Wealth 7 nov2014

NOVEMBER 2014
SPOTLIGHT
NG KOK SONG
Shaping the wealth
management landscape
INSURANCE
Jumbo policies in
wealth planning
ROUNDTABLE
How to pick
Tech winners
REAL ESTATE
Commercial
property perks up
PHILANTHROPY
Let the spirit
of giving thrive

CONTENTSnovember 2014
2 | wealth
SPOTLIGHT
10 Shaping the wealth
Ng Kok Song, adviser and chair of global
investments at GIC, is convinced of
Singapore’s potential to grow further
as a hub for private wealth
TALENT MANAGEMENT
14 Tackling the dearth of talent
Financial institutions are making
a concerted effort in training
relationship managers
PHILANTHROPY
16 Let the spirit of
10
giving thrive
National Volunteer and Philanthropy
Centre chief Melissa Kwee sees
giving as an expression of her values
and identity
TRUST MATTERS
18 Investing differently
Any approach to family investing
should reflect the history, goals,
personalities and culture of the family

CONTENTS november 2014
4 | wealth
22
30
INSURANCE
20 Good policy to plan ahead
Jumbo insurance is part of high-net-worth
individuals’ wealth planning and
a growing market
ROUNDTABLE
22 Winners in the tech domain
Technology IPOs have been in the limelight
in recent years, but do they make sound
investments? Our panellists share their insight
on tech stocks and how to pick the stars
GLOBAL OUTLOOK
28 Seeing the big picture
The world economy seems set to enjoy
continued growth, providing a reasonably
healthy background for stocks
JAPAN OUTLOOK
30 What’s next for Japan?
The world’s third largest economy has
its share of problems and as its recovery
story unfolds, the repercussions will be
felt globally
EMERGING MARKET
OUTLOOK
31 Manoeuvring the bumps
Any prolonged market weakness is
a chance to gain exposure to emerging
market equities
ASSET MANAGER
32 Taking stock of dividends
Schroders’ Lee King Fuei gives his insight
on the significance of this source of
returns in Asia
VIEWPOINT
33 Preempt and prepare
Investors should thoroughly
research strategies that involve
more complicated instruments

CONTENTS november 2014
6 | wealth
REAL ESTATE
34 Commercial property beckons
With limited supply backed by positive business
sentiment, strata-titled commercial property
shows its promise for investment potential
LIFESTYLE
36 Being Santa for a day
Banks, exclusive members-only firms and
concierge service companies are here to help
the time poor but resource rich deliver gifts to
their loved ones
ULTRA WEALTH
38 Tomorrow’s super-yachting
hotspots
As superyacht demand warms up, countries
from Europe to China vie to be the next
Monte Carlo and St Tropez
38
36

Editor’s note
I
WEALTH is published by The Business Times, under Singapore Press Holdings.
All rights reserved. Nothing herein shall be reproduced in whole or in part without
the express permission of The Business Times.
Printed by Times Printers Pte Ltd
© The Business Times, 2014
COVER ARTWORK
JENNIFER CHUA
PHOTO
ARTHUR LEE
Spotlight: Ng Kok Song
NOVEMBER 2014
SPOTLIGHT
NG KOK SONG
Shaping the wealth
INSURANCE
Jumbo policies in
wealth planning
ROUNDTABLE
How to pick
Tech winners
REAL ESTATE
Commercial
property perks up
PHILANTHROPY
Let the spirit
of giving thrive
Managing editor Alvin Tay
Editor Genevieve Cua
Creative editor Yvonne Poh
Art director Jennifer Chua
Writers Genevieve Cua, Mark Haynes Daniell,
Leonardo Drago, Rahita Elias, Giles Keating,
Stephanie Lair, Mark Matthews, Alice Tan,
Tara Loader Wilkinson
N 2002 a working group of top finance
industry professionals proposed
the development of Singapore as a
regional hub for wealth management.
At that time that much had to
be done: trust laws needed to be
brought up to speed, as well as the
tax treatment of some assets. Today it would
seem that Singapore has surpassed even the
original committee’s vision in terms of wealth
management.
A survey by PwC found that wealth
management practitioners expect Singapore to
eventually surpass the traditional wealth centres of
London and Switzerland.
Ng Kok Song, adviser and chair of global
investments at the Government of Singapore
Investment Corporation (GIC), had a key vantage
point more than a decade ago in the remaking of
Singapore as a wealth management hub. He was
tasked with looking into a major challenge – the
training of much-needed client advisers and
wealth managers. At a time when poaching was
rife, the lack of a broad and deep bench of talent
was a bottleneck to growth. He helped to found
the Wealth Management Institute (WMI), with the
backing of GIC and Temasek.
In this edition, we cast the spotlight on Mr Ng,
founding chairman of WMI. He shares his take on
the challenges that the Singapore wealth sector has
weathered in the recent past. The 2008 financial
crisis, for instance, has left a major impact on
the industry which today still grapples with its
aftermath in terms of client risk aversion and a
lingering mistrust of financial advisers.
Still, Mr Ng is confident that the sector will
continue to grow. In 2013, the asset management
industry – of which private banking is a part –
managed over S$1.8 trillion in assets, compared
to around S$570 million a decade ago. “As long
as there is global economic growth, there will be
wealth creation in addition to existing wealth
which has to be managed properly,” he says. A
disproportionate amount of new wealth is likely to
be created in Asia, he adds.
He offers insights as well into the important
issue of retirement security, and the outlook for
emerging assets.
In this edition, we also look into insurance
for the high net worth, where there is growing
demand for jumbo life insurance in the form
of universal life policies. Instead of income
replacement, these policies serve a different
set of objectives for the wealthy. One
objective is the creation of liquidity upon
death. The policies may also be used as a
wealth structuring tool should a wealth
owner desire to equalise his or her bequests
for the children. And of course, the policies
may serve to create an philanthropic gift.
In our Roundtable, experts share
their views on technology stocks,
which have been in the limelight of
late, thanks to the outsized response
to Alibaba’s initial public offer. Stuart
O’Gorman, director of technology investment
at Henderson Global Investors, says tech stocks
have dramatically outperformed non-tech
stocks over the last 20 years. Technology, he adds,
historically trades at a premium to the overall
market. The current premium is low relative to
history, and presents value, he argues.
In real estate, Alice Tan of Knight Frank
writes that commercial property demand is well
supported and the stock of properties with a
relatively smaller investment outlay remains tight.
Despite this positive backdrop, the imposition
of the Total Debt Servicing Ratio has been a
dampener and this is reflected in declines in
transaction volumes. Still, she says there may be
early signs of a pick-up in interest in this sector.
In our Asset Manager column, we speak to
Lee King Fuei, Schroders Singapore head of Asia
equities, on the sustainability of dividends in Asia.
Investing in stocks
that pay dividends, he
explains, brings a host
of benefits. Dividends are
paid out of cash generated
by earnings; they therefore
signal growth and prudent
capital management.
Dividend returns, he says, are highly correlated to
growth in Asia. The trend among companies to pay
dividends is sustainable, he argues. New tax laws
in South Korea, for instance, are aimed at getting
companies to pay more dividends.
Meanwhile on a lighter note, Rahita Elias looks
into the options for those looking for bespoke
Christmas presents for their loved ones. It’s not
too early to begin speaking to your choice of
a luxury concierge service, particularly if you
seek something unique. Elsewhere, Tara Loader
Wilkinson, Wealth-X editor in chief, has her pulse
on the market for superyachts, where demand is
picking up. Which superyacht hotspot is likely to
vie with Monte Carlo and St Tropez?
We hope your wealth journey remains
rewarding.
By Genevieve Cua
NOVEMBER 2014 Wealth
PHOTO: ISTOCK

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Shaping the wealth
spotlight
NG KOK SONG
Ng Kok Song, adviser and chair of global investments at GIC, is convinced of
Singapore’s potential to grow further as a hub for private wealth
By Genevieve Cua
W
EALTH manage-ment
is an integral
part of Singapore’s
financial land-scape
today. But 10
to 12 years ago its
success was not a sure thing.
A dearth of experienced bankers was a
vexing issue. And of course there was keen
competition from Hong Kong.
Today, regional and global competition
remains a stiff challenge, as is the need for
talent. Yet Ng Kok Song is optimistic. The
former chief investment officer of the Gov-ernment
of Singapore Investment Corpo-ration
(GIC) is convinced of Singapore’s
potential to grow further as a wealth man-agement
hub. He is a key advocate for the
education and training of wealth manage-ment
practitioners.
He is currently adviser and chair of
global investments at GIC. He is also
founder chairman of the Wealth Manage-ment
Institute (WMI), which celebrates its
10th year this year.
“Singapore’s growth as a financial centre
was not thwarted by competition. Having
Hong Kong as a competitor was very good.
It kept us on our toes. Hong Kong made us
better and the reverse is true.
“As long as there is economic growth,
there will be wealth creation. That’s in addi-tion
to the existing wealth which has to be
managed properly. If Asia is going to be a
higher growth region compared to the rest
10 | wealth
PHOTO: ARTHUR LEE

of the world, then of course a dispropor-tionate
amount of new wealth will be cre-ated
in Asia.”
Certainly the asset growth to date is
heartening. In 2004, the asset management
industry – of which wealth management is
a subset – recorded assets under manage-ment
(AUM) of over S$570 million. In 2013,
the sector’s AUM exceeded S$1.8 trillion,
a compounded growth rate of over 10 per
cent.
Growth, however, was not a straight line.
The 2008 financial crisis was a watershed
in ways that few anticipated. In 2008, the
industry AUM dipped by 21 per cent to
S$864 million. That recovered nicely in 2009
to S$1.2 trillion.
The crisis, he says, unleashed two
“short-term dampeners” that have hit
wealth managers’ profitability. “The first
is that we now have a period of repressed
interest rates and monetary conditions,
and extremely low volatility – historically
low volatility in financial assets.
“There is also a certain uneasiness
on the part of wealthy people to take risk
because they feel that current conditions,
which are favourable for risk assets, are
temporary. So you have an extremely high
level of caution which has resulted in many
investors and owners of wealth unwilling
to take risk. That has tempered the profit-ability
of wealth management businesses.
If customers keep most of their money in
cash, you don’t make good profit margins.”
The last few years have tested banks’
resilience and commitment. A number of
smaller private banks have been acquired.
Most recently, DBS completed its acquisi-tion
of Societe Generale’s private banking
business in Asia.
The second consequence was engen-dered
not just by unethical bank practices,
notoriously in the sub-prime securities
market, but also by the pressure to crack
down on tax cheats. “There was a flood of
new regulations not only to guard against
money laundering and terrorist financ-ing,
but also to move against tax evasion.
So there is a whole slew of new regulations
which increases considerably the cost of
compliance. In fact, you can’t find enough
people to fill compliance jobs.
“In the short term the two forces will
be with us for a while. But the key point is
that they are not permanent long-term
inhibitors of growth. I think beyond a three
to five-year horizon, the world will resume
its longer-term growth trend. The Asian
growth dynamo will come into play again,
so it’s important not to get too pessimistic
because of short-term negative factors.”
Bank practices
Singapore itself had its share of mis-selling,
notably the Minibond scandal where com-plex
structured notes linked to the failed
Lehman Brothers were sold to unsophisti-cated
investors. As many as 10 banks were
censured in that debacle in 2009. Since
then, has Singapore shored up the loss of
confidence in bank practices?
Says Mr Ng: “The crisis was in some
respect a moral crisis. Therefore, we would
not have made enough progress unless
something is done about the morality of
bank practices.”
In the US, he says, there has been regu-lation
such as the Volcker rule and Dodd-
Frank Act, as well as punitive fines for the
mis-selling of mortgage securities.
“Banks have been fined, but few bank-ers
have gone to jail. In the area of regula-tion,
a lot has been done to make explicit
what is illegal and unacceptable to society,
but regulation is always a step behind bad
practice.
“If we are to restore trust in banks
among investors, it is not sufficient to say –
here are the laws that banks have to comply
with. How do you bring about change in
mindset and values where people operate
not just by the letter of the law, but by the
spirit of the law? Here we enter the moral
dimension.”
To a degree, he says poor practices
could be partly attributed to ignorance. “If
you think back to the pre-Lehman collapse,
some of the structured products sold over
the counter were very complicated. Some
of the people doing the selling probably
didn’t understand the risks well enough.
I think the creators of the products – the
mathematicians – some were aware of the
risks lurking and they said it was based on
probabilities. But no one could envision a
situation where Lehman – one of the names
in the products – would go bankrupt and
the product’s value would drop to nothing.”
On the part of investors, there was also
the willingness to believe in the proverbial
free lunch – that one can earn a higher
return at little or no risk. “Over time, educa-tion
and training can mitigate some of that.
But I think it will take a long time for the
banking industry as a whole to redeem its
trustworthiness.”
Training seems an obvious area for
banks to focus a good part of their resources
on. But a decade ago, the field of education
needed a distinct push. “We didn’t have a
big and deep pool of talent to service what
I thought would be a very vibrant indus-try.
That immediately caused me to think
– why isn’t the marketplace finding a solu-tion
for that?
“Normally you’d expect that if the
demand is there, supply will come espe-cially
when it is something profitable.”
Banks’ emphasis then was on training
for retail and commercial banking, and not
on private banking or asset management.
“I felt that not enough was done to train
raw talent fresh out of university. The pres-sure
of business and for short-term prof-itability
tended to push banks to poach
and hire from competitors. But the pool
wouldn’t get bigger that way; there would
only be a faster circulation of people.”
While banks still bemoan the dearth of
experienced talent, WMI, Mr Ng’s brain-child,
has made strides. It has to date trained
over 7,000 in the fields of private banking,
asset management and priority banking.
About 480 have graduated with a Master
of Science degree in wealth management.
WMI is backed by GIC and Temasek Hold-ings,
which put up seed funding for its
establishment. Today it is self funding.
“My hope is that the 480 (Master’s
degree holders) will be future leaders of
the industry,” says Mr Ng. Of the gradu-ands,
80 per cent hail from as many as 20
countries, and the majority have stayed on
to work in Singapore.
But what the industry needs, if it is to
thrive and maintain its momentum, is
Singaporeans in top positions in financial
institutions, he says.
“One area I feel we need more emphasis
on is how do we create more leaders for the
industry, who are indigenous to Singapore.
That’s vital for Singapore if we are to expand
the wealth management business. That’s
because there is greater success in anchor-ing
a global business in Singapore if a suf-ficient
number of top management in the
organisation are Singaporeans who want
to live in Singapore... I feel the next stage
of development as far as expertise is con-cerned
is grooming talent for leadership.
“We have to look into the underlying
reasons why multinational companies have
no difficulty in Singapore finding mid-level
talent, but they have difficulty finding Sin-gaporeans
to take on very senior regional or
global business responsibilities. Partly this
is because Singapore is a very comfortable
place to live.” n W
wealth | 11
‘There is greater success in anchoring a global business in Singapore if a
sufficient number of top management in the organisation are Singaporeans
who want to live in Singapore... I feel the next stage of development as far as
expertise is concerned is grooming talent for leadership.’
spotlight
Brought to you by
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spotlight
NG KOK SONG
EMERGING markets have endured a sell-down
and fund outflows over the past two
to three years.
But Ng Kok Song, adviser and chair
of global investments at the Government
of Singapore Investment Corporation, is
“quite optimistic” that the emerging mar-kets
will regain their footing in terms of
growth. Those economies seen to be most
fragile may well eventually outperform in
the medium term.
“We need to look beyond the next two
to three years. If China resumes its growth
path with some success in reform, if India
makes some progress under (Prime Minis-ter
Narendra) Modi and if Jokowi (Indone-sian
President Joko Widodo) in Indonesia
is able to do something, I can see that the
emerging economies in Asia will resume
their growth path. Valuations in these mar-kets
have come down considerably already,
and in many cases are selling at lower valu-ations
than the developed markets.
“There is good potential for the outper-formance
in emerging markets to reassert
itself. But it will not be immediate. The big-gest,
best performers will be those fragile
emerging economies that can undertake
successful reforms. I’m quite optimistic,
really.”
China unveiled an ambitious plan for
structural reforms last year, as its economic
growth slowed to single digit after years of
expansion at a double digit clip.
Mr Ng is confident China will be able
to avert a financial crisis. “The question is
how long it will take for them to undertake
reforms so the economy can grow at a 7 to
8 per cent rate on a sustainable basis. While
China is undergoing this reform process,
it affects negatively some of the emerging
economies which are quite dependent on
it.”
Yet another factor causing a re-think
of emerging markets as an investment
destination is the prospect of a normalisa-tion
of interest rates. Mr Ng says emerging
markets have performed “extremely well”
over the past decade. “There is a tendency
to extrapolate that into the future, but con-ditions
have changed. Once interest rates
normalise and begin to rise, the inflows
of money which had propelled the rise of
some emerging stock markets and local
currency bond markets may reverse.
“Those economies that run current
account deficits such as Indonesia and
India – their macro economic stability
requires capital inflows. If instead there
are outflows, they will have problems.
They have to do what they can in terms of
reforms to make themselves attractive.”
He says the world remains in a “delev-eraging
environment” which is risky for
the global economy. “Too much debt was
created, leading to the financial crisis,
and clearly that was not sustainable. Debt
deleveraging has been going on in the US,
Europe, Japan and now it’s happening in
China... Unless the deleveraging process is
managed properly we can very easily lapse
into recession.”
Central banks have tried to cushion the
contraction in spending and investments
by cutting interest rates.
“What they try to do is to bring rates
down to a very low level so that people
who have borrowed or want to borrow can
benefit. That sort of helps to achieve a soft
landing. As long as the nominal growth of
the economy is higher than the rate you
pay on existing debt, then debt is being
reduced because you earn more than
what you pay in interest.” In this way, he
says, central banks seek to create a wealth
effect.
“The problem is that wealth tends to
be owned by the top 10 per cent, and their
propensity to consume is lower. So it takes
a considerable amount of monetary stimu-lus
to generate the wealth effect to offset the
deflationary impact of deleveraging. But
I think we’re seeing light at the end of the
tunnel.”
The US, for one, is leading the way as
its economy is set to expand at a real rate of
2.5 to 3 per cent. Japan, he says, has a “rea-sonable”
chance of coming out of deflation.
Europe, however, remains a challenge. n W
Emerging markets:
Back on the
growth path
CPF: Knowing the problem is the start of finding a solution
Ng Kok Song, GIC adviser and chair
of global investments, speaks on the
CPF, which has been the subject of
some debate in recent months.
An advisory panel has been set up
to look into some key areas: how the
Minimum Sum should be adjusted
after next year; the enabling of lump
sum withdrawals; and providing flex-ibility
for those who want higher
returns through private investment
plans and annuities.
FUNDAMENTALLY the CPF is more
a savings plan, not really an invest-ment
plan. It pays you a fixed interest
which is no doubt generous in today’s
12 | wealth
environment. But it’s a savings plan and
relatively simple. The government didn’t
want to impose investment risk on the
broad spectrum of members.
The main investment feature was
property and remains so. Can you imag-ine
if property prices had not gone up,
how desperate the situation would be?
The CPF needs to be looked at. It
may well be that we go down the road
of a private industry like in Chile or Swe-den.
Basically, you want to find a solu-tion
along the lines of a collective DC
(defined contribution) system. If you
can pool the money together, it gives
you economies of scale and helps to
bring down the cost of investment.
With interest rates so low and
returns so low, a good part of returns
will be eroded by costs. So the challenge
is to find a model which creates enough
scale to lower costs, pool the risk and
offer life cycle solutions
for people of different
demographic profiles.
It’s quite clear that
given that future rates
of return on invest-ment
products will be
lower than in the past,
if you look for the same
amount of retirement
benefits in the future,
you will need to save
more. This is basic arith-metic
and not rocket science. But it
needs to be explained to people because
the tendency is to look to the past and
believe that it’s representative of the
future.
Interest rates are so low that the real
rate of interest is negative. If you put
your money in cash, it’s
as good as saying you’re
not able to protect your
savings against inflation.
I’m not saying this will
be a permanent state of
affairs but it does indi-cate
that we need to look
into retirement security
more carefully. People
should not be misled
into thinking they have
enough when they don’t.
The current debate in Singapore about
retirement security is welcome because
it heightens people’s consciousness.
Understanding the problem is the
beginning of finding a solution. n W
PHOTO: BLOOMBERG WINDOW OF OPPORTUNITY
Another factor causing a re-think of emerging
markets as an investment destination is the
prospect of a normalisation of interest rates
spotlight
Brought to you by
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‘ ’

talent management |
Tackling the dearth of talent
Financial institutions are making a concerted effort in training relationship managers
INDUSTRY players often
bemoan the dearth of experi-enced
14 | wealth
relationship managers in
Singapore’s thriving wealth man-agement
industry.
But that lack has spawned a
silver lining as banks are increasingly chary
of relying on just poaching staff: Training
has become a concerted effort among
institutions, with some awarding their staff
diplomas and even post-graduate degrees
that are portable.
This means the qualifications are likely
to be recognised by other institutions – a
sign that the industry has progressed far
beyond a decade ago, when training was
seen to be synonymous with just product
training. The programmes are generally
accredited by the Institute of Banking and
Finance, which serves as an industry-endorsed
mark of quality.
Says Cynthia Teong, Wealth Manage-ment
Institute (WMI) chief executive:
“Private banking is not short of people,
but it’s short of experienced people with
assets under management. Because of
banks’ KPI (key performance indicators),
they zoom in on the same people covering
Asia. But over time we will be able to nur-ture
more experienced people, which is
key. The number must increase. You have
to contain costs and salaries to make this
business sustainable.”
UBS was an early bird in making a
commitment to training. In 2007, it set up
the UBS Business University Asia Pacific
Campus at the historic Command House.
This year, it ran over 1,600 training pro-grammes
attended by nearly 32,000 par-ticipants.
Earlier this year, Credit Suisse launched
its Wealth Institute as its training hub in
Asia. It will run more than 250 programmes
this year to benefit over 3,500 staff. DBS
has also set up its Wealth Academy, as the
growing number of “middle rich” – those
with between US$1.5 million and US$5
million in assets – drives demand for
wealth services.
By Genevieve Cua
WMI, which celebrates its 10th year
this year, is seeking to nurture a sustain-able
pipeline of talent. Ms Teong says: “One
of the things the industry has expressed is
that we need to create a ready pipeline of
wealth managers. We have to start training
at a much earlier stage. Private bankers
are at the top of the wealth management
continuum. But banks don’t really take
in young people; they want bankers with
experience, knowledge and customers.
“Relying on just the ready pool of expe-rienced
people is not sustainable as it drives
up costs. What we have done, together with
a think tank of industry leaders, is to create
a learning continuum.”
Earlier this year, WMI launched its
Advanced Wealth Management Pro-gramme-
Affluent. The programme starts
with training for priority bankers, who can
then speed up learning through a bridging
module towards a private banking qualifi-cation.
This saves time and costs.
WMI started in 2004 with a Masters of
Science in Wealth Management (MWM)
programme. Last year the programme was
ranked by Financial Times as the second
best globally. The degree is offered under
the auspices of the Singapore Manage-ment
University (SMU). The survey found
that SMU MWM alumni earned on average
US$85,800 three years after graduation,
making them the second highest paid in
the marketplace among five institutions.
To date WMI has trained around 7,000
people. About 480 were masters degree
holders.
UBS’s Campus runs an internal certifi-cation
programme towards a wealth man-agement
diploma, which is compulsory
for all UBS client advisers. The diploma is
accredited by the State Secretariat for Eco-nomic
Affairs of the Swiss government.
It has also launched a Master’s pro-gramme,
developed
with Rochester-Bern
Executive Programs. Graduates obtain a
dual degree – a Masters in Science in Wealth
Management from Simon Business School
at the University of Rochester, and a Master
of Advanced Studies in Finance from the
University of Bern. Last year, 22 senior staff
from Hong Kong and Singapore joined the
first Asia-Pacific intake for the two-year
part-time programme.
At Credit Suisse, a key part of the
training is a programme to “grow your own”
– that is, to attract the right talent early, train
and retain them. There are three such pro-grammes,
for which 70 trainees have been
picked from more than 5,500 applications
in the last three years from Singapore and
Hong Kong.
DBS says it has close to 600 relation-ship
managers (RMs) in Singapore; about a
third of them are private bankers. The bank
seeks to provide “career progression” for
its RMs from consumer banking to wealth
management. Lawrence Smith, DBS group
head of learning and talent development
says: “The time taken to move up the seg-ments
depends on several factors, but it
generally takes one to three years to pro-gress
from mass market to mass affluent
segments, and up to five years to progress
to the high net worth segment.”
Bank of Singapore (BOS) has its own
Wealth Management Programme in place
since 2012. It currently has close to 300
RMs. Topics in the programme range
from risk management and compliance
to client-book development. Upon com-pletion
of the course, bankers undergo an
objective assessment by a panel of asses-sors
from BOS’s learning and development
unit and an independent third party pro-fessional.
Adrian Chow, BOS head of learning
and development, says: “Having our own
bespoke, proprietary wealth management
programme allows for training to be
contextualised to BOS requirements and
yet ensure alignment with the industry’s
benchmarks on values and code of
conduct.” n W
I
‘Relying on just
the ready pool of
experienced people
is not sustainable as
it drives up costs.
What we have done,
together with a think
tank of industry
leaders, is to create a
learning continuum.’
Cynthia Teong, Chief Executive,
Wealth Management Institute
ILLUSTRATION: ISTOCK
PHOTO: ARTHUR LEE

Stability. Reputation. Relevance.
Some things should never change.
ASiAMONEY
#1
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Private Bank
in Asia 2014
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– Asiamoney Polls 2014
At ABN AMRO Private Banking, we believe that stability, reputation and relevance are
timeless qualities for a sustainable client partnership that enables us to serve you well
into the future.
Our constant quest is to provide you, our client and your next generations with meaningful
and personal advice, whilst remaining independent, focused and committed, earning
us the reputation as one of the most trusted private banks in Asia.
To arrange a personal meeting, please contact us at donnalee@sg.abnamro.com

philanthropy |
16 | wealth
Let the spirit of giving thrive
MALL acts of kindness among her
family made an indelible impres-sion
on social activist Melissa Kwee.
“It wasn’t the big endowments
or gifts that I remember, though
those were perhaps the more publi-cised.
Rather it was the small acts of kindness my
grandparents would show towards their friends
and neighbours.”
Her grandfather would regularly invite
friends and neighbours for dinner “just because
he was interested in their families and their well
being”. He would help them with jobs, school
fees or even investments for their businesses.
Her maternal grandfather, George Aratani,
was philanthropist and founder of Kenwood
Electronics and Mikasa Chinaware. He was one
of thousands of Japanese-Americans who were
incarcerated during World War II. He survived,
founded his businesses, and set up the Aratani
Foundation in 1994 in Los Angeles to support
non-profit organisations that serve the Asian
American community.
Those early seeds have taken root and Ms
Kwee, eldest daughter of property tycoon and
Pontiac Land chairman Kwee Liong Teck, has
made a name for herself in social services.
Recently, she took on the role of chief execu-tive
of the National Volunteer and Philanthropy
Centre (NVPC), the national body which seeks to
nurture the spirit of giving in Singapore through
volunteerism and philanthropy across
all sectors.
It is a role for which her expe-riences
appear to have honed
her. In 1996, for instance, she
founded Project Access, a
leadership education pro-gramme
to inspire and
spur young women to
become role models.
Between 2006 and 2009,
she was chairman of
the youth leadership
organisation Hal-ogen
Foundation,
an educational
charity focused
on building
young leaders
and entrepre-neurs.
She was
also pre-v
i o u s l y
president
of UN
Women
Si n g a -
National Volunteer and Philanthropy Centre chief Melissa Kwee sees
giving as an expression of her values and identity
pore. She has won various awards for leadership
and service, such as the Singapore Youth Award
in 2007 and the Asean Youth Award in 2008.
Says Ms Kwee: “I see giving as a way to express
my values and identity. I want to be known not as
a person who took things all her life, but as one
who gave back and paid my blessings forward. “I
want to be a multiplier of all that God has allowed
me to have.”
She takes instruction, she says, from her
95-year-old grandmother who on her 90th
birthday shared her insight into a long and happy
life. She recalls that her grandmother said: “I just
want to be a grateful person.”
“(Grandmother’s) life lesson taught me to
remember and give thanks for small things... Our
#GivingTuesdaySG campaign this year is entitled
‘Small Things. Great Love’ after Mother Theresa’s
famous quote that ‘I can do no great things, only
small things with great love.’. To me that’s what I
constantly try to remind myself.
“Everyone has something to contribute. It
may not be grand. It may not be noticed by many,
but if I can do even something small to benefit
one person around me, then why resist this?”
#GivingTuesdaySG is spearheaded by the
NVPC in Singapore. #GivingTuesday is a global
campaign founded by the United Nations Foun-dation
and 92nd Street Y in New York to promote
giving. “A friend recently reminded me that
resistance (to giving) is an indication of a lack
of relationship. In volunteering and giving, per-haps
the greater application is that we need to
build stronger and deeper relationships with one
another – between donors and recipients, vol-unteers
and non-profit organisations, and even
amongst volunteers, donors and non-profits.
“In the end I believe we will have a culture of
contribution when strong relationships of pur-pose
are built.”
Generosity
NVPC surveys show that the spirit of giving is
thriving in Singapore, and lower income earners
give relatively more than higher wage earners.
The Individual Giving Survey in 2012 found that
one in three people volunteered, and nine out of
10 people made donations.
Those who earned below S$1,000 gave the
highest proportion of their income at 1.8 per
cent. Those who earned S$5,000 to S$5,999
donated the smallest proportion at 0.5 per cent.
“We think higher income earners with
greater monetary means could be encouraged to
follow the lead of the lowest income earners, and
give more,” she says.
In the corporate sector, NVPC’s study of cor-porate
giving illustrates the potential to do more.
The Corporate Giving Survey of members of the
By Genevieve Cua
Singapore Business Federation in 2012 found
that 52 per cent of respondents wanted informa-tion
on non-profits such as their volunteer and
donation needs. Forty-six per cent wanted more
talks to encourage employee volunteerism, and
35 per cent wanted best practices manuals on
corporate giving. Three in five respondents did
not have formalised giving practices.
All these suggest that employers and senior
executives in companies should start or con-tinue
to improve their employee volunteer pro-grammes.
And then of course there is the segment of
ultra-wealthy individuals. Forbes Singapore’s 50
Richest List found that the aggregate wealth of
the tycoons on the list was S$96.9 billion.
“There is a great opportunity for philan-thropic
foundations and grant- making institu-tions
to engage our locally based millionaires
and billionaires to help raise awareness of social
causes and issues...” she says.
The Community Foundation of Singapore
(CFS) has found that many donors want to see
the impact they bring to communities. CFS is an
independent, non-profit, philanthropic organi-sation
that builds a collection of funds from
donors to serve communities’ current and future
needs.
“Giving, when purposeful and planned for,
can create bigger social impact and become sus-tainable,”
says Ms Kwee.
Ultimately the goal is surely to persuade
more individuals to give not just money but also
their time and skills. Studies have shown links
between giving and a greater sense of well being.
The Subjective Well-being Survey found that 66
per cent of givers in Singapore have high levels of
subjective well being – defined as those who are
satisfied and happy with their lives – compared
to 45 per cent of non-givers. The survey was part
of NVPC’s 2012 Individual Giving Survey.
Ms Kwee says giving is also a good way to
bond families. “We want to encourage families
to volunteer together and share their interests
and values as a way to build stronger bonds and
understanding within families. Giving helps us
to be less self-centred and more compassionate
towards others. It is a value that many families
share and want to expose their children to at a
young age, so it becomes second nature and part
of who we are.”
For Ms Kwee, giving is a family value. “It is
something we do because we are members of a
community.
“My personal view is that we need to restore
our sense of community and ownership of our
common future... My goal is to move giving from
a ‘have to’ experience, to a ‘want to’ experience,
and then make it an aspiration.” n W
‘Giving helps us to be less self-centred and more
compassionate towards others. It is a value that many families
share and want to expose their children to at a young age, so
it becomes second nature and part of who we are.’
S
PHOTO: ARTHUR LEE

SWITZERLAND LUXEMBOURG MALTA ITALY MONACO FRANCE PANAMA URUGUAY BAHAMAS BAHRAIN HONG KONG SINGAPORE
Swiss bankers since 1873
MAKE A BANK
Knowledge and experience drive our choices. The Asian
financial crisis of 1997-98, the Nasdaq crash, and the
global financial crisis have changed the way we look at the
world. In particular, the GFC dented the banking sector’s
credibility, especially that of the larger banks and prompted
many of Asia’s high net worth individuals (HNWIs) to re-evaluate
the kind of banking relationships they want.
With the “too big to fail” notion disavowed, many investors
have developed a stronger appreciation of risk and an
understanding of what smaller private banks – at least those
with proven capital strength – can offer them compared to
the larger “banks-within-banks” with capital spread across
a variety of risks.
“Boutique banking” commonly describes smaller banks
but for me this only reflects size – which is subjective
– rather than the focus on the kind of relationships
inherent to traditional private banking. Increasingly,
clients are recognising the importance of tailored advice
over a transactional broker relationship. The result is a
much more competitive environment among all private
banks regardless of size. And smaller banks punching
above their weight.
The natural tendency to value deep personal relationships
within Asian cultures has been an emotional influence
on this transition in thinking; but equally importantly, the
region is now populated by experienced Asian relationship
managers who have grown with the sector. Interestingly,
I’ve found that the kind of relationship managers who
thrive in a boutique private bank are generally very
different to their counterparts comfortable within the
environment of a larger bank.
Smaller banks need thoughtful and dynamic personalities
– hunters almost – because success is built on establishing
strong networks. If you have market knowledge but limited
networking skills you can be successful in a larger bank
where there is an organic inflow of business and much
of it managed in a methodical, though highly competent
manner. The individual delivers the competence but the
brand can very often be relied upon to communicate
the credibility and integrity. In a smaller bank, it is each
relationship which establishes that credibility, integrity
and confidence; in both the private banker and the
bank itself.
Trust is critical to a sustainable private banking
relationship. For smaller banks, it’s the lifeblood because
they don’t have the brand visibility that will get many new
clients simply knocking on the door. They primarily rely
on referrals and without the depth of relationship and
absolute trust of their existing clients they won’t get very
many new ones.
All private banks – large or small, part of a broader
financial institution or independent – profess to offer
tailored advisory services. What truly differentiates them
is the AUM point, more crudely called “share of wallet”, at
which they are willing and able to do so. Bigger financial
institutions face greater pressure on all sectors of their
business – which can mean more focus on tactics that
will impact quarterly earnings than on a strategic, long-term
approach. The knock-on effect ultimately can reach
their private banking clients, especially if there is an
opportunity to cross-sell a product from elsewhere within
the organisation.
Large banking institutions certainly do offer truly
bespoke relationships but only at a certain ultra-high
net worth (UHNW) level is this kind of relationship
viable. Smaller banks, while still having UHNWs on their
client roster can afford to aim lower, initially at least. The
emphasis is more on people than product or process
and the smaller bank is prepared to wait until the client
is comfortable paring back multiple relationships to entrust
just one or two banks with their assets.
The future win-win for clients and their banks must be
based on deeper relationships and greater trust: On Asia’s
growing acceptance of the roots and traditions of private
banking – where service not size matters in a dramatically
changed world.
About BSI
BSI Asia is one of the oldest banks
in Switzerland and specialises in
private wealth management.
It has a strong focus on Asia and a
significant presence in Hong Kong
and in Singapore, the largest BSI
operation outside of Switzerland.
In this viewpoint, Raj Sriram the
Deputy Chief Executive Officer, BSI
Bank Limited of BSI Asia, discusses
what makes a bank boutique.
www.bsibank.com
WEALTH OF
OPINION
PEOPLENOT SIZE
“BOUTIQUE”

HERE are many reasons
why modern investors
may consider develop-ing
a new and different
approach to long-term
investing.
The lessons from 2008 onwards, the
complex context in which we operate, and
the need to align family values with family
investment all come together to create an
opportunity to rethink our approach to in-vestment.
As family wealth management differs
from institutional investing along many
dimensions, families are free to consider
longer-term investments that would not
benefit from exposure to quarterly perfor-mance
targets or even public market scru-tiny
of profit and loss statements.
These investments include agricul-tural
and forest land, wine, olive oil, private
banking, property including high-end re-tail
assets in a trophy location, and luxury
goods. Beyond these traditional areas of
investment focus, there are a number of
other approaches to family wealth manage-ment
that can be applied across sectors and
across time, which can increase the likeli-hood
of long-term success.
These approaches, set out below, may
be well worth considering, adapting and
applying to a family’s wealth management.
• Structured and managed for
multiple purposes
As substantial family wealth that may
serve more than one purpose is normally
intended to last for more than one genera-tion,
its structuring and oversight should
reflect clearly these different purposes and
support the realisation of a family’s long-term
financial objectives.
Families may choose to allocate their
assets into separate groupings or legal en-tities
to ensure specific objectives are met.
They can also engage in planning and
structuring which often include trust and
corporate structures, multi-jurisdictional
approaches, tax management, and fam-ily
law planning. Careful design can help
ensure that family wealth is successfully
Investing differently
protected and preserved across many gen-erations.
• Goals-based approach
One lesson from the crisis is that a more
practical and human approach to invest-ment
may be more suitable for an investing
family than a pure portfolio theory-based
approach. This family-centric orientation
is commonly called Goals Based Wealth
Management (GBWM). It assumes that the
true definition of risk is the potential inabil-ity
of a family to achieve its goals, and looks
beyond market volatility. This approach is
driven by a family’s specific goals (usually
multiple in nature), the mathematics of
investment, risk and distribution, and the
principles derived from historical lessons.
• Managed by horizons, not headlines
Precisely because the churn of events and
flow of information seem to be speeding
with each passing year, it is necessary to
impose a more thoughtful order on a cha-otic
and endlessly interconnected series of
world and capital market events.
There has always been more volatil-ity
in the price of assets than the drivers of
value creation themselves. Good investors
consistently reject the belief that successful
investment requires a focus on the day-to-day
price-focused market system. They pay
attention to long-term fundamentals rather
than Wall Street and popular media’s short-term
hype and gloss.
Unlike institutional investors whose
performance is scrutinised on a quarterly
basis, families are able to be long term in
their investment horizons. Yet, possibly
due to emotions and the self interest of the
family’s financial eco-system, families far
too often fail to use this inherent long-term
thinking and investing edge to their own
advantage.
• Fully global in seeking opportunity
Historically, families tended to fo-cus
their investments within their own
home country and currency. This now
needs to change as the best opportuni-ties
for capital growth and income gen-eration
can arise anywhere, while diversifi-cation
principles and family priorities can
lead to participation in an expanding world
of asset classes and geographic areas.
• Sustainable and principled investing
Defining and implementing a principled
approach to investing, in line with the fam-ily’s
vision and values, is one of the most
important elements of the new paradigm.
Going beyond philanthropic contribu-tion
and a negative screen on individual
investment – for example, not investing in
tobacco, alcohol, gaming or firearms – and
undertaking a principled approach will
have an impact on each stage of the family
wealth management process.
There is a whole new vocabulary crop-ping
up in this area which includes such
terms as impact investing, venture phi-lanthropy,
social capitalism, philanthro-capitalism
and other similar labels for an
emerging fusion of “doing well” and “doing
good”. In these models, financial return tar-gets
are not lowered to accommodate so-cial
returns, but investors simply integrate
wide-angle social issues into their financial
and operating planning in order to drive a
balanced approach, aligned with both fam-ily
values and financial aspirations.
• Integrating family business into
family wealth
A family business is often the largest source
of family wealth.
The incorporation of a family business
into the asset allocation model can have a
fundamental impact on decisions relating
to the family’s overall wealth strategy, in-cluding
issues of capital and income con-tributions,
cash and debt drawdowns, risk,
cash flow, leverage, currency, sale timing,
family role definition and other considera-tions
common to all assets in the portfolio.
• Defining and managing risk
Risk management is one of the central
goals of a family
wealth strategy.
Managing risk is
difficult at the best
of times, but there
is now evidence
that the nature of
risk is evolving. It
also seems that
the probability
of negative out-comes
and the scale
of potential impact will
increase. Unfortunately,
the set of risk manage-ment
tools most com-monly
used in the
past have not done
the job as expected –
or as needed – in the
recent financial
crisis.
Even
the defi-nition
of risk may need to be revisited to
supplement the single variable of volatil-ity
with a more nuanced and tailored view.
Family investors are searching for a new
way to think about risk and ways to protect
themselves and their capital going forward.
There are many different definitions of risk
– volatility, permanent impairment of capi-tal,
underperformance, absolute loss, loss
of purchasing power, and failure to protect
capital.
• Fully aligned, effective and efficient
eco-system
The family financial “eco-system” is the
combination of family, internal family
resource, external suppliers, and the web
of advisers and influencers who make up
the interconnected system that shapes
and defines a family’s wealth management
strategy.
One of the greatest disappointments
with the external advisory component of
an overall eco-system relied upon by many
wealthy families was the extensive profi-teering
by their private bankers, along with
other advisers and asset managers, which
became abundantly clear during the global
financial crisis. Rising markets from 2003
to 2008 in particular made it relatively easy
to mask a disturbing level of financial “pro-ductisation”,
leverage and high-fee models
adopted by financial institutions and ad-visers.
Much, if not all, of investors’ available
alpha was eaten up by high aggregate fees,
exacerbated by generous carry arrange-ments,
high water marks, commitment and
placement fees, commissions and profits
embedded in structured notes and other in-house
vehicles. And they were often opaque
from the family’s perspective and undis-closed
by advisers. These arrangements re-mained
intact despite painfully poor results
in the portfolios under management.
• Pulling it all together
There is, of course, no one right answer to
investing and the broader aspects of family
wealth management. Each family is unique,
and each approach to family investing
needs to reflect the unique history, goals,
personalities and culture of the family for
whom the investments are being made.
Despite the need for a unique approach,
many common principles and elements of
an approach to investing may be extracted
from the past experience – good and bad –
of other families around the world and as-sessed
to see if they might be useful in help-ing
investors set out their own approach to
investing today. nW
Mark Haynes Daniell is the founder
and chairman of the Raffles Family
Wealth Trust. He also chairs the Cuscaden
Group, his family’s own private office.
He has authored eight books on family
wealth management, strategy and legacy
planning
trust matters
Mark Haynes Daniell
Founder and Chairman
Raffles Family Wealth Trust
T
18 | wealth
Any approach to family investing should reflect the history,
goals, personalities and culture of the family
PHOTO: ISTOCK

Good policy to plan ahead
Jumbo insurance is part of high-net-worth individuals’ wealth planning and a growing market
OU may think that wealthy individuals
who own millions of dollars of assets
would hardly need insurance.
But insurance for high-net-worth in-dividuals
(HNWIs) is actually a growing
market. The objectives that such insur-ance
serve, however, differ somewhat from the objectives
that individuals with less wealth may have.
The size of the death benefit is also markedly larger.
Policies sold through Willis Global Wealth Solutions, for
instance, carry a death benefit of US$10 million on average.
Willis GWS earlier this year acquired Charles Monat
Associates (CMA), one of the largest insurance brokers in
the high-net-worth space. CMA was founded by Charles
By Genevieve Cua
Monat, who began advising on high-net-worth policies
more than 40 years ago.
Odd Haavik, Willis GWS Asia chief executive, says
the firm has historically seen annual growth of between
20 and 25 per cent, except for the 2008-09 period of the
financial crisis. “We were helped in some respects by the
crash. In 2008 from the investor point of view, equities and
fixed income together should have provided balance, but
everything was down.
“The overall net worth of clients declined, but the
values of life insurance policies remained stable.”
Lee Woon Shiu, Bank of Singapore (BOS) head of
wealth planning (trust and insurance), says wealthy clients
are increasingly taking up policies with higher face values
or cover. BOS has helped clients secure policies with face
value of as much as US$100 million.
Chris Gill, deputy president of Life Insurance
Association, says growth has been rapid in the HNW space
over the past few years as banks and other advisers offer
insurance options as part of wealth planning. “This growth
has often outstripped the average market growth rate and
we expect strong growth to continue as Singapore affirms
its position as a wealth management hub.”
There are broadly two types of policies that may be
taken up by the HNW clientele. One is universal life, a
form of permanent life insurance where rates of return
are accrued through a crediting rate. Today, crediting rates
range between 3 and 4.5 per cent. Major providers in this
space include Transamerica and AIA.
Another type of policy is unit-linked where high-value
term assurance is bundled with investment funds of the
client’s choice. This, however, subjects policyholders to
market volatility which may affect the sum assured and
cash values.
In Asia, the preference is for universal life as such
policies may have some forms of guarantee, such as a
minimum crediting rate or a guarantee on the cost of
insurance. Clients should note, however, that guarantees
are not free. But more on that in a while.
What objectives might large life policies fulfil? Less
wealthy individuals typically use insurance to cover the risk
of income loss upon death for their loved ones. This may
not be the case for the wealthy.
One typical objective, says Mr Haavik, is to cover the
need for liquidity upon death of the wealth owner. “For our
clients, insurance is a genuine liquidity planning tool. At
the point that the estate is transferring, they need liquidity.”
Proceeds may be used for family expenses or to pay down
debt.
Large policies also serve a number of purposes for those
who run businesses. One is that they may serve as a proxy
for cash. Banks may be more willing to extend financing
for business owners if they see there are assets that can be
liquidated to pay down the loan.
They may also be used as part of buy-sell arrangements
for companies in the event of a policyholder’s death. How
this works is that a policy may be taken up by a business
partner up to the expected value of his partner’s share in
the business. When the partner dies, the proceeds go to the
surviving family members as consideration for the shares
of the business. This ensures business continuity.
In terms of family wealth planning, jumbo policies
may serve as a wealth equalisation tool, says BOS’s Mr
Lee. A family’s core wealth may comprise its business, he
says. Dividing the family business’ shares equally among
insurance |
20 | wealth
Y
‘For our clients,
insurance is a genuine
liquidity planning tool.
At the point that the
estate is transferring,
they need liquidity.’
Odd Haavik,
Chief Executive Officer (Asia),
Willis Global Wealth Solutions
PHOTO: ARTHUR LEE

| insurance
Mr Lim has three children. Only his eldest son is interested in
running the family business. His assets comprise US$9m in the
family business; US$8m in other assets and US$4m in freehold
property.
Mr Lim purchases an AIA Platinum Legacy, a universal life
policy, which provides an immediate estate of US$12m with a
single premium of US$3m. This boosts the total value of his
assets, and facilitates the equal distribution of US$10m to each
of his three children from the insurance proceeds.
First son
Second son
Daughter
Second son
*
beneficiaries may not be the best solution as it may create
friction if not all members are involved in the business; or if
there are opposing visions for the company.
“A far better manner of distribution would be to
distribute the controlling stake to the family scion who has
the primary responsibility for the business, while tapping a
mega (universal life) strategy to create huge cash reserves
that would ensure that members who are not receiving
the business shares are equitably treated through the huge
cash payout from the policy.”
Wealth creation is another objective. Mr Lee says
families who may have been badly hit by the financial
crisis have relied on universal life solutions to recreate part
of their wealth pie.
The policies may also be used to create a philanthropic
legacy for the charities of the wealth owner’s choice.
Tax planning is yet another objective. Even though es-tate
taxes have been abolished in many parts of Asia, in-cluding
Singapore, there are jurisdictions with significant
death taxes. These include the US and the UK where es-tate
or inheritance taxes run as high as 40 per cent. Mr Lee
says there is also the “whisper” of imminent estate duties
in countries such as Thailand, which may impose a 10 per
cent tax, and China. The latter is said to consider a 50 per
cent estate tax. n W
Making sense of
universal life policy
‘A far better manner of distribution
would be to distribute the controlling
stake to the family scion who has the
primary responsibility for the business,
while tapping a mega (universal life)
strategy to create huge cash reserves
that would ensure that members who
are not receiving the business shares
are equitably treated through the
huge cash payout from the policy.’
Lee Woon Shiu, Head of Wealth Planning
(Trust and Insurance), Bank of Singapore
Estate equalisation: A case study
Without AIA Platinum Legacy (Universal life policy):
Unequal distribution
First son
Family business US$9m
Daughter
Freehold property US$4m
Other assets US$2m
Second son
Other assets US$6m
Total assets without
AIA Platinum Legacy US$21m
With AIA Platinum Legacy (Universal life policy):
Equal distribution
First son
Family business US$9m
Insurance proceeds US$1m
Daughter
Freehold property US$4m
Other assets US$2m
Second son
Other assets US$3m
Total assets with
AIA Platinum Legacy US$30m
US$21m
US$30m
Daughter
First son
*
Source: AIA
* US$3m of other assets used for
insurance premium
DEMAND for universal life insurance policies appears to
be on the rise, as more of Asia’s wealthy choose to bank
and have their wealth managed in Singapore.
Universal life policies are among the key instruments
in a wealth manager’s toolkit, for risk management,
wealth structuring and legacy planning purposes.
These are traditional life policies where cash values are
accrued through a crediting or interest rate. There may
be some guarantees such as a minimum crediting rate,
but guarantees typically carry a cost which may not be
obvious to clients.
Here are some things to note about universal life
policies.
• Premiums and flexibility: Sources indicate that the
average death benefit subscribed for among private
clients is US$10 million. Clients typically pay a single lump
sum premium, which may be around US$2.5 million for
a 45-year-old. One of the advantages of a universal life
policy is said to be its flexibility. Policyholders are able to
draw on its cash value as loans, for instance.
• Crediting rates: The minimum crediting rate typically
starts at about 2 per cent. The current crediting rate ranges
between 3 and 4.5 per cent, says Odd Haavik, Willis Global
Wealth Solutions chief executive officer (Asia). Willis GWS
earlier acquired Charles Monat Associates, one of the
larger insurance brokers in the high-net-worth space.
The crediting rate is a key determinant of how much
premiums are required to fund the policy. The higher
the rate assumption, the lower the premiums required.
But while the policy will specify a minimum crediting
rate, the policy is quoted based on its current rate. A
drop in the rate raises the chance that the client may
have to top up the policy so that its death benefit is not
compromised. This is particularly so as the policyholder
ages and the cost of insurance rises.
• Strict underwriting: With such large policies, clients
typically are required to submit to a medical checkup
whose costs may or may not be borne by the insurer.
As the average age of the policyholder is around 45 to
50, there is a risk that health issues may make a client
uninsurable.
But in addition to health, there is also financial
underwriting. Life Insurance Association deputy head
Chris Gill says some factors examined include insurable
interest, affordability, moral hazard and source of funds
in line with anti-money laundering rules. “The amount
of information required on each category depends on
the client as all policies are unique and there are also
instances where some policies do not have underwriting
criteria.”
Mr Haavik says the possibility of moral hazard
comes under scrutiny. “Every dollar of insurance has to
be justified. There has to be a need... The issue in many
cases is moral hazard. The underwriter will look at your
income, liquid assets and liabilities and assess whether
the (insurance) amount requested would make you
worth more dead than alive.
“There is also the question of affordability. Or, are
you over-insuring and possibly giving someone an
incentive to collect?”
Particularly for large insurance cases of over US$50
million, the broker or adviser has to make a strong case
to underwriters. Clients prefer to place a large policy
with a single insurer rather than multiple insurers.
• Premium financing: Banks may offer to finance the
premium payments for a universal life policy. On a US
dollar plan, the interest charged may range between 2
and 2.5 per cent.
As with any form of leverage, there are risks to this.
Bank of Singapore’s (BOS) head of wealth planning
(trust and insurance) Lee Woon Shiu says: “The key risks
in offering such services relate to any increase or spike in
the financing interest rate, as well as fluctuations in the
cash value of the insurance policy, which may have an
impact on the collateral value.”
He adds that BOS is able to help mitigate the risk with
the help of a portfolio structuring team that can help
clients to design a portfolio with a stable fixed income or
high dividend yield.
Coutts head of wealth planning, Wong Lee, says
clients should be aware of a number of risks when
tapping premium financing. The policy, she says, will
be assigned to the bank as collateral. “If (clients) should
default in loan repayments, the bank may enforce
against the policies and that will affect their intended
liquidity plan.”
Clients are also exposed to credit risk of the insurance
carriers, she says. “If the credit rating of the insurance
carrier in question drops significantly, the bank may
reduce the loanable value of the policy and that may
result in a margin call.
“In general, leveraging
any type of investments
will compound all the
risks associated with such
investments.” n W
PHOTO:
BANK OF
SINGAPORE

22 | wealth
Winners
in the tech
domain
Technology IPOs have been in the limelight in
recent years, but do they make sound investments?
Our panellists share their insight on tech stocks
and how to pick the stars
Technology investments have always intrigued,
particularly as many of the biggest stocks such
as Apple and Google are now household names.
How attractive are tech stocks as an investment
and how should investors go about picking win-ners?
Our panellists share their views.
Genevieve Cua: Over the past two to three years,
there have been a number of technology initial
public offerings such as Facebook (2012), Twitter
(2013) and more recently Alibaba. In terms of tech
stocks, what are the metrics you look into that will
tell you a stock may be a good buy?
Stuart O’Gorman: We value IPOs using exactly the same
methodology that we use to value any technology compa-ny.
When valuing technology companies we focus on two
main things. Firstly, we evaluate the value proposition of
the technology offered by the firm to their customers both
in absolute terms and relative to their competition. This al-lows
us to scale the addressable market and the opportu-nity
the firm has.
Stuart O’Gorman is Director
of Technology Investment at
Henderson Global Investors.
Stuart is lead manager of the
Henderson Horizon Global
Technology Fund, Henderson
Global Technology OEIC
and a segregated mandate.
He has 17 years of industry
experience. He enjoys
playing cricket and
spending time with
his two young
children.
roundtable |
PHOTO: ISTOCK

Charles Morris is Head
of Absolute Return at
HSBC Global Asset
Management. Charles
oversees the Wealth
Opportunities Fund, a
US$2 billion multi-asset
fund he founded in 2002.
Prior to joining HSBC in
1998, Charlie was an officer in
the Grenadier Guards, British
Army. He is a competent
sailor and plays squash
at his leisure.
Frederic Fayolle is Director
and Technology Specialist at
Deutsche Asset Wealth
Management. Frederic
joined Deutsche Bank Group
in July 2000 after 10 years
with Philips Electronics in
the US with responsibilities
in RD management, internal
consulting, strategic planning
and market research.
He enjoys outdoor
exercise, art shows
and museums.
‘What differentiates
Internet companies
from more
traditional businesses
is the powerful
contribution from
the network effect.’
Charles Morris,
Head of Absolute Return,
HSBC Global Asset Management
Carey Wong is Investment Analyst
at OCBC Investment Research. Carey
has over 15 years of experience in
the financial industry. Carey is part
of the award-winning research team
with OCBC Investment Research,
where he picked up five consecutive
StarMine awards between 2009 and
2013. He is also consistently ranked
among the top three analysts on
the BARR (Bloomberg Absolute
Return Rank) list. Carey is
a firm believer in the
healthy paleo lifestyle.
roundtable |
wealth | 23
Secondly, and just as importantly, we assess what bar-riers
to entry the company has. This determines how prof-itable
a company is likely to be. Technology is usually the
most important, but there are other factors such as scale,
distribution, brand and customer inertia. Probably the
most important barrier to entry is the network effect – that
is, if everyone uses Facebook it is hard to attract users to an-other
social networking site.
With respect to Alibaba, we were early to see the oppor-tunity,
and established a position in Yahoo a long time ago
as a listed proxy. Alibaba does have a dominant position in
the e-commerce market in China and we believe they are
likely to maintain that dominance. However, at current val-uations
we believe this opportunity is fully factored into the
share price. Therefore, we have exited our long-term posi-tion
in Yahoo and sold our shares in Alibaba.
Charles Morris: What differentiates Internet companies
from more traditional businesses is the powerful contribu-tion
from the network effect. When the first telephone was
built, there was no one to call, but as more phones came off
the line, the opportunity for people to communicate with
one another grew exponentially; a phenomenon known as
Metcalfe’s law.
Social media enables strangers to interact in a way that
wasn’t previously possible. Facebook, for example, has over
a billion active users which means there are 500 quadril-lion
possible connections between them. Twitter has 271
million active users; the number of connections is a more
modest 36 quadrillion. The stock market seems to under-stand
this relationship as Facebook has a market capitali-sation
of US$200 billion whereas Twitter’s is US$14 billion.
The difference in connections is 32 times whereas the
difference in capitalisation is 15 times and customers, four
times. Facebook is on a forward PE of 40 whereas Twitter is
on 140. They could both be overvalued. But looking at earn-ings
and the network effect, Twitter is somewhat expensive
relative to Facebook and not the other way around.
Where there is no network effect, there is room for com-petition,
but where there is, the winner takes all. We are wit-nessing
the creation of a new group of monopolies, all capa-ble
of earning super-normal profits for a prolonged period.
Alibaba is slightly different, as it is more like Amazon
than Facebook, but the network effect still applies. There
are 250 million users that generate US$23 billion of free
cash flow that has grown at a rate of 65 per cent per annum.
The shares trade on a forward PE of 30. Should this growth
continue, that is an undemanding price to pay. The risk, of
course, is that it doesn’t.
Frederic Fayolle: We use a combination of metrics which
typically includes EV (enterprise value)/sales, P/E (for the
current and the next two fiscal years), EV/Ebitda, (EV/
sales)/(revenue growth rate). We also use EV/Ebitda with
Ebitda calculated assuming long-term target profitability is
reached. We also like to study a DCF (discounted cash flow)
model, performing sensitivity analysis on the key variables
(sales growth, long-term margin, margin trajectory, etc).
Carey Wong: As with any investment, an investor’s aim is
to generate returns that are commensurate with the risk
taken.
In the case of tech stocks, the perceived risk is generally
higher, sometimes because their technologies or products
are new (or in some cases, unproven); or the companies
have a short operating history (which
poses execution risk).
For some of these tech companies
which are just starting to enter the
market, they may not be profitable
and may take some years to become
profitable. Hence, investors are gener-ally
unable to use conventional finan-cial
metrics such as price to earnings
(P/E) ratios to determine the value of
these companies.
But there are two key ratios that
can be used to examine high-growth
companies such as public Internet
companies.
The first is Enterprise Value/
Forward-Year Revenue, which allows
us to compare non-profitable com-panies
against their peers. Enterprise
value (theoretically what a company is worth to an acquirer,
generally calculated as market capitalisation plus debt less
cash) can be calculated whereas forward-year revenues
would need to be estimated.
The second ratio is Price/Earnings-to-Growth, or PEG,
again using forward-year earnings. This ratio gives an in-sight
into the degree of over-pricing or under-pricing of a
stock’s current valuation. A value less than one indicates
that earnings per share (EPS) growth is likely to surpass the
market’s current valuation, suggesting that the stock price is
undervalued; and vice versa.
But a valuation exercise is more than just plugging in
numbers into formulae – investors would also need to have
an understanding of the underlying business as well as the
addressable market (that is, the potential customers that
will buy a company’s products or services). Hence, due dili-gence
is important.
In the case of Alibaba, easily the largest online e-com-merce
company in the world, it saw a strong debut on
NYSE on Sept 19. Its share price jumped some 36 per cent
to US$92.70 versus the initial IPO price of US$68 per share.
Alibaba is now the fourth most valuable tech company in
the world, even ahead of Facebook. Based on Bloomberg
consensus, there are seven “buys” and one “hold” on Ali-baba,
with a 12-month target price of US$100.71.
Genevieve: What is your outlook on the TMT
sector broadly (tech/media/telecom), on a near to
medium-term basis. What are the prospects of an
upward (or downward) re-rating?
Stuart: Firstly, my remarks are with respect to the technol-ogy
sector rather than TMT. While there will be some stock-specific
winners, the telecom and media industries are
overall losers in the technology revo-lution.
Telecom companies are faced
with ever growing data demands on
their network, and there is constant
price pressure driven by technology.
Media companies are gradually seeing
their advertising markets attacked by
the Internet.
Overall technology stocks have
dramatically outperformed non-technology
stocks over the last 20
years. Why? In a world where most
things seem to get worse and more
expensive, technology is one of the
few things that consistently get better
and cheaper. Obviously this has meant
that rational beings have diverted an
increasing percentage of their expend-iture
to the technology sector.
We see no reason for this to change as technological in-novation
continues apace. For this reason technology has
tended to trade at a premium to the overall market. Current-ly
the premium is low relative to history, so we believe that
relative to other equity investments the technology sector
still represents good value. In addition, technology compa-nies
are among the most cash generative in the world and
technology companies’ balance sheets are generally rich
with cash, enabling strong dividend growth, buybacks, and
mergers and acquisitions, further supporting technology
valuations.
Charles: Near term, there is room for caution. The US bull
market is five years old and complacency is setting in. Valu-ations
are high, but a long way short of the dotcom days. For
a start, the TMT companies make huge profits, whereas 15
years ago, they didn’t. While the sector could be overvalued,
the memory of that era will prevent what we could fairly de-scribe
as a bubble of historic proportions. If this is a bubble,
it’s a small one.
In fact, there are many doubters, perhaps too many. One
reason TMT has done so well is that the sector hasn’t been
THE BUSINESS TIMES’ WEALTH ROUNDTABLE
Genevieve Cua, BT Wealth Editor, poses questions to four wealth experts for their views on technology stocks

roundtable |
24 | wealth
‘Media companies with popular,
differentiated content should be
well positioned in our
view, as content remains king in a
digital world.’
Frederic Fayolle,
Director and Technology Specialist,
Deutsche Asset Wealth Management
embraced by the masses. Fifteen years ago, most investors
ended up in technology. Today, few people are banging the
drum.
What is happening is real, but prices are most probably
ahead of themselves and there may be a better opportunity
to buy when the market cools off.
Frederic: We are constructive on TMT overall, although
more positive on technology and media than on telecom.
Technology stocks have strong balance sheets and cash
flows, trade at low historical relative valuations versus the
overall market, and their revenue growth is benefiting from
a slow but sustained global economic recovery, driving
steady (though not high by historical standards) IT spend-ing
growth. We do not think technology sector margins are
at risk, even though they are at a historical high, because
there is no sign of a pick-up in wage inflation and tech com-panies
can continue to offshore more of their costs, now
including not only production but increasingly research
and development. Wage inflation is key for tech margins as
wages are the largest cost component for the sector.
Media companies with popular, differentiated content
should be well positioned in our view, as content remains
king in a digital world.
Telecom is for us less attractive than media or technol-ogy,
as many telcos risk being turned into “data utilities”,
depressing their revenue growth and constraining margins.
In this context, we would look for opportunities from con-solidation.
Carey: We think the TMT sector holds promise as technol-ogy
has always been about innovation which could lead to
the next big thing. With a game changing technology, pay-offs
to innovative companies and their shareholders could
be huge.
However, business or product cycles in the TMT sector
tend to be quite short-lived, especially for those companies
that cater to the “increasingly more fickle” consumer mar-ket.
Hence, the challenge is to try to spot the “next big thing”
and after that, determine when to cash out on one’s invest-ment.
However, note that even business cycles cannot escape
the influence of the bigger economy, especially since a lot of
these tech products fall under the consumer discretionary
segment – that is, buying tends to slow during bad times.
Based on the current economic outlook, China – the
second largest economy in the world – appears to be splut-tering
in terms of growth. But the rest of the world is not
exactly in the best of health either. In June, the World Bank
pared its 2014 forecast for world gross domestic product
(GDP) from +3.2 per cent to +2.8 per cent, but largely kept
its forecasts for 2015 at +3.4 per cent and 2016 at +3.5 per
cent, as it expects economic growth to pick up later this
year. Similarly, the IMF in July shaded down its 2014 global
growth forecast by 0.3 percentage points to +3.4 per cent;
but has left its projection for 2015 intact at +4 per cent.
So at least in the near term, the overall outlook could re-main
somewhat muted. As such, a big re-rating is unlikely
to be on the cards.
Genevieve: Which sub-sectors of TMT are you most
positive or negative about, and why?
Stuart: We have been overweight the Internet sector for the
last 10 years as the Internet has, and will continue, to take
market share as it disintermediates old economy competi-tors
given its radically lower-cost business model. Demo-graphic
factors are also positive for the sector as older “digi-tal
refugees” are replaced by tech savvy “digital natives” who
view technology as a necessity and spend a much greater
percentage of their time online.
Our fund (Henderson Global Technology Fund) is un-derweight
in the software and IT services sectors. Intense
competition and pricing pressures from cloud computing
versus legacy software have made the sector unattractive.
Within IT services, our largest underweight has been IBM
where it has seen pressures in its hardware and commodity
outsourcing segments.
Charles: Software has been repackaged as software-as-a-service
(SAAS). In the past, buying a new software package
was a capital expenditure decision that had to be agreed
to by the chief technology officer. Today, SAAS is likely to
be managed in the cloud and so has a lower impact on a
company’s systems. The decision to buy is more likely to be
made by sales, marketing or a design team. Decentralised
systems are gaining traction.
Hardware is more negative. It is capital intensive, com-petitive,
soon-to-be-obsolete and has lower profit margins.
The growth in the cloud means there is less need for com-panies
to upgrade their equipment. According to Kleiner
Perkins Caufield Byers (KPCB), in 1992 it cost US$569 to
store a gigabyte of data whereas today, it costs two US cents.
That’s great for mankind, but less so for an investor.
Frederic: We are positive on Internet due to superior rev-enue
growth which should continue as the Internet further
increases its penetration of retail and advertising spending
and as it enables some efficient and differentiated business
models which should be very profitable. Many Internet
companies however – including the largest ones – are in “re-investment”
mode, which limits their margin expansion
and need to be watched.
We are positive on software as an increasing portion of
the value added by technology resides in software, and suc-cessful
software companies have high operating leverage
and profitability.
Finally, we are cautious on hardware due to the com-moditisation
impact of cloud-based technologies on tradi-tional
enterprise hardware product lines (for example serv-ers
and storage) and the decline in printing volumes due to
digital imaging (affecting printers and printer supplies).
Carey: For now, we believe that the social media theme will
continue to remain relevant, as more and more people get
connected. Recent studies show that people are also stay-ing
online for longer. We feel that companies such as Face-book,
Twitter and up-and-coming Chinese players such as
Alibaba and Tencent Holdings that can leverage this growth
should do well.
We also believe that the demand for crowd-sourced
content will grow and this may pave the way for innova-tive
companies to tap this trend. We highlight that some of
the tech giants have also noticed this trend and made some
large acquisitions. Recently, Amazon paid US$970 million
for Twitch, a website that hosts live-stream gaming-relat-ed
videos, where its one million broadcasters have made
Twitch the fourth most-trafficked site behind Netflix, Goog-le
(including YouTube) and Apple.
Market watchers say Twitch not only offers a big en-gaged
audience of young people for Amazon to tap, but
could also further Amazon’s ambition to move into the me-dia
business. They note that Amazon already offers Netflix-like
streaming of shows and movies with its Prime service.
On the other hand, this may spell doom for the tradi-tional
Pay TV operators who are already suffering from in-creased
competition from OTT (Over-the-Top) operators
such as Netflix, if they do not innovate and revamp them-selves
to cater to changing consumer behaviour and needs.
Cable operators such as StarHub have started to offer paid
content on mobile devices, but the high cost of data con-sumption
could limit demand.
PHOTO: ISTOCK

The leading Swiss private banking group. Since 1890.
www.juliusbaer.asia
Julius Baer is present in over 40 locations worldwide. From Hong Kong, Shanghai, Singapore, Dubai, Moscow, Milan, Monaco, Frankfurt, London, Guernsey, Nassau
and Montevideo to Geneva, Lugano, St. Moritz and Zurich (head offi ce).

Genevieve: What place
does TMT equities have
in an investor’s portfolio?
Stuart: Technology is impact-ing
more and more of the
economy. From transport to
factories, machinery is be-coming
increasingly rich
in semiconductors, sensors
and software. Productivity
has been massively improved
– can you now imagine a
world without the Internet,
e-mail, or mobile
connectivity? Just
as those “digital refugees”
roundtable |
who have failed to adapt to the new economy are increas-ingly
becoming second-class citizens, investors who fail to
understand how technology is impacting the world are go-ing
to find it harder to thrive.
To avoid investing in the technology sector is to ignore
one of the most dynamic and fastest growing sectors in the
economy. One caveat – investors often forget that investing
is full of pitfalls, and it is easy to get carried away with the
excitement of the technology sector. Technology, like any
investment, needs to be part of a balanced portfolio – be-ware
the siren song of getting rich quick – it rarely ends well.
Charles: Amara’s law states that we tend to overestimate
the effect of technology in the short run, but underestimate
it in the long run. Long-term investors should consider
investing in technology, but as always, value matters. This
sector isn’t cheap, but provides growth at a time when many
other sectors do not. Whether the world economy booms
or slows, vast quantities of data will find its way into the
cloud. For an investor, this is a comforting thought.
The rule for bull markets is to buy on the dips. The
technology sector is one of the few areas where growth is
assured. But bear in mind that this
bull market has come a long way, so
prices could come under pressure
over the medium term. If and when
they do, an investment will be a great
opportunity.
Frederic: TMT equities can contrib-ute
effectively to outperformance
of an equity portfolio. This is par-ticularly
true for technology stocks
at the two ends of a value/growth
barbell, where tech stocks have his-torically
tended to outperform the
overall market (while tech stocks
which are “in the middle” have not
outperformed). Technology business
models change faster than in other
sectors, creating risk. But this is also
an opportunity for investors who can
perform good analysis; the quantita-tive
evidence of this is that technol-ogy
has the highest dispersion of re-turns
among all equity sectors.
Carey: Low-beta stocks such as utili-ties
and consumer staples tend to be
more defensive in nature and usually offer lower returns as
compared to high-beta stocks such as tech and commodi-ties
where their businesses are more cyclical in nature and
come with higher risk/reward profiles.
For most of us, a “balanced” portfolio probably works
best where the low-beta stocks give some stability both in
terms of earnings and dividends, while the high-beta ones
offer us the opportunity to get some higher returns in ex-change
for taking on incremental risk. The allocation be-tween
the two segments would then
depend on our individual risk appe-tite,
investment horizon and some-times
market opportunities.
Therefore, we think that TMT
equities can feature in an inves-tor’s
portfolio. For example, telecom
stocks are generally considered to
be quite defensive and offer pretty
decent and stable dividends, which
would allow them to fall into the
“low-beta” basket. Interestingly,
some of the tech stocks, especially
those involved in B2B manufacturing
such as Venture Corp, also pay pretty
decent dividends every year as they
generate very strong operating cash-flows.
On the other hand, investors
seeking higher returns can look at
tech companies with strong growth
potential, either driven by new tech-nologies
or products. However, the
risk is significantly higher as some of
these companies may not be profit-able
yet or are marginally profitable
but may still need to spend a lot of
money to develop their products or markets.
Nevertheless, investors can still ride on these compa-nies’
growth potential, but they must be nimble enough to
get off once the growth slows – usually when the hype is
over or when valuations get out of hand – and move on to
the next big thing. nW
26 | wealth
‘Business cycles
cannot escape the
influence of the
bigger economy,
especially since a
lot of these tech
products fall under
the consumer
discretionary
segment – that is,
buying tends to slow
during bad times.’
Carey Wong, Investment Analyst,
OCBC Investment Research
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global outlook |
Seeing the big picture
The world economy seems set to enjoy continued growth,
providing a reasonably healthy background for stocks
By Giles Keating
VER the last few weeks,
global stock markets
saw significant short-term
volatility. Should
investors use declines
as opportunities to add
O
to longer-term equity exposure? Or should
they keep away in expectation of further
falls? To help answer this question, this ar-ticle
aims to address two key issues. First,
do global developed-economy equities of-fer
value, or are their prices still inflated by
quantitative easing and zero interest rates?
Second, will the world economy keep grow-ing
over the next two to three years, provid-ing
further support to stock prices, or is it at
risk of slowing back towards recession?
The ratio of equity prices to earnings
(based on consensus estimates for profits
over the next 12 months, averaged across
the US and other major developed mar-kets)
is close to its 25-year norm. So, this
very widely used metric suggests that de-veloped
equities are close to fair value.
How can this be, after a five-year bull
market that has seen a tripling of US stock
prices (measured by the SP 500 index)
and smaller but substantial rises else-where?
The answer is that on this measure,
equities were deeply undervalued at the
low-point in March 2009, so the bull mar-ket
has been a recovery to the norm, not a
surge into over-valuation.
Some well-known alternative valu-ation
metrics give a more pessimistic
conclusion. The ratio of prices to sales is
high, reflecting wide profit margins that
some people see as unsustainable. A simi-lar
message comes from the “Schiller” or
“cyclically-adjusted” price-earnings ra-tio,
which aims to iron out the variation
of profits across the cycle by comparing
today’s prices with a 10-year average of
profits. This measure stands well above
its long-term norm, though not as high as
during the dotcom bubble.
However, this metric has its critics. It
uses the profit definition from government
statistics rather than company accounts.
Moreover, it includes the very poor profits
from the 2008-2010 recession which were
the worst in over 70 years and seem un-likely
to be repeated soon.
By contrast, valuation measures that
compare the returns on equities with
those on bonds give strong support to the
optimists. For example, the earnings yield
(that is profits as a percentage of market
capitalisation) for blue-chip companies
in the US Dow Jones index is close to re-cord
highs against bonds, suggesting that
stocks are very cheap.
Some valuation measures are close to
fair value, some above and some below.
Thus, there is no overwhelming case to see
equities as either very cheap or very ex-pensive.
The best interpretation is proba-bly
that they stand close to fair value. How
should investors react? A good economy
will tend to push stock prices above fair
value and raise fair value itself. And con-versely
for a bad economy. This brings us
to the economic outlook.
The big picture is familiar to investors:
The US and the UK seem to be expanding at
a reasonable if not stellar rate that allows for
a cautious monetary tightening next year.
The eurozone and Japan are sluggish but
are probably just being held on a positive
trend by monetary expansion. China is in
adjustment to a growth trend that probably
lies below the current 7.5 per cent target,
while countries in the rest of Asia-Pacific
and beyond are seeing divergent trends
according to whether they depend on the
slowing commodity sector or on the more
buoyant industrial and consumer sectors.
Looking ahead
Overall, it is a world economy with sig-nificant
spare resources and still very easy
money, which seems set to enjoy contin-ued
but not rapid growth for at least sev-eral
more years, providing a reasonably
healthy background to stock markets.
This is broadly the consensus, and as
always there are risks. On the downside are
the overhang of public debt, the impact of
rising US rates and geopolitical uncertainty.
However, there are also upside factors. For
over five years, the world has been suffering
from inadequate supplies of oil, copper
and most other raw materials vital to the
modern economy. Reflecting this, since
2010 oil prices have traded around US$100
a barrel or above, roughly triple the pre-2008
norm, with a similar picture for copper.
This extraordinary shortage of key
commodities has been good news for their
producers, but it has almost certainly been
a major drag on global growth. The good
news is that it is at long last starting to
ease. Major investment in new mines and
oil wells in recent years, combined with
softer growth in China and elsewhere, is
bringing supply and demand into a better
balance and putting downward pressures
on prices.
For oil, this has been obscured by the
supply outages due to political and secu-rity
issues in Libya, Nigeria and elsewhere,
which have broadly offset the extraordi-nary
boom in US production. Now at long
last, some recovery in supply from these
troubled areas is allowing oil prices to fall
significantly below US$100 a barrel. If this
goes a bit further, it could give a major
stimulus to developed economies over the
next two years. That should provide an ad-ditional
upward impetus to stock prices,
on top of that implied by the analysis of
valuation that has been given here. n W
Giles Keating is Global Head of Research,
Private Banking and Wealth Management,
Credit Suisse
28 | wealth
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