 3 LEADER LEADER

OCBC NEW EQUITIES GROWTH 3.7 15.11 5 17.71 5 87.03 2 48.36 2 2 2

UNITED APEC EQUITY FUND 7.75 12.4 7 15.79 6 53.8 7 -0.21 7 LEADER 4

PHILLIP ASIA PACIFIC GROWTH 11.48 10.83 8 15.51 7 109.71 1 68.46 1 LEADER LEADER

HSBC GIF ASIA FREESTYLE AD 539.69 7.85 9 9.78 8

FIDELITY FUNDS - ASIA PACIFIC GROWTH & INCOME 963.21 13.18 6

AVERAGE (9) 298.68 15.41 9 19.48 8 75.94 7 33.69 7

EQUITY: ASIA PACIFIC EX JAPAN

FIDELITY FUNDS - SOUTH EAST ASIA FUND 1387.18 27.21 1 29.75 1 84.31 9 57.12 11 5 2

ABERDEEN PACIFIC EQUITY SGD 343.4 24.7 2 29.57 2 112.05 1 137.24 1 LEADER LEADER

FIDELITY FUNDS - ASIAN SPECIAL SITUATIONS FUND 558.2 23.85 3 27.59 3 81.82 12 56.71 13 4 2

OCBC ASIA INFRASTRUCTURE 29.1 23.66 4 27.23 4 70.42 19 35.56 27 5 3

NIKKO ORIENTAL GROWTH 21.72 6 25.16 5 64.42 26 26.13 32 4 5

TEMPLETON ASIAN GROWTH A DIS USD 1804.92 22.67 5 24.56 6 104.16 2 115.49 2 LEADER LEADER

OCBC ASPAC RECOVERY SGD 19.8 21.67 7 24.1 7 52.09 33 35.26 28 5 5

SCHRODER ASIAN GROWTH SGD 203.96 20.7 9 23.98 8 84.56 8 65.9 7 5 2

SCHRODER ISF PACIFIC EQUITY A ACC 259.98 20 10 23.25 9 68.46 22 49.31 16 5 4

FTF - ASIAN EQUITY A 43.76 21.53 8 23.16 10 98.83 3 106.06 3 LEADER LEADER

OCBC ASIA PACIFIC SGD 20.4 19.78 12 23 11 76.46 14 47.3 19 4 3

ALLIANZ GLOBAL INVESTORS ASIA TIGER 3.11 19.91 11 22.96 12 60.06 31 33.99 29 5 5

M&G SOUTH EAST ASIA A EURO ACC 78.34 18.4 17 22.67 13 88.79 5 4 LEADER

FIRST STATE ASIAN GROWTH SGD 95.12 16.94 21 21.99 14 69.58 21 54.17 14 4 4

HSBC GIF ASIA EX JAPAN EQUITY AD 404.38 19.27 14 21.61 15 71.53 18 44.96 20 4 2

HSBC ASIAN GROWTH 18.02 18.83 15 21.43 16 69.67 20 39.42 24 5 3

DEUTSCHE ASIA PREMIER TRUST SGD 105.31 19.38 13 21.05 17 68.22 23 51.95 15 4 4

INVESCO ASIAN EQUITY A 1141.45 17.38 20 21.02 18 83.4 10 91.3 4 4 LEADER

CAAM ASIA VISION 7.46 15.47 26 20.95 19 72.76 16 47.33 18 5 3

ABN AMRO ASIAN TIGERS EQUITY A USD 879.49 16.42 22 20.84 20 63.26 28 43.56 22 5 4

HORIZON ASIA EX-JAPAN EQUITY SGD 15.5 18.12 18 20.79 21 83.19 11 72.04 6 2 2

AVIVA ASIA PACIFIC EQUITY P1 133.93 18.49 16 20.72 22 61.06 30 48.49 17 4 5

ABN AMRO STAR ASIAN TIGERS EQUITY 5.9 14.88 27 19.26 23 57.47 32 32.53 31 5 5

UNITED ASIA FUND 89.39 16.05 23 19.25 24 72.01 17 64.4 8 5 3

FIRST STATE DIVIDEND ADVANTAGE SGD 251.52 17.48 19 18.92 25

HENDERSON HF PACIFIC EQUITY A2 74.74 15.97 24 18.89 26 73.92 15 44.51 21 4 3

Spw_6n7_S194.pmd 1.12.05, 8:37 pm6

THEEDGE SINGAPORE | DECEMBER 5, 2005 • PW7



NAME ($ MIL) 11/25/2005 11/25/2005 11/25/2005 11/25/2005 10/31/2005 10/31/2005RANK

RANK

RANK

RANK

RANK

RANK

RANK

RANK

PERSONAL WEALTH LIPPER FUND TABLE SINGAPORE



NAME ($ MIL) 11/25/2005 11/25/2005 11/25/2005 11/25/2005 10/31/2005 10/31/2005

M&G JAPAN A EURO ACC 0.33 16.55 15 21.53 14 66.59 9 4 2

HENDERSON HF JAPANESE EQUITY A2 717.04 16.88 14 21.25 15 77.33 5 12.16 3 4 2

SCHRODER JAPANESE EQUITY 48.68 15.24 17 20.06 16 46.1 15 -0.92 8 4 5

SCHRODER ISF JAPANESE EQUITY A ACC 1074.7 15.54 16 19.99 17 52.16 13 1.66 6 4 4

ABN AMRO BEHAVIOURAL FINANCE JAPAN A JPY 9.12 12.26 19 18 18 69.22 8 3 2

HENDERSON JAPANESE EQUITY 1.9 13.59 18 17 19

ABERDEEN JAPAN EQUITY 10 7.59 22 14.08 20 41.92 17 -6.6 12 3 5

INVESCO JAPANESE EQUITY CORE A 70.29 10.23 20 13.25 21 54.64 12 3 5

FTF - JAPAN A 8.27 9.7 21 12.36 22 22.95 18 -32.22 15 4 5

AVERAGE (22) 383.56 18.26 22 22.97 22 65.98 18 0.11 15

EQUITY: MALAYSIA/SINGAPORE

FIRST STATE SINGAPORE GROWTH SGD 56.79 12.35 1 14.47 1 58.33 2 16.29 3 LEADER 2

OCBC SINGAPORE/MALAYSIA SGD 34.6 8.02 2 9.59 2 70.61 1 68.4 1 LEADER LEADER

UNIFUND 36.81 5.69 3 7.6 3 42.46 3 27.12 2 3 3

SUT SINGAPORE EQUITY 3.06 4 6.32 4 32.89 4 9.78 4 2 4

SUT SAVINGS -1.9 5 0.65 5 18.32 5 -5.49 5 3 5

AVERAGE (5) 42.73 5.44 5 7.72 5 44.52 5 23.22 5

EQUITY: NORTH AMERICA

FIDELITY FUNDS - AMERICAN DIVERSIFIED USD 195.73 20.06 1 23.04 1

FIDELITY FUNDS - AMERICA FUND 3167.05 16.68 2 21.03 2 52.68 2 6.33 2 2 LEADER

SPDR TRUST, SERIES 1 83922.9 10.24 13 19.79 3 17.72 15 -6.73 3

CITI US AGGRESSIVE GROWTH 11.98 15.48 6 19.75 4 42.65 4 4 LEADER

DBS US GROWTH 11.03 15.69 4 18.62 5 26.17 12 -28.23 11 4 5

FTF - FRANKLIN US AGGRESSIVE GROWTH A 10.2 14.85 7 18.6 6 54.68 1 -21.24 9 4 LEADER

M&G AMERICAN A EURO ACC 2.56 15.55 5 18.42 7 42.84 3 3 2

SGAM US CONCENTRATED CORE USD 0.25 12.52 8 14.87 8

INVESCO US GROWTH EQUITY A 113.98 12.24 9 14.34 9 20.96 13 -53.36 12 4 5

HORIZON US EQUITY SGD 8.36 10.79 11 13.74 10 32.95 7 -11.37 5 2 3

ABN AMRO US EQUITY VALUE A USD 8.62 10.43 12 13.72 11

ABN AMRO US EQUITY GROWTH A USD 1167.76 11.11 10 13.44 12 17.19 16 -15.27 7 2 5

ISHARES S&P 500 2201.95 9.78 14 12.2 13 34.34 6 LEADER 2

FRANKLIN MUTUAL BEACON A ACC USD 2207.03 9.6 16 11.75 14 38.27 5 36.54 1 LEADER 2

ING (L) INVEST US ENHANCED CORE CONCENTRATED P CAP 401.36 9.68 15 11.67 15 30.96 8 -11.61 6 LEADER 4

SCHRODER ISF NORTH AMERICAN EQUITY SIGMA A ACC 14.35 9.07 17 11.43 16 28.12 11 2 4

INFINITY US 500 STOCK INDEX SGD 30.2 8.94 18 11.15 17 30.9 9 -8.55 4 LEADER 3

ABERDEEN AMERICAN OPPORTUNITIES 1.2 5.51 19 8.94 18 30.69 10 -19.59 8 LEADER 4

HSBC NORTH AMERICAN GROWTH 0.85 3.96 21 7.03 19 20.49 14 -25.31 10 3 5

INVESCO US EQUITY A 129.63 3.96 20 5.38 20 12.6 17 4 5

SMITH BARNEY SELECT EQUITY DIVIDEND P’FOLIO 04 SGD 8.33 -1.21 22 1.11 21

DIAMONDS TRUST, SERIES 1 12705.13

ABN AMRO US OPPORTUNITIES A USD 26.85 15.86 3

AVERAGE (23) 4623.8 10.94 22 13.81 21 31.42 17 -13.2 12

EQUITY: SECTOR BANKS&FINANCIAL

FIDELITY FUNDS - FINANCIAL SERVICES FUND 156.52 19.9 1 27.3 1 66.85 1 43.9 1 2 3

OCBC GLOBAL FINANCIAL SERVICES INVESTMENT A 8.1 15.57 2 22.54 2 58.98 2 2 4

ABN AMRO FINANCIALS A EUR 59.08 15.54 3 20.1 3

ING (L) INVEST BANKING & INSURANCE P CAP 196.85 14.68 4 18.81 4 54.97 3 22.69 4 2 4

UNITED GLOBAL CAPITAL FUND 35.85 10.65 7 17.29 5 51.36 5 34.59 2

COMMERZBANK GLOBAL FINANCE INDEX 0.94 12.11 5 16.67 6 49.62 6 23.4 3 2 5

CITI GLOBAL FINANCIAL SERVICES 18.42 11.21 6 15.53 7 54.55 4 20.2 5 2 4

AVERAGE (7) 67.97 14.24 7 19.75 7 56.05 6 28.96 5

EQUITY: SECTOR BIOTECHNOLOGY

ABN AMRO BIOTECH A EUR 51.1 13.05 1 21.4 1 45.13 1 5 4

DIT-BIOTECHNOLOGIE 1308.52 11.78 2 19.31 2 28.16 3 -19.8 1 5 5

FTF - FRANKLIN LIFE SCIENCE DISCOVERY A 35.41 9.08 3 14.83 3 41.38 2 -28.8 2 5 3

UBS (SG) IF - BIOTECH 6.26 2.96 4 10.93 4 12.73 4 -49.79 3 5 5

AVERAGE (4) 350.32 9.22 4 16.62 4 31.85 4 -32.8 3

EQUITY: SECTOR GENERAL INDUSTRY

FIDELITY FUNDS - INDUSTRIALS FUND 286.21 29.52 1 31.46 1 96.42 1 75.02 1 LEADER

COMMERZBANK GLOBAL TRAVEL & TRANSPORTATION INDEX 0.07 8.35 2 11.59 2 40.66 2 1.08 2 3

AVERAGE (2) 143.14 18.94 2 21.52 2 68.54 2 38.05 2

EQUITY: SECTOR GOLD&PREC METALS

UNITED GOLD & GENERAL FUND 27.18 27.09 1 20.33 1 110.05 1 225.15 1 5

AVERAGE (1) 27.18 27.09 1 20.33 1 110.05 1 225.15 1

EQUITY: SECTOR INFORMATION TECH

UBS (SG) IF - ASIAN TECHNOLOGY 2.31 20.82 2 27.01 1 47.83 4 5 4

FIRST STATE ASIA INNOVATION AND TECHNOLOGY SGD 56.32 21.83 1 26.85 2 35.08 10 -20.78 5 5 5

PRU GLOBAL TECHNOLOGY 192.53 18.4 4 25.32 3 54.4 3 5 LEADER

M&G GLOBAL TECHNOLOGY A EURO ACC 5.34 18.31 5 24.43 4 65.31 2 5 LEADER

OCBC ASIA TECHNOLOGY SGD 6.2 18.8 3 23.44 5 43.2 6 -20.6 4 5 5

ACMIF - ASIAN TECHNOLOGY PORTFOLIO 95.6 16 6 22.33 6 41.67 8 -16.86 2 5 4

ALLIANZ GLOBAL INVESTORS PF - GLOBAL INTERNET 14.64 12.88 7 14.43 7 79.03 1 -37.73 6 5 LEADER

OCBC GLOBAL TECHNOLOGY & TELECOM INVESTMENT A 5.5 8.55 14 12.85 8 28.85 11 5 3

FIDELITY FUNDS - TECHNOLOGY FUND 364.21 9.84 10 12.47 9 26.05 13 -42.27 7 5 3

HENDERSON HF GLOBAL TECHNOLOGY A2 327.15 9.82 11 12.41 10 43.47 5 -62.32 15 5 LEADER

HENDERSON GLOBAL TECHNOLOGY 131.6 8.87 13 11.57 11 42.11 7 -62.91 16 5 LEADER

UNITED GLOBAL TECHNOLOGY FUND 53.99 9.5 12 11.13 12 15.37 20 -42.86 8

DIT-TECHNOLOGIEFONDS 401.52 9.96 9 10.77 13 20.63 16 -55.63 11 5 4

SGAM ASIAN NEW ECONOMY 15.18 10.18 8 10.18 14 23.22 15 -18.57 3 5 5

ABN AMRO INFORMATION TECHNOLOGY A USD 403.69 6.44 19 9.6 15 18.79 18 -68.59 17 5 4

COMMERZBANK GLOBAL INFOTECHNOLOGY INDEX 5.6 7.67 15 8.6 16 23.86 14 -50.46 9 5 4

SCHRODER ISF GLOBAL TECHNOLOGY A ACC 26.95 6.92 17 8.46 17 17.38 19 -59.17 14 5 4

ABN AMRO STAR GLOBAL TECHNOLOGY 20.44 4.9 21 8.08 18 14.44 22 -69.52 18 5 5

UOB OPTIMIX E-COMMERCE FUND 17.89 6.72 18 7.87 19 19.53 17 -72.85 19 5 4

ABERDEEN GLOBAL TECHNOLOGY 133.6 7.27 16 7.87 20 28.19 12 -57.98 12 5 3

SCHRODER GLOBAL TECHNOLOGY 7.94 6.04 20 7.33 21 12.56 23 5 5

HSBC GIF GLOBAL EQUITY TECHNOLOGY AD 12.49 2.93 22 6.65 22 15.32 21 -54.16 10 5 5

HSBC GLOBAL TECHNOLOGY GROWTH 1.45 1.21 24 4.94 23 12.1 24 -58.44 13 5 5

UNITED GLOBAL INTERNET FUND 14.3 2.49 23 4.53 24 35.13 9 -14.18 1

INTERNATIONAL OPPS FDS GLOBAL TECHNOLOGY A 0

AVERAGE (25) 92.66 10.26 24 13.3 24 31.81 24 -46.63 19

EQUITY: SECTOR NATURAL RESOURCE

ABN AMRO ENERGY A USD 147.62 39.33 1 36.78 1 119.14 1 58.94 1 2 4

COMMERZBANK GLOBAL ENERGY & RESOURCES INDEX 5.2 25.29 2 24.88 2 82.38 2 54.58 2 3 5

FIRST STATE GLOBAL RESOURCES SGD 152.08

AVERAGE (3) 101.63 32.31 2 30.83 2 100.76 2 56.76 2

EQUITY: SECTOR NON CYCLICAL CON

FIDELITY FUNDS - CONSUMER INDUSTRIES FUND 151.03 7.3 2 11.25 1 54.29 1 19.73 1 LEADER 3

ABN AMRO CONSUMER STAPLES A EUR 184.32 7.98 1 10.57 2

AVERAGE (2) 167.68 7.64 2 10.91 2 54.29 1 19.73 1

EQUITY: SINGAPORE

SGAM SINGAPORE DIVIDEND GROWTH 21.24 20.55 2 24.63 1

DEUTSCHE SINGAPORE EQUITY 99.83 21.86 1 22.63 2

ABERDEEN SINGAPORE EQUITY 55.2 19.34 3 21.65 3 71.54 6 70.23 2 LEADER 3

FIDELITY FUNDS - SINGAPORE FUND 97.77 14.75 4 17.84 4 76.36 5 28.43 8 LEADER LEADER

SINGAPORE INDEX FUND 101.66 14.68 5 16.81 5 77.06 4 36.38 7 LEADER 2

STREETTRACKS STRAITS TIMES INDEX 14.13 6 16.33 6 79.53 3 LEADER 2

UNITED GROWTH FUND 116.49 13.84 7 15.2 7 66.41 8 43.36 4 LEADER 3

SCHRODER SINGAPORE TRUST 175.94 10.86 9 13.27 8 56.65 10 38.55 6 LEADER 4

OCBC SINGAPORE TRUST SGD 16.9 10.89 8 12.29 9 70.26 7 40.33 5 LEADER 3

HSBC GIF SINGAPORE EQUITY AD 2.19 9.99 10 11.64 10 84.88 2 45.47 3 LEADER LEADER

SHENTON THRIFT 64.97 5.66 11 6.04 11 109.24 1 83.56 1 2 LEADER

HORIZON SINGAPORE EQUITY SGD 80.48 4.35 12 4.24 12 57.5 9 23.45 9 3 5

DWS SINGAPORE SMALL/MID CAP A SGD

AVERAGE (13) 75.7 13.41 12 15.21 12 74.94 10 45.53 9

EQUITY: GLOBAL

UOB OPTIMIX CONTRARIAN FUND 3.6 33.43 1 37.63 1 69.4 4 -6.42 25 5 4

OCBC GLOBAL INDUSTRIALS & RESOURCES INVESTMENT A 16.8 28.04 2 31.81 2 93.31 1 LEADER LEADER

M&G GLOBAL LEADERS A EURO ACC 83.92 22.13 3 27.98 3 89.77 2 2 LEADER

SCUDDER GOF-STRATEGIC GLOBAL THEMES A2 261.8 21.65 4 24.76 4 63.98 8 17.21 6 LEADER LEADER

ABERDEEN GLOBAL OPPORTUNITIES 26.8 14.75 13 21.32 5 56.56 13 -5.25 22 2 2

FIDELITY FUNDS - INTERNATIONAL FUND 3323.36 16.92 7 21.04 6 53.85 18 -4.63 21 LEADER 2

ACMIF - GLOBAL GROWTH TRENDS PORTFOLIO A 168.48 17.94 5 20.96 7 54.58 16 13.43 7 2 2

PRINCIPAL SELECT GLOBAL EQUITY 6.32 16.96 6 20.57 8 56.89 12 -5.82 24 LEADER 3

ACMGI-GLOBAL EQUITY BLEND PORTFOLIO A USD 65.11 16.6 8 19.8 9

INTERGLOBAL 922.83 16.59 9 19.73 10 43.28 32 -12.02 28 3 4

OCBC MAP - AGGRESSIVE PORTFOLIO 8.2 14.55 14 19.71 11 55.52 14 LEADER 2

FIDELITY FUNDS - FPS GLOBAL GROWTH FUND 472.97 14.92 12 19.12 12 54.85 15 7.05 12 2 2

FIDELITY FUNDS - GLOBAL FOCUS FUND A USD 44.24 15.06 11 18.55 13

HSBC GIF GLOBAL EQUITY AD 185.07 14.18 15 18.22 14 46.42 26 -4.55 20 LEADER 4

CITISELECT ASIA TILT ENHANCED GROWTH 10.05 13.93 16 17.8 15 41.84 33 11.2 9 3 4

DBS MENDAKI GLOBAL 3.23 13.91 17 17.64 16 65.4 7 -14.5 33 3 LEADER

HSBC GLOBAL GROWTH 3.93 13.18 20 17.31 17 44.19 30 -9.42 26 LEADER 4

SHENTON GLOBAL OPPORTUNITIES 22.15 13.81 18 17.19 18 79.77 3 7.6 11 2 LEADER

UNITED INTERNATIONAL GROWTH FUND 218.47 13.34 19 16.8 19 61.68 9 34.08 1 LEADER LEADER

ABN AMRO MODEL FUND 6 EUR 50.17 12.93 21 16.66 20 37.56 36 LEADER 4

FIDELITY FUNDS - WORLD FUND 1630.52 11.91 25 16.52 21 58.88 11 8.23 10 LEADER LEADER

UOB OPTIMIX AFFLUENCE FUND 6.78 12.69 23 16.25 22 29.61 46 -5.39 23 2 5

ABN AMRO GLOBAL EQUITY VALUE A EUR 133.57 12.83 22 16.22 23

OCBC MAP - GROWTH PORTFOLIO 15.1 11.65 27 16.03 24 48.03 23 LEADER 3

HSBC INTERNATIONAL SELECT ADVENTUROUS USD 102.64 12.41 24 15.99 25 45.71 29 LEADER 4

SCHRODER ISF GLOBAL QUANTITATIVE ACTIVE VAL A ACC 23.93 11.02 33 15.79 26

LEGG MASON WORLDWIDE ENTERPRISE TRUST 6.07 11.58 28 15.73 27 38.73 34 -15.27 34 LEADER 4

HORIZON GLOBAL EQUITY SGD 477.48 11.67 26 15.65 28 47.79 24 3.08 16 2 3

SIS INTERNATIONAL EQUITY 141.45 11.55 29 15.57 29 44.08 31 6.64 13 3 4

SCHRODER ISF GLOBAL EQUITY SIGMA A ACC 77.12 11.54 30 15.16 30 45.81 28 -3.3 19 LEADER 3

INFINITY GLOBAL STOCK INDEX SGD 24.8 11.24 32 14.81 31 46.92 25 0 18 LEADER 3

AVIVA GLOBAL EQUITY P1 117.36 11.47 31 14.41 32 34.91 40 -11.65 27 2 4

ABN AMRO GLOBAL EQUITY A USD 102.32 10.2 36 13.97 33 29.19 47 -22.6 36 LEADER 5

UNITED GLOBAL UNIFEM SINGAPORE FUND 5.67 10.8 34 13.65 34 51.58 20 12.21 8

DBS EIGHT PORTFOLIO E 131.59 10.36 35 13.6 35 48.32 22 6.02 15 LEADER 3

ING (L) INVEST WORLD P CAP 200.82 9.64 38 13.34 36 35.6 38 -12.08 29 2 5

UOB OPTIMIX WORLDWIDE EQUITY FUND 2.73 9.94 37 12.95 37 34.76 41 -21.36 35 2 5

ING (L) INVEST GLOBAL HIGH DIVIDEND P CAP 690.54 8.47 45 12.77 38 59.99 10 LEADER LEADER

UOB OPTIMIX SURE FUND 10.5 8.15 47 12.76 39 69.05 5 LEADER LEADER

SCHRODER GLOBAL ENTERPRISE 11.51 9.15 41 12.74 40 37.92 35 -12.86 30 2 4

SIS HIGH GROWTH FUND 38.99 8.82 42 12.25 41 36.9 37 6.43 14 LEADER 4

INTERNATIONAL OPPS FDS WORLD VALUE EQUITY A 20.8 8.62 44 11.88 42 53.05 19 20.72 5 LEADER 3

PHILLIP GROWTH 21.9 9.27 40 11.66 43 66.97 6 LEADER LEADER

INVESCO GLOBAL SELECT EQUITY A 160.87 7.56 50 11.53 44 34.34 42 3 4

FIRST STATE GLOBAL 100 GROWTH SGD 78.62 9.63 39 11.49 45 27.87 48 -13.57 31 3 5

ING (L) INVEST GLOBAL BRANDS P CAP 78.67 8.4 46 11.26 46 33.37 43 1.37 17 2 5

FTF - MUTUAL BEACON A 18.25 8.76 43 10.72 47 35.33 39 31.34 2 LEADER 5

ABN AMRO SOCIALLY RESPONSIBLE EQUITY A 85.19 7.93 48 10.64 48 23.92 50 2 5

TEMPLETON GLOBAL A DIS 972.72 7.46 51 10.6 49 54.27 17 27.88 3 2 LEADER

DWS INVEST GLOBAL EQUITIES LC 12.66 7.65 49 9.84 50 45.87 27 3 2

SIS GROWTH FUND 57.03 6.9 52 9.77 51 30.05 45 LEADER 5

ABN AMRO GLOBAL LEADER A EUR 5.82 5.61 56 9.74 52 17.99 51 4 5

FTF - GLOBAL EQUITY A 54.51 6.55 53 9.46 53 50.87 21 22.98 4 2 2

HENDERSON GLOBAL EQUITY 0.9 5.32 57 8.79 54 25.32 49 3 5

LEGG MASON JUNIOR TRUST 3.43 5.99 54 8.71 55 32.35 44 -13.9 32 LEADER 5

ACCUMULATOR 46.29 5.81 55 7.8 56

PHILLIP GLOBAL BRANDS 1.95 0.38 59 3.09 57 12.33 54 -23.69 37 3 5

SIS DEFENSIVE GROWTH FUND 48.77 0.92 58 2.56 58 15.69 52 LEADER 5

SUT ETHICAL VALUE -1.18 60 1.2 59 0 55 4 5

SUT ETHICAL GROWTH -3.49 61 0 60 13.7 53 2 5

FTF - GLOBAL EQUITY INCOME 60.02

AXA WM - TALENTS 4.77

UNITED GLOBAL IPO FUND 38.97 15.24 10

AVERAGE (63) 190.51 11.4 61 14.86 60 45.2 55 0.52 37

EQUITY: GLOBAL SM&MID CAP

SCHRODER GLOBAL SMALLER COMPANIES 43.4 11.09 1 15.16 1 71.57 4 42.49 4 LEADER 5

SHENTON GLOBAL ADVANTAGE 39.2 7.24 4 13.7 2 109.72 1 119.06 1 3 LEADER

TEMPLETON GLOBAL SMALLER COMPANIES A DIS 254.23 9.64 2 13.12 3 80.66 2 74.14 2 3 3

FTF - GLOBAL SMALLER COMPANIES A 14.5 8.7 3 11.95 4 76.45 3 67.29 3 3 4

AVERAGE (4) 87.83 9.17 4 13.49 4 84.6 4 75.74 4

EQUITY: GREATER CHINA

OCBC CHINA GROWTH SGD 33.7 19.99 1 21.18 1 94.65 5 50.22 6 4 3

FIRST STATE REGIONAL CHINA SGD 190.82 14.36 5 18.47 2 107.1 2 68.27 5 2 LEADER

SCHRODER ISF GREATER CHINA A ACC 384.28 15.64 3 17.59 3 95.19 4 104.17 2 3 2

UNITED GREATER CHINA FUND 60.18 13.68 7 16.93 4 73.05 9 36.29 8

SCHRODER GREATER CHINA 14.83 14.81 4 16.75 5 88.52 7 3 3

FIDELITY FUNDS - GREATER CHINA FUND 457.72 13.05 8 15.13 6 59.08 11 30.03 9 4 5

ABERDEEN CHINA OPPORTUNITIES SGD 101 13.92 6 13.84 7 101.88 3 LEADER 2

FIDELITY FUNDS - CHINA FOCUS FUND 364.56 12.93 9 12.94 8

FTF - CHINA A 13.44 10.44 13 12.27 9 83.39 8 82.05 3 2 5

SGAM GOLDEN CHINA USD 0.93 12.86 10 11.97 10

HSBC CHINESE GROWTH 75.19 12.51 12 11.55 11 113.75 1 125.47 1 5 LEADER

ABN AMRO CHINA EQUITY A USD 384.02 12.52 11 11.46 12 93.36 6 70.76 4 4 2

SHENTON GREATER CHINA 23.55 4.78 14 10.87 13 72.03 10 40.19 7 5 4

INTERNATIONAL OPPS FDS GREATER CHINA EQUITY A 26.36

DEUTSCHE CHINA EQUITY A SGD 84.35 16.64 2

AVERAGE (15) 147.66 13.44 14 14.69 13 89.27 11 67.49 9

EQUITY: HONG KONG

SCHRODER ISF HONG KONG EQUITY A ACC 165.27 12.85 1 13.7 1 104.42 1 57.91 1 LEADER

AVERAGE (1) 165.27 12.85 1 13.7 1 104.42 1 57.91 1

EQUITY: INDIAN SUB-CONTINENT

FIRST STATE REGIONAL INDIA SGD 101.38 35.73 1 53.26 1 206.29 1 100.79 1 4

AVERAGE (1) 101.38 35.73 1 53.26 1 206.29 1 100.79 1

EQUITY: INDONESIA

ABERDEEN INDONESIA EQUITY SGD 41.7 16.14 1 20.38 1 133.91 1 193.24 1 3

FIDELITY FUNDS - INDONESIA FUND 174.08 1.96 2 4.21 2 132.79 2 129.72 2 5

AVERAGE (2) 107.89 9.05 2 12.29 2 133.35 2 161.48 2

EQUITY: ITALY

FIDELITY FUNDS - ITALY FUND 395.82 15.24 1 23.27 1 100.32 1 61.63 1 2

AVERAGE (1) 395.82 15.24 1 23.27 1 100.32 1 61.63 1

EQUITY: JAPAN

INVESCO NIPPON SELECT EQUITY A 1143.05 33.11 1 39.81 1 90.91 2 7.32 5 4 LEADER

OCBC JAPAN GROWTH SGD 79.7 26.38 2 30.18 2 136.24 1 39.39 1 2 LEADER

ING (L) INVEST JAPAN P CAP 316.5 23.1 5 29.48 3 58.76 11 -6.47 11 4 4

OCBC JAPAN SGD 51.4 24.14 3 28.56 4 89.67 3 20.9 2 3 LEADER

DBS JAPAN GROWTH 75.12 23.34 4 27.57 5 75.88 6 -1.93 9 4 LEADER

HSBC JAPANESE GROWTH 21.48 22.37 6 25.59 6 49.8 14 -20.32 14 4 5

FIDELITY FUNDS - JAPAN ADVANTAGE 606.67 19.13 9 25.43 7

ABN AMRO JAPAN EQUITY A USD 425.22 20.76 8 25.02 8 45.39 16 -19.82 13 4 5

FIDELITY FUNDS - JAPAN FUND 3439.57 18.36 10 24.16 9 70.3 7 -3.28 10 4 2

HORIZON JAPANESE EQUITY SGD 60.48 18.33 11 23.75 10 78.9 4 11.35 4 4 LEADER

UNITED JAPAN GROWTH FUND 114.81 20.83 7 23.15 11 60.8 10 0.41 7 5 3

SCHRODER JAPANESE EQUITY ALPHA 31.77 17.28 12 22.94 12

SCHRODER ISF JAPANESE EQUITY ALPHA A ACC 132.21 16.98 13 22.16 13

Spw_6n7_S194.pmd 1.12.05, 8:37 pm7


-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0

-1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0

0 1 2 3 4 5 6

10 best-performing funds (Nov 18-25)

% Chg 0 1 2 3 4 5

5.15

3.95

3.91

3.85

3.32

3.29

3.28

3.25

3.25

2.92

0 0.5 1.0 1.5 2.0 2.5

4.12

2.53

2.47

2.45

2.29

2.28

2.22

2.18

2.17

ABN AMRO INDIA EQTY USD A

ABN AMRO FUNDS ENERGY FUND A

FIDELITY FDS LATIN AMERICA

FRANKLIN TEMPLETON F-KOREA

UOB OPTIMIX CONTRARIAN

SCHRODER ISF KOREAN EQ A ACC

OCBC KOREA FD

OCBC ASIA INFRASTRUCTURE

DBS US GROWTH

FIDELITY FDS INDUSTRIALS

0 0.2 0.4 0.6 0.8 1.0

0.73

0.70

0.56

0.53

0.48

0.45

0.08

0.08

0

0.85

-1.15

-1.20

-1.21

-1.28

-1.31

-1.33

-1.68

-2.01

-2.87

-3.02

2.16

2.15

2.15

1.92

2.34

4.49

10 worst-performing funds (Nov 18-25)

% Chg

UOB UNITED ASIA TOP 50

DBS ALL STARS CAP PROT FD S$

PRU JAPAN SMALLER CO

ABERDEEN JAPAN EQUITY

DBS STAR TRACK 2 SGD

DBS STAR TRACK SGD

DBS DOUBLE BONUS CAPITAL PROTECT

FIDELITY FDS THAILAND

SCHRODER ACT STRATEGIES PTF USD

DBS SPRINT CAPITAL PROTECTED

10 highest-expense funds* (Nov 18-25)HENDERSON GLOBAL EQUITY FUND

UBS (SG) IF-BIOTECH

UBS (SG) IF-ASIAN TECHNOLOGY

HENDERSON JAPANESE EQ

HSBC NORTH AMERICAN GROWTH

FRANKLIN TEMPLETON F-THAILAND

FRANKLIN TEMPLETON F-CHINA

FRANKLIN TEMPLETON F-EMERG MKTS

FRANKLIN TEMPLETON F-KOREA

FRANKLIN TEMPLETON F-ASIAN EQ

10 lowest-expense funds* (Nov 18-25)

*Encompasses CPF-approved funds only

DIT-EUROPAZINS

DEUTSCHE LION BOND

PRU PROT GLOBAL TITANS SGD

UOB OPTIMIX SGD FUND

COM SINGAPORE BOND

HSBC SINGAPORE BOND R

DBS ENHANCED INCOME SGD

UOB OPTIMIX CO CLIK S&P500 SGD

COM GLOBAL INFOTECHNOLOGY

APS ALPHA FD (SGD)

5 best-performing sectors (Nov 18-25)

% Chg

EQUITY LATIN AMERICA

COMMODITY & NAT RES

EQUITY KOREA

INDUSTRIALS

ASSET ALLOC NORTH AMERICA DYNAMIC

5 worst-performing sectors (Nov 18-25)

% Chg

EQUITY ASEAN

TRANSPORTATION

EQUITY THAILAND

HEDGE FUND OF FUNDS

PROP SHR & REAL EST EUROPE

-0.67

-0.84

-1.03

-0.96

-0.96

*Encompasses CPF-approved funds only%

%

FUND WATCH

Standard & Poor’s Fund LtdStandard & Poor’s Fund LtdStandard & Poor’s Fund LtdStandard & Poor’s Fund LtdStandard & Poor’s Fund LtdTelephone: (852) 2841 1060

Fax: (852) 2882 1727E-mail: [email protected]

Website: www.funds-sp.com

ABOUT STANDARD & POOR’S FUND SERVICESABOUT STANDARD & POOR’S FUND SERVICESABOUT STANDARD & POOR’S FUND SERVICESABOUT STANDARD & POOR’S FUND SERVICESABOUT STANDARD & POOR’S FUND SERVICESStandard & Poor’s Fund Services came into existence fromthe merger between two of the world’s most respectedsources of mutual fund information acquired by S&P in1997, Micropal and Fund Research, and Standard & Poor’sown fund ratings operation.

Since the merger, Standard & Poor’s Fund Serviceshas grown to become the world’s most comprehensivesource of mutual fund information and analysis, withcoverage of over 80,000 funds in more than 52 coun-tries. Our comprehensive product offering now encom-passes value-added analytics, institutional-calibre invest-ment research as well as cutting-edge web solutions.

In addition to our products, Standard & Poor’s highlysuccessful Investment Funds Awards have now been rep-licated around the world in 19 countries throughout Eu-rope and Asia, including Hong Kong, Singapore, Taiwanand India, and have become the industry standard againstwhich fund managers and groups are measured.

/ PERSONAL WEALTH

The right time to invest

Aberdeen Pacific Equityhistorical returns (%)

2001 2002 2003 2004 2005*

Cumulative 10 worst days -25.05 -18.73 -15.63 -21.11 -12.16Cumulative 10 best days 21.57 16.62 19.16 18.19 11.64Total returns 6.97 -0.33 51.90 13.64 23.12

*Data till Nov 17

Thus, people investing to meet long-term goals shouldstay invested, while those who currently aren’t investedshould start making their money work harder for them. Hav-ing said this, investors should be extremely careful aboutwhat they are putting their money in. A diversified portfo-lio approach that spreads their investments across differ-ent asset classes and sectors is strongly recommended,as this would greatly insulate their portfolios from externalshocks.

To illustrate, pharmaceuticals could be one sector thatwould benefit from a bird-flu pandemic. As such, main-taining an allocation to the healthcare sector in one’s port-folio would lessen any adverse impact on other equity hold-ings. Another recommended best practice when investingin “uncertain times” is to spread out your investments overa period of two or three months, allowing for dollar-costaveraging.

In conclusion, investors should always keep abreast of un-folding risks. But they shouldn’t allow themselves to be scaredinto just holding cash. Choosing to stay the course is usuallythe best option as long as you have a properly constructed,well-thought-out investment plan.

Daryl Liew is senior investment strategist at independent fi-nancial advisory firm Providend

People investing to meetlong-term goals shouldstay invested, while thosewho currently aren’t investedshould start making theirmoney work harder for them.Having said this, investorsshould be extremely carefulabout what they are puttingtheir money in.

E

1234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678123456789012345678901234567890121234567890123456781234567890123456789012345678901212345678901234567812345678901234567890123456789012123456789012345678

| BY DARYL LIEW |

Equity fund, more than half of the 10 best andworst days were closely bunched up together.Even if investors had known beforehand whichway the market was headed, it is very unlikelythey would have been able to sell and reinvestin the fund in time, as it usually takes a weekor so for the fund proceeds to be disbursed.So, if they had tried to avoid the downdrafts inthe market, they would almost certainly havemissed the rebounds too.

A far better and more feasible strategy wouldbe to simply remain invested in the fund, ridingout the ups and downs, as long as the longer-term picture for the underlying asset class — inthis case, Asia ex-Japan equity markets — looks

reasonably positive.

Should you be investing now?So, should investors be putting their money into the mar-kets now? My take on the bird-flu situation is that it couldprove to be a non-event. Experts believe that a pandemicwould only break out if the virus suddenly became trans-missible between humans. So far, people who have beenafflicted by the bird flu have all had direct contact with in-fected birds. Moreover, I believe governments all over theworld and the WHO are conscious of the risks and will bequickly taking the necessary steps to prevent the situationfrom getting out of hand.

I nvestors are a jittery lot. I was talking to acouple of prospects over the last fewweeks about investing their money to meettheir long-term goals, and the issue thateach of them raised was whether it is the

“right” time to enter the market now. At thetop of their list of concerns was the prospectof an avian-influenza pandemic. With new re-ports of more and more people getting struckdown by bird flu each week, these investorsare worried that global financial markets andtheir investments risk being adversely af-fected.

The threat of the H5N1 bird-flu virus is veryreal indeed. It has already killed more than 60people and led to the slaughter of 150 million poultry. Ac-cording to some estimates, the virus has resulted in lost tradeof US$10 billion ($1 approx US$0.60) so far. And, the WorldHealth Organization (WHO) recently released a report puttingthe potential cost of a bird-flu pandemic at US$800 billion.They also estimated that the best-case pandemic scenario couldresult in the death of between two million and 7.4 millionpeople around the world.

So, should investors sit on the sidelines and wait for thepandemic to strike before entering the market? The risk ofadopting this strategy is that this threat may turn out to be anon-event and blow over, once the winter season in the north-ern hemisphere passes. What is the cost of this sit-and-waitapproach? Traditionally, equity markets do very well in therun-up to the Christmas and New Year holidays; so, theseinvestors may have to forego some potentially nice returnswhile waiting for the bird flu to spread.

Timing the marketThe instinct to try to take advantage of attractive entry andexit points in the market is easy to understand. Everyone’sfundamental goal is to buy low and sell high. But being in-vested only when the markets are rising and pulling out whenthey are about to decline is easier said than done. In my view,most people simply cannot consistently “time the market”correctly.

In fact, the best market strategists only attempt to iden-tify the extreme scenarios — when either the markets areextremely undervalued or when they have got ahead ofthemselves. Those are the only two instances when theseexperts tend to recommend changes to investment portfo-lios. The strategy at all other times is to simply stay in-vested. The challenge for most investors, however, is hav-ing the discipline to stay the course, riding out the frequentsmall waves in the market. Investors have to recognise thatthese swings are noise that eventually work their way outof the system.

To buy or to sell?The most commonly cited reason for investors to stay invest-ed for the long term rather than pull out at the first sign oftrouble is that missing the potential recovery when the mar-ket turns up will significantly reduce their overall returns.Estimates of the potential impact of missing the markets’ up-side vary depending on whom you ask. But some commen-tators say that missing the 10 best days in a year could cutyour return by more than half. It is worth noting, however,that advocates of market timing would counter that pointwith this one: Missing the worst 10 days would boost yourreturns significantly.

I sought to test these theories by looking at the daily re-turns over the past five years of the Aberdeen Pacific Equityfund, a unit trust that invests in Asia ex-Japan equities. I thensorted out the fund’s returns to isolate the 10 worst and 10best days in each year. The cumulative figures are illustratedin the table.

What do these numbers demonstrate? Missing out onthe 10 best-performing days definitely has a significant ad-verse impact on overall returns. In three of the five years,the cumulative returns from the 10 best days far exceedthe returns for the whole year. On the flipside, the figuresalso showed that investors would have greatly benefitedfrom staying out of the fund during its 10 worst-perform-ing days, potentially improving returns by between 12%and 25%.

The big question is whether investors could have suc-cessfully predicted the 10 worst days and sold out of thefund in time. According to the data, it is a long shot. Theinvestor would not only need to be savvy but clairvoyant aswell. According to daily price data of the Aberdeen Pacific

Spw_8_S194.pmd 1.12.05, 8:23 pm8

2005 dec05 no194 p1 theedgespore

Documents

week194t h e e d g e

ek o f d e c e

theedge singapore

edge publishing pte

business time

support phone

writers kelvin tan

customer support email