Business

Friday April 10, 2009

Accept reality of situation and adjust expectations

By RAYMOND TANG


ALMOST 20 years ago, a popular Singapore comic strip made its debut. It was a big hit, playing on a unique Singaporean characteristic ... yep ... kiasuness. It featured a certain Mr Kiasu and his motto “Everything Also I Want!” Subsequent titles “Everything Also Must Grab!” and “Everything Also Scared To Lose!” pretty much summed up his character.

The series eventually ran out of steam and, like Tamagotchi and pastel polyester shirts, died a natural death. There is only so much you can do with kiasuness before it becomes boring.

What does kiasuness have to do with investment? There are some people who think in a similar manner: “I want high wages, cheap utilities, cheap house in expensive neighbourhood and high returns for my investment. I cannot lose money one!”

Thankfully though these people are a mini-minority; they can be a pesky bunch, like Mr Kiasu. Their current pet gripe is the dividend rate of 4.5% announced by EPF, which is lower than the previous year’s 5.8%. A snippet of dissatisfied remarks I picked up in the media is:

“EPF is not a manufacturing company, so they should reward contributors what they deserve” (The Star, March 19, 2009).

File photo shows the EPF building in Petaling Jaya, EPF savings are for the future years. Not the immediate near-term.

A politician was reported by Bernama as being dissatisfied with the EPF explanation to merely blame the global economic crisis for the lower dividend. “Did it lose heavily on its investment or what? EPF contributors have the right to know.”

I find it incredible, in this day and age, that this information disconnect is present. If one were living in the wilderness with no Astro, Internet or newspapers, I could understand.

Don’t they know that significant numbers of workers are being laid off and companies are registering losses? The comments from these politicians are exasperating. Will all the Rip van Winkles in the room please stand up?

I hear remarks on and off; comments like “EPF used to pay 8% dividends in the 80s, they should still be able to pay the same now.” That’s almost like saying “As I was Miss Malaysia last year, I should be Miss Malaysia every year from now on.” Cannot lose one! Yeah, right.

Some of us still live in the past ... in the days when bank fixed deposit rates were 10% per annum, roti canai was 30 sen a piece, and minibus fares were 50 sen from SS2 to Lebuh Ampang. Ah yes, nostalgia ... when afros were hot and crash helmets were not.

What could be worse than getting a 4.5% dividend? Consider the Norwegian pension fund, one of the world’s largest, which lost 22% or US$90bil in last year’s turmoil. That loss is larger than the entire size of EPF! Or the WorldCom pension fund which invested everything into WorldCom shares — as it was one of the hottest stocks that time — but ultimately lost everything.

In the real world, thankfully the silent majority are more understanding and mature. It is refreshing to see acceptance of the reality of the situation by individuals and companies. They are adjusting their expectations in this tough environment without blaming the Government, in-laws, society and the whole world. Even the local trade unions, although a bit disappointed, acknowledged the difficult times we are facing and accepted the explanation EPF made.

To be fair, the final EPF dividend rate was affected by the provisioning of RM4.69bil, but for which the dividend rate would have matched last year’s 5.8% rate. Should EPF have made the provisions? Should they have abstained from making them?

Not only is the provisioning prudent, it is wise. Personally, I was expecting a rate below 4%. So personally, I am satisfied with the dividend rate.

I would rather EPF be conservative than push for the highest possible rate. This stance is reflective of not only for EPF but general investing.

After all, EPF savings are for the future years, not the immediate near-term. I have seen policies and investments geared for the maximum short term with no consideration of the risk taken, turning a healthy camel into a paraplegic a few years later, as the baggage of imprudence broke the camel’s back eventually.

In the next one to two years, it will be more difficult to see the type of returns we are used to EPF providing in the past. One difficulty is the sheer size of the fund. At its current size of RM342bil, for every 1% dividend, the fund would need to generate RM3.42bil income.

Another is that the mainstays of EPF investments — Malaysian government securities and corporate bonds — are yielding lower returns, and this has been the trend for some time. Compounding the challenges above is the current operating environment I mentioned in my last piece.

We could be heading into an era of low return on equity, internal rate of return, return on assets, and all that. So Mr Kiasu will have to get used to the likely possibility of lower rates of returns for the immediate future.

So what do I really want? Like my son’s favorite comic book character Calvin, of Calvin and Hobbes fame, says, “I’d ask for a trillion billion dollars, my own space shuttle and a private continent.” Am I going to get them? Of course! Everything Also I Want!

  • ·Raymond Tang is chief investment officer with CIMB-Principal Asset Management Bhd. Readers’ feedback is welcome. Please email to
    starbiz@thestar.com.my

    • E-mail this story
    • Print this story