Taking Stock 19 July 2018

 

THE country in the world with the highest respect for money is quite possibly Singapore, though there may be a toss-up with Switzerland, which also pays great deference to financial markets.

Singapore’s earnest approach to the quality of life of its citizens is not neglected – its respect for the environment is far greater than our own – but as its newspapers illustrate, financial education is a serious subject.

Regularly it publishes the truth about capital markets.

It asks the question: Why do people choose to believe the great lies about investment success, such as the clearly oafish claim that timing does not matter, that the ‘’average’’ is a sensible aspiration (even in falling markets) and that research has no value.

Last week Singapore’s leading newspaper displayed this chart:

World sharemarket returns for the half year to June 30, 2018 (in Singapore Dollars)

USA                   plus       3.70%

Russia               plus       1.9%

Japan                plus       1.5%

Taiwan               plus       1.2%

World Index       plus       0.04%

India                  minus    1.1%

China                minus    1.5%

Hong Kong        minus    1.7%

Malaysia            minus    3.3%

Europe              minus    3.3%

Indonesia          minus   11.4%

Brazil                 minus  17.0%

It then displayed the top 10 international, research-based equity funds.

Their half-year returns varied from plus 9.6% to plus 18.8%.

A global index fund, weighted by the various market sizes, might have crept above zero returns.

Does anyone want to debate the value of research?

Anyone in a hurry to invest in KiwiSaver index funds?

Of course the index fund salesmen will quote Warren Buffet who, paraphrased, sensibly notes that those who do not want to be accountable for their own investment returns are better to use simple index funds than to invest at random.

Singapore might seem like a blessed country, in that its leadership has been more like a benevolent dictatorship than a democracy, where the lowest common denominator must be found.

Yet in physical assets Singapore is much poorer than New Zealand.

It has very little water, constant threat to its clean air (from bush fire fumes in neighbouring countries), no oil, and five million people living in an area the size of Lake Taupo.

Yet it has a million cars on the road, a number it controls by issuing entitlement orders to all who want to own a car.

Currently the cost of entitlement is close to a 10-year low, at just $25,000 for small cars, perhaps $30,000 for bigger cars.

Once you have bought the entitlement you may buy and run a car for 10 years. At that point you buy another entitlement.

A seven-door Toyota van costs a little more than $100,000 but depreciation is tax-deductible.

Some years ago Singapore upgraded its emission standards, rendering half a million cars unfit to use.

They were exported to Malaysia or perhaps New Zealand.

Generally, one never sees a 10-year-old car on the road.

If you have to pay $30,000 for your entitlement to own it why would you pay for a car with no or little value?

Public transport, of course, is excellent.

Private cars are useful for those who cross the bridge to Malaysia.

Singapore’s water deficiency so far has not cost the country as much as you would think.

Thanks to a 1962 agreement it buys raw water from the Malaysian source at Johor, paying the agreed price of one cent for one thousand gallons (4,500 litres).

It treats the water and exports some back to Malaysia for 50 cents per 1000 gallons, but the cost of treatment is $2.40 per 1000 gallons, so this arrangement is not a money spinner.

Nearly 40% of Singapore’s water comes from desalination of sea water, treating what is euphemistically referred to as ‘’unwanted’’ water (waste water), and rain catchment. The rest comes from Malaysia.

Industry uses 55% of Singapore’s water, domestic users consuming 45%.

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NZ thinks it is privileged to be visited each year by nearly two million Chinese tourists.

Thailand is more privileged.

It has ten million Chinese tourists each year.

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JAPAN is taking measures to restrict blue collar overtime, reacting to high levels of suicide from workers, who claim to be exhausted and bullied into ridiculous business habits.

Overuse of overtime is known as Karoshi, while power harassment is called Pawahara.

New laws will restrict overtime to 100 hours per month with an annual limit of 720 hours, implying that over a year, 2.5 hours of overtime per day, every day, is acceptable.

Sadly the new proposed laws do not cater for white collar workers earning more than $130,000 per annum.

They must soldier on, without protection.

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Families hosting Chinese students in New Zealand should be aware of a new scam, emerging in Australia.

Chinese students are being targeted by bullying scammers who force the students to send fake videos, recording that they have been kidnapped, tied up, and must be saved by a ransom.

Chinese parents have been duped into paying hundreds of thousands to rescue a son or daughter bullied into faking this kidnapping.

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THE island country of Malta has many similarities to New Zealand, in that it socialises wealth, education and pensions, is increasingly dependent on tourism, and is benign in its treatment of those down on their luck.

Its tourism sector flourishes and so too do immigration numbers, leading to some of the issues NZ faces.

Because it drives on the left, a legacy of Britain’s 120-year governance, many European tourists are flummoxed, and the cause of grief for an island with narrow roads. Malta is 7th equal in the world (with NZ) for cars per head, 359,000 cars registered in a country of 480,000 people.

Tourism creates new problems.

I will be suggesting to Malta’s tourism people that all drivers not accustomed to driving on the left be issued with a flashing green light to attach to their car roof, alerting drivers to a potential risk.

Perhaps NZ should use the same strategy for its rental fleet.

NZ might also focus on offering a chauffeured rental car, perhaps using all those people of senior ages who cannot find employment. I imagine a standard fee of, say, $150 a day, would attract drivers and would find willing users in nervous tourists.

Malta’s financial success – it operates its budget in surplus – is largely because it sells residential status to immigrants with wealth.

It also has attracted the world’s gaming market, using a generous tax rebate system.

It has been the first government in the world to control and promote blockchain technology, legislating to protect all parties. One bank is about to use the technology, as a trial.

Malta had the highest percentage population growth in Europe last year, ahead of Luxembourg, Ireland and Sweden.

I can identify two explanations, one being the weather, the other being the widespread belief in dated Roman Catholic doctrines.

The highest falls in population were in Lithuania, Croatia, Latvia, Bulgaria and Romania.

After Croatia’s win over England in the soccer, that country is expected to drop off the list when the statistics are next measured.

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WHEN I read that Hawkins Construction will leave many creditors stranded, I recalled a conversation of nine years ago when an owner of a large construction company explained the need for care.

He said his company would never again sub-contract to Mainzeal or Hawkins. He was convinced that neither company had a future.

If you wanted to know which contractors not to use, ask the sub-contractors, he said.

Those contractors that use their sub-contractors’ money as working capital were doomed to fail.

His theory will be tested in court soon, when the litigation funder LPF brings a class action against Mainzeal’s dreadful directors, chaired by the former politician, Jenny Shipley.

If this case is not settled, it will be worth attending.

The creditors of Mainzeal will be hoping for compensation totalling a sum well in excess of $100 million.

As I noted recently, the size of the war chest of LPF, after its recent victories, should have poor performing directors on red alert.

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TRAVEL

Edward Lee is in Queenstown 26 July, Remuera 6 August and Albany 7 August.

Michael Warrington will be in Napier on 21 August (afternoon only).

Kevin Gloag is in Christchurch on Thursday 23 August.

Our future travel dates can also be found on this page of our website: https://www.chrislee.co.nz/request-an-appointment

Any person is welcome to contact our office to arrange a free meeting.

Chris Lee

Managing Director

Chris Lee & Partners Limited