Our Investing Footprints of 2010

Stock markets have always been characterized by volatility and 2010 is no different. Amidst the uncertainty, we remain committed to ensure your portfolio thrives. Looking back, we're glad we seized some good opportunities to buy in at a discount, while holding on to our steadfast belief in prudence and conservatism. Our investing philosophy has not changed, even as we continue to push the boundaries of our economic research. Through our discussions with you, you will know that we remain adamant that capital preservation should, and must come before capital growth. Hence, the 'three bags theory' that your adviser has executed for you would, and should still be in place throughout 2010 (and beyond as well).

A quick recap on the three bags theory:

1) The first bag has your emergency fund set aside and taken care of. This bag of funds must remain liquid to prepare for activation anytime.

2) The second bag of money will be invested for you to build your portfolio with us. It will also include money allocated for dollar cost averaging.

3) The last and final bag is the opportunity fund – to be activated only when we see good

bargains in the equity market. This is usually triggered by events or fears leading to massive sell downs.

The rationale behind these three bags is simple. Invested capital should stay invested till your investment objective is achieved. The first bag reduces the possibility of you withdrawing your investment prematurely.

The second and third bag takes care of the three possible directions the stock market may take – upwards, sideways or downwards.

In 2010, our investing committee met bi-weekly, putting together the research done on global macro-economics. We were prepared to change our asset allocation recommendations where necessary.

Our Investment decisions

From as early as March, the financial system was once again shaken by news brewing out of the PIGS (Portugal, Ireland, Greece and Spain). Many investors who had barely recovered from the sell down of US equities saw their portfolios heading southward once more. Thankfully, as early as June 2009, we made our exit from most of Europe and protected your portfolios from this Euro crisis. Though we seem to have averted danger, we are still vigilant on the further threats Europe may have on the global financial system. We do not rule out the possibility of a double dip, even though we are more inclined to believe the chances of that are quite slim. But if a double dip should happen, the world financial system could take a much longer time to recover. Thus, our asset allocation recommended to clients for the entire year is a fair split between capital preservation and capital growth. This allows us to swipe up equities at value, should a double dip happen. At the same time, we can also afford to buy up immediate opportunities that we discover along the way.

Our Outlook on South Korea

The two additions your adviser may have made to your portfolio in 2010 would have been the South Korean and Energy funds. These have been added to your portfolio to replace the healthcare and MENA funds. I say 'may have added' because recommendations are tailor-made for each client. Every client's financial situation is unique and only through a personal relationship is the adviser able to design the ideal portfolio for you.

South Korea was added into your holdings when Kospi was about 1,580 points. By the end of 2010, Kospi rose to 2,051 points. This comes as no surprise as we could see that a gradual rise in the Yuan might spin off in earnings for Korean companies that export to China. Moving forward, we remain optimistic about South Korea. The policies that the leaders in China will be adopting in 2011, which is to be less export oriented and more reliant on domestic consumption, may imply that China may continue to import technology to improve their internal infrastructure. South Korea, well reputed as a pioneer in multiple innovations, is likely to be a beneficiary of China's strategy. Hence, despite Kospi having risen close to over 30 percent from the day we added it to our portfolio, we still believe it has not realized its full potential. We're closely monitoring the political tensions between the two Koreas but we don't see a need to alter our recommendation as yet.

Bullish on Energy

On the other hand, the our exposure in energy fund was increased in our recommended portfolio in August, when oil prices hovered around US$74 per barrel. At the time of writing this article, oil prices had advanced past the US$90 mark. We chanced upon this great find when the extensive coverage of BP (British Petroleum)’s oil spill, led many of its shareholders rather unhappy (to say the least). Happily, we took this as an indication for us to comb the energy sector for investment opportunities. While precious metals have risen steeply over the past couple of years, the increase in oil prices have been relatively modest. Yet, the potential demand for oil (especially from emerging economies like China) is so huge that it's unimaginable. In the latest five-year development plans of China, there aims to be a shift towards environmental protection. This means the reliance of coal will be greatly reduced to prevent pollution. In its place, oil became the major import of China and things will probably stay that way for many years to come to complement the domestic production of Petro China and Sinopec.

Most oil companies will have both upstream and downstream activities, with an emphasis on upstream activities. This implies that a rise in oil price should translate to healthy earnings for these companies. Even so, we kept exposure to the energy sector down to a modest 10%. This is because we believe a steep rise of oil price is unlikely to take place unless major economies like China and US pick up their growth rate.

In short, we continue to keep a watchful eye over the global economic situation and measure the risk to reward ratio of our recommended portfolio. We want to position your monies to ride the bull and prepare for the next crisis to come. We continue to stand firm on the belief that as your partner in investment risk management, it is not in our liberty to take hindsight perspectives. Preparation and action, not reaction remains our commitment to you.

Let 2011 be another year of triumphs as we look forward to celebrate another year of friendship with you!