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Investment

A 25-Year March to (Sovereign) Junk?

Alea posted a striking table on the changing creditworthiness of sovereign bonds from the recent Moody’s report Sovereign Default and Recovery Rates, 1983-2010 [PDF, not Moodys.com because the site demands you register]. Over the last ~25 years, the number of sovereigns rated below investment grade has gone from zero to two-fifths of the total.

It reminded me of a Standard & Poor’s report from a few years ago, A 25-Year March to Junk, which found US corporate bonds going from 28% non-investment grade in 1992 to 49% non-investment grade in 49%. So at first glance, it looks like sovereign creditworthiness has deteriorated even further.

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Investment

Contrarian prospects: Olympus

Japanese optics group Olympus (JP:7733) has finally admitted that more than US$1bn in payments for acquisitions were not what they appeared to be. The twist in the tail is that these weren’t bribes or payments to cronies, but rather an attempt to cover up losses on investments dating back to the 1990s.

The revelation didn’t surprise me as much as most. That’s not because I have inside knowledge on Japanese corporate malfeasance, but because I’d seen an excellent analysis of the Olympus scandal on the Nihon Cassandra blog that anticipated exactly this development. (Add this blog to your reading list – it’s infrequently updated, but one of the best out there.)

I almost wrote about this last week, but decided it was of too limited interest. But with the stock still in freefall (it’s down 80% since mid October), I’m starting to wonder if this is a good opportunity to invest – or whether it risks being an effort to catch a falling knife.

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Investment

St Petersburg Stock Exchange 1865-1917: Why diversification pays in emerging markets

Take a look at the chart below. Which of these two countries was the better investment?

On a very quick glance, it looks like the red line is the clear winner. But once you’ve checked the legend and dates, you’ll know it’s not so simple.

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Investment

Why Quality Investing works

Dylan Grice, the ever-interesting strategist at Société Générale, put out a good note recently arguing that quality investing outperforms. In other words, buying safer stocks leads to higher returns on average.

This is not what conventional investment thinking says. The standard rule of thumb is that risk and return are positively correlated. Getting higher returns means taking on more risk.

Taken over the long run, that holds true across assets. The data shows that higher risk asset classes have delivered higher returns over time. The chart below shows long-term returns for US asset classes (chart is via Grice’s note, data taken from Expected Returns by Antti Ilmanen).

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Investment

Singapore dividend stocks – five solid picks

Singapore dividend stocks are one of the underappreciated gems of investing in Asia.

The Singapore market has a strong income culture, with most firms paying out dividends from relatively early on. It’s also generally seen as less glamorous than neighbouring markets and tends to trade on lower valuations. As a result, you can often buy into very solid companies at surprisingly high yields.

Take a look at the chart below, which shows the performance of the MSCI Singapore index over the last decade. You can see how large a contribution income made to returns from Singapore stocks.

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News

MF Global and brokerage account security

You’ve probably seen that MF Global, one of the big brokers in futures, options, CFDs and other derivatives has gone bust. While we haven’t heard all the details yet, this seems like it might be a rather worrying case when it comes to the safety of your brokerage account.

MF Global went under because of trades it was making on its own account (known as proprietary or ‘prop’ trading). Specifically, it had bought European sovereign bonds on high leverage and couldn’t make the margin calls when these fell in value (fuller details at the FT).

This was an extremely stupid thing to do, but it was MF Global’s own bet. It shouldn’t have mattered to clients.

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Investment

Best Asian income investment trusts and ETFs

This is the second part of a review of Asian income funds and emerging market income funds for UK investors, focusing on investment trusts. Click here for Asian income funds – unit trust and oeics.

Asian income funds – investment trusts

There are three Asian income investment trusts in the UK market. And it shows how keen investors now are on the income theme that none trade at a significant discount to net asset value (NAV) – for most ITs, a small discount to NAV is normal.

The Aberdeen Asian Income Fund (LN:AAIF) has a rather different geographic focus to the funds we’ve already looked at in part one – it’s much more geared to Southeast Asia. Singapore is the single biggest holding at 20%, followed by Australia and then Malaysia and Thailand. It doesn’t include a sector breakdown in its factsheet, but I estimate that the biggest holdings are the familiar duo of financials and telecoms at 25% and 20% respectively

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Investment

Best Asian income funds and emerging market income funds

Asian income funds and emerging market income funds may sound like a contradiction. After all, Asia and emerging markets are supposed to be growth investments. So why turn to a growth market for income?

In fact, Asian income and emerging market income are themes that make a lot of sense when choosing funds, for several reasons.

First, emerging market dividends are no myth. Many emerging markets stocks now have a culture of paying high dividends, so they make up a major part of investment returns in several countries. Dividends accounted for 30% of Asia ex Japan returns over the past decade – about the same as in developed markets.

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Updates

International stock broker updates – Charles Stanley, Daniel Stewart, HMS Markets, Finasta, Orion Securities

There are a number of updates to the directory of international stock brokers. These include details of five more firms – two from the UK, one from Luxembourg and two from Lithuania – with a few more on the way.

Charles Stanley is a long established UK broker and it offers international stock trading for much of Asia, Greece, Poland and South Africa as well as the usual developed European and North American markets. This is a full-service private client stock broker, which means that fees are a little than the discount stock brokers and you’re probably looking at minimum trade sizes of £2,500-5,000 to be cost effective.

On the other hand, once you factor in better execution and other costs, firms such as these may be more cost-effective for larger international investments. For example, the currency conversion charges that most discount stock brokers charge should be far less with a good private client firm.

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Updates

Brazil, Russia, Turkey stock trading through Swissquote

Swissquote is now in the stock broker directory. This is a somewhat unusual firm, being an online execution-only broker that attempts to add on some of the flexibility that a traditional Swiss private bank provides for broker-assisted dealing.

This means that it will trade a fairly wide range of exchanges that are unusual among European retail stock brokers. If you want this kind of choice in one place, you’re normally talking about a minimum account size in the high net worth individual range. The international stock trading options include Brazil, Japan’s Osaka Stock Exchange (most firms only offer Tokyo), Russia, Sri Lanka, Turkey and many others.

The snag is that Swissquote is doing this through intermediaries and hence it’s not cheap. You’re talking CHF200-400 (US$200-400) minimum commission for most of these. So frequent trading in most of these markets is going to be impractical for most retail clients. But it could be useful for investors who want to make the occasional long-term investment in these markets.