Tuesday, 31 December 2019

Why We Celebrate New Year?

Lots of people prepare to usher in the New Year. It is a fresh start. New resolutions and celebrations with family and friends.

It was celebrated for the first time in 45 BC on the Julian calendar. Heeding the advice of astronomer, Sosigenes, Caesar opted for the solar year like the Egyptians at that time. Under the Julian calendar the year totalled 365 and a quarter day and so Caesar added a day to February every four years.

During the Middle Ages, celebrating New Year fell out of practice. Then we have the Gregorian calendar by (you guessed it!) Pope Gregory XIII. Much of the world has since followed and celebrate New Year’s Day on January 1, although many other Eastern cultures celebrate new year on different dates throughout the year.

The common thread for a New Year is a gratified good bye to the previous year and a hopeful welcome of a New Year. Many attend parties, concerts, family get-togethers or a Midnight Service. Whatever it maybe, make a difference for good this New Year.

“Happy New Year!”

Our Top 10 Blogposts for 2019 were as follows:

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Our sincere thanks for your support and review of all our posts.

Monday, 30 December 2019

Will Climate Impacts Cost the World $7.9 trillion by 2050?

Climate change could directly cost the world economy $7.9 trillion by 2050 as increased drought, flooding and crop failures hamper growth and threaten infrastructure, according to new analysis by Economist Intelligence Unit (EIU).

EIU’s Climate Change Resilience Index measured the preparedness of the world's 82 largest economies and found that based on current trends the fallout of warming temperatures would shave off three percent of global GDP by 2050. Africa was most at-risk, with 4.7 percent of its GDP in the balance. In general, developing nations faired poorer in terms of resiliency than richer ones. Of the countries evaluated, Angola stood to lose the most—as much as 6.1 percent of gross domestic product.

World map showing average real GDP loss by 2050 by world region, according to a study by the Economist Intelligence Unit

The study put this down to a mixture of a lack of quality infrastructure, as well as its geographical exposure to severe drought, soil erosion and rising sea levels. Land degradation in Angola would prove a "significant" economic hindrance, the report said, given that agriculture is its largest employer. Nigeria (5.9 percent negative GDP), Egypt (5.5 percent), Bangladesh (5.4 percent) and Venezuela (5.1 percent) were the next most climate vulnerable nations identified in the analysis.

The analysis said rising temperatures meant the global economy was projected to hit $250 trillion by 2050, as opposed to $258 trillion with no climate impact. While the United States is forecast to be one of the least impacted, the EIU noted that President Donald Trump's policies represented a "temporary setback" in the climate fight.

Russia was predicted to lose five percent of GDP by 2050 and will "suffer more than most other countries in the world from the negative effects of climate change", it said. This held true even when potential benefits in increased agriculture were taken into account.

Nations agreed in Paris in 2015 to work to limit temperature rises to "well below" two degrees Celsius, and 1.5-C if possible. To do so, the global economy must rapidly decrease its greenhouse gas emissions—a source of controversy in developing nations which say their economic growth shouldn't suffer after decades of fossil fuel use by wealthier countries.

In a worst-case scenario, climate impacts could set off a feedback loop in which climate change leads to economic losses, which lead to social and political disruption, which undermines both democracy and our capacity to prevent further climate damage. These sort of cascading effects are rarely captured in economic models of climate impacts. And this set of known omissions does not, of course, include additional risks that we may have failed to have identified.

The urgency and potential irreversibility of climate effects mean we cannot wait for the results of research to deepen our understanding and reduce the uncertainty about these risks. This is yet another reason why it is urgent to pursue a new, greener economic path for growth and development. If we do that, a happy ending is still possible. But if we wait to be more certain, the only certainty is that we will regret it.

So for now the climate impacts estimates put the “losses” by 2050 at USD 8 trillion.


1. Climate impacts 'to cost world $7.9 trillion' by 2050, 20 Nov 2019, Phys.org
2. Naomi Oreskes and Nicholas Stern, Climate Change Will Cost Us Even More Than We Think https://www.nytimes.com/

Friday, 27 December 2019

CFA Institute Investment Foundations Program: Chapter 17 – Investment Management (Part II)

In a previous article, we introduced the CFA Institute Investment Foundation Program (Read more here).  It is a free program designed for anyone who wants to enter or advance within the investment management industry, including IT, operations, accounting, administration, and marketing.  Candidates who successfully pass the online exam earn the CFA Institute Investment Foundations Certificate.

There are total of 20 Chapters in 7 modules, covering all the essential topics in finance, economics, ethics and regulations.  This series of articles will highlight the core knowledge of each chapter.

Chapter 17 provides an overview of the investment management. The learning outcome of chapter 17 is as follows:

·       Describe systematic risk and specific risk;
·       Describe how diversification affects the risk of a portfolio;
·       Describe how portfolios are constructed to address client investment objectives and constraints;
·       Describe strategic and tactical asset allocation;
·       Compare passive and active investment management;
·       Explain factors necessary for successful active management;
·       Describe how active managers attempt to identify and capture market inefficiencies.

Strategic asset allocation is the long-term mix of assets that is expected to meet the investor’s objectives. The desired overall risk and return profile of the portfolio is a factor in determining the strategic asset allocation. A portfolio with a strategic asset allocation dominated by equities would be expected to have a higher return and be more volatile than a portfolio dominated by, say, bonds because bonds generally have lower risk than equities and thus produce lower returns. The strategic asset allocation that is suitable for one investor may not be suitable for another.

Although the chosen strategic asset allocation is expected to meet the investor’s objectives over the long term, there are times when shorter-term fluctuations in asset class returns can be exploited to potentially increase portfolio returns. A short-term adjustment among asset classes is known as tactical asset allocation.

When considering tactically altering a portfolio’s asset allocation, a manager may look at the strength of the economy and likely future trends to gain a perspective on how the central bank might change interest rates and on what might happen to corporate profits. The manager may then look at the level of the price-to-earnings ratio of the stock market and how it compares with recent decades as a measure of valuation or with the level of bond yields relative to historical ranges. The manager could also look at stock and bond market trends as a way of gauging investor sentiment.

The act of an investment manager adjusting his or her portfolio to take advantage of short-term fluctuations in asset class returns most likely describes:
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Thursday, 26 December 2019

Malaysia vs Singapore: Cost of Living Compared!

The Economist’s Worldwide Cost of Living Survey, three cities share the number one spot as the most expensive cities: Singapore, Hong Kong, and Paris. Notably, Singapore has been in the top spot for some time.

Despite being at the 88th position, Kuala Lumpur is often compared to Singapore due to their proximity with each other. Singaporeans and Malaysians are constantly keeping an eye on the cost of living in these countries as migrations for job opportunities are common between the two countries.

At first glance, after factoring in the currency conversion rate (1 Singaporean dollar is equivalent to RM3.06), the cost of living in Malaysia would seem much cheaper to a Singaporean.

However, once you take into account each country’s average salary and currency strength, a different picture emerges. Not only do Singaporeans earn a higher average monthly disposable salary (S$4, 061.10) than Malaysians (RM3,486.49), the weaker Ringgit (US$1 = RM4.15) means that it costs Malaysians more to purchase imported goods compared to Singaporeans (US$1 = S$1.35).

So what exactly is the difference between the cost of living in Singapore and Malaysia? How much would you be able to save and spend in each country?

The Infographic presented here is excerpts from Michelle Leong (2019).


Do you agree?
pollcode.com free polls

Michelle Leong, Malaysia vs Singapore: Which Country Is Cheaper To Live In? https://www.imoney.my/

Wednesday, 25 December 2019

Merry Christmas!

It's the most wonderful time of the year. We wish you a Merry Christmas!

Tuesday, 24 December 2019

Why Do We Celebrate Christmas?

Many people celebrate Christmas because it is a holiday. Because it is when Santa will come! Because we get gifts for Christmas! Because we could get together as a family and have a turkey! Because we can put up a Christmas tree!

But why do you celebrate?

Christians celebrate in honour of the birth of Jesus in Bethlehem. He was probably born circa 5 B.C. Luke 2:10-11, relates the birth, the angel appeared to the shepherds on the night of Jesus’ birth and said “I bring you good news that will cause great joy for all the people. Today in the town of David a Saviour has been born to you; he is the Messiah, the Lord.”

We celebrate Christmas because we needed deliverance and the Saviour, the Messiah has come! We celebrate the Lord’s coming in humility because He took on “the very nature of a servant” for our sakes (Phil. 2:6-8).

We celebrate Christmas with gift-giving because of the “indescribable gift” that God gave to us (2 Cor 9:15). We celebrate Christmas by stringing lights on a tree because the light of the world has come to us. We celebrate Christmas with carols because they express the joy of Mary and Zacharias, Simeon, the angels, the shepherds and all who extol the Lord in poetry! We celebrate Christmas by decorating our trees with stars, angels and tinsel because of eternal life that Jesus brings (John 4:14). And the ever green tree reflects the promise of eternity.

We celebrate the love and rescue initiated by God for mankind. With Adam we fell. But with Jesus we are rescued from sure death. God looked at our sinful planet and saw His people in mortal danger.  And so we celebrate His decision to be the Rescuer of all mankind!

“Merry Christmas!”

Image: Lifesite News

Monday, 23 December 2019

Worst Dengue Outbreak in Decades: Only in Malaysia?

Number of dengue cases in Malaysia is hitting an all-time high. A total of 119,198 dengue cases have been recorded up to Nov 29, or an average of 359 new cases a day. And this is about 70 percent increase compared to the same period in 2018!

Malaysia is far from alone. Thailand, Vietnam, Bangladesh and Sri Lanka were also recording a record-high number of dengue cases, according to Azrul Mohd Khalib, chief executive of the Galen Centre for Health and Social Policy. Not only in Asia, dengue is spreading rapidly across Africa and the Americas. The Americas alone have reported more than 2.7 million cases by mid-November, the largest number since records began.

Dengue spreading across Asia and Central America

Who is to blame?

Dr Raman Velayudhan, coordinator of World Health Organization (WHO)’s vector management programme in Geneva says the Aedes mosquitoes are extending their reach as the global climate warms. Aedes mosquitoes in recent years have begun crossing into more temperate zones. Countries such as Nepal are beginning to report cases of dengue, chikungunya and Zika. Since 2010, dengue cases have been recorded in France, Italy, Portugal and Spain.

According to a new research (Ryan SJ, Carlson CJ, Mordecai EA & Johnson LR, 2019), with global warming, nearly a billion people could face their first exposure to viral transmission from either mosquito in the worst-case scenario within the next century. The largest increases in population at risk is consistently projected in Europe, with additional increases in high altitude regions in the tropics (eastern Africa and the northern Andes) and in the United States and Canada.

The economic burden

A 2015 research (Packierisamy P.R., 2015) estimated the cost of dengue in Malaysia at US$175.7 million a year, comprising the cost of illness (medical costs and productivity loss from illness and death) and the cost of prevention activities.

For prevention activities, Malaysia spent an estimated US$73.5 million on the national dengue vector control program in 2010. This spending represented costs per reported dengue case and per capita population were US$1,591 and US$2.68, respectively. About 92.2% of these costs were incurred at the district level, where most of the costs went to fogging activities and premise inspection for mosquito breeding sites.

The health ministry will be releasing Aedes mosquitoes that contain the Wolbachia bacteria in stages across the country to control the spread of dengue. This follows a pilot project in 2017 carried out in eight areas in Selangor that showed dengue cases reducing by 50% to 80%. The public also should raise their awareness on the severity of the rising dengue cases. Combating dengue is not only the Government’s job. What can we do? Open your windows when the council comes to fog your neighbourhood even though the chemical used is not very helpful to asthma sufferers!


1. Think tank blames climate change for rise in dengue cases, 2 Dec 2019, FreeMalaysiaToday
2. WHO scales up response to worldwide surge in dengue, 14 Nov 2019, World Health Organization
3. Ryan SJ, Carlson CJ, Mordecai EA & Johnson LR (2019). Global expansion and redistribution of Aedes-borne virus transmission risk with climate change. PLoS Negl Trop Dis 13(3): e0007213.
4. Packierisamy PR, Ng CW, Dahlui M, Inbaraj J, Balan VK & Halasa YA, (2015). Cost of dengue vector control activities in Malaysia. Am J Trop Med Hyg. 2015.

Friday, 20 December 2019

CFA Institute Investment Foundations Program: Chapter 17 – Investment Management (Part I)

In a previous article, we introduced the CFA Institute Investment Foundation Program (Read more here).  It is a free program designed for anyone who wants to enter or advance within the investment management industry, including IT, operations, accounting, administration, and marketing.  Candidates who successfully pass the online exam earn the CFA Institute Investment Foundations Certificate.

There are total of 20 Chapters in 7 modules, covering all the essential topics in finance, economics, ethics and regulations.  This series of articles will highlight the core knowledge of each chapter.

Chapter 17 provides an overview of the investment management. The learning outcome of chapter 17 is as follows:

·       Describe systematic risk and specific risk;
·       Describe how diversification affects the risk of a portfolio;
·       Describe how portfolios are constructed to address client investment objectives and constraints;
·       Describe strategic and tactical asset allocation;
·       Compare passive and active investment management;
·       Explain factors necessary for successful active management;
·       Describe how active managers attempt to identify and capture market inefficiencies.

The returns on investments, such as shares, bonds, and real estate, will be affected by general economic conditions. Returns will also be affected by issues that are specific to the particular investment. These two types of risk are called systematic risk and specific risk, respectively.

Systematic risk: The risk created by general economic conditions is known as systematic or market risk because the risk stems from the wider economic system. For example, if the economy enters a recession, many companies will see a downturn in their revenues and profits.

Specific risk: Risk that is specific to a certain company or security is variously known as specific, idiosyncratic, non-systematic, or unsystematic risk. Examples include the share price response when a company launches a successful new product (e.g., the Apple iPad) or the response to the negative news that a promising new drug has failed in trials.

Diversification is one of the most important principles of investing. When assets and/or asset classes with different characteristics are combined in a portfolio, the overall level of risk is typically reduced.  Mathematically, a portfolio that combines two assets has an expected return that is the weighted average of the returns on the individual assets. Provided that the two assets are less than perfectly correlated, the risk of the portfolio (measured by the standard deviation of returns) will be less than the weighted average of the risk of the two assets individually.  Overall, this means the risk–return trade-off, which is a key concern for investors, is better for a portfolio of assets than for individual assets.

Most investors hold more than two securities in their portfolios. Adding more securities to a portfolio will reduce risk through diversification, although eventually the additional benefits begin to lessen.  Specific risk is reduced by combining additional shares, but as the portfolio moves beyond 30 shares, the incremental risk reduction becomes small and the associated trading costs may outweigh any incremental benefit of risk reduction.

Combining different asset classes can also improve diversification and reduce a portfolio’s risk by reducing specific risk. For example, an investor might combine investments in various stock and bond markets with investments in real estate and commodities to reduce the overall risk of a portfolio.

Systematic risk is the portion of total risk that:
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Thursday, 19 December 2019

The Allais Paradox: Why Do We ‘Win Small’ but ‘Lose Big’ in Stock Market?

If you were given a choice to invest in one of the stocks from each scenario below, which stocks would you invest?

Scenario 1:

Stock A:

100% chance to earn RM1 million
Stock B:

10% chance to earn RM5 million, 89% chance to earn RM1 million, 1% chance to earn nothing

Scenario 2:

Stock C:

11% chance to earn RM1 million, 89% chance to earn nothing
Stock D:

10% chance to earn RM5 million, 90% chance to earn nothing

Results show many prefer stock A over B, and D over C. This is because A is certain, but both C and D are risky, therefore D looks better. Why is this a ‘paradox’?

If we use U(x) to represent our preferences, then stock A over B is equal to:
     U(1mil) > 0.1U(5mil) + 0.89U(1mil) + 0.01U(0)
=> 0.11U(1mil) > 0.1U(5mil) + 0.01U(0)  ——  Eq. (A)

And if stock D over C, then:
     0.11U(1mil) + 0.89U(0) < 0.1U(5mil) + 0.90U(0)
=> 0.11U(1mil) < 0.1U(5mil) + 0.01U(0)  —— Eq. (B)

Equation (A) and equation (B) is contradictory. This is what the Allais Paradox is telling us: an individual’s decision can be inconsistent with expected utility theory. People usually prefer certainty to uncertainty, but when they are approached differently, they may prefer the uncertainty that was previously rejected.

In Prospect Theory, losses and gains were assumed to be valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses.

Scenario 3:

Stock E:

100% chance to earn RM1 million
Stock F:

50% chance to earn RM2 million, 50% chance to earn nothing

Scenario 4:

Stock G:

100% chance to lose RM1 million
Stock H:

50% chance to lose nothing, 50% chance to lose RM2 million

Most people choose stock E over F, and stock H over G.

This shows that individuals will try to avoid risk when there is a prospect of sure gain, but may seek for risk when one of the options is a sure loss. And that is why sometimes it is so hard for individuals to rake in more profit or cut a small loss.

If you deduct RM2 million from the gains in stocks from scenario 3, you will get stock G’s result from stock E, and stock H from stock F. In other words, the differences between the stocks in each scenario are the same. Again, the Allais Paradox is shown.


1. Allais Paradox, https://en.wikipedia.org
2. James Chen, Prospect Theory, www.investopedia.com

Wednesday, 18 December 2019

Will Trump Lose US-China Trade War?

The US–China trade war originated from US President Donald Trump’s ‘America First’ agenda. It is the centrepiece of his administration’s challenge to multilateralism. It also reflects the country’s failure in global leadership.
As noted by Assoc. Prof. Yan Liang of Willamette University, the trade war is based on an overestimation of the damages it will inflict on China. China’s economy is no longer heavily dependent on trade, as it was just 10 years ago. In 2008, China’s net trade surplus accounted for 8.3 per cent of GDP. By 2018, that figure was only about 1.3 per cent.
China’s household consumption share of GDP has grown rapidly. But is still quite low at around 40 per cent (compared to 68 per cent in the United States). The average growth rate of private consumption was 8 per cent between 2000 and 2018. This is compared to just 2.2 per cent for the United States.
Since 2015, consumption has contributed to over 60 per cent of China’s GDP growth, while net exports have contributed to less than 10 per cent. Given China’s demographic changes, urbanisation and the growth of the digital economy, a mass consumer society will emerge in China’.
Declining exports to the United States will cause half a percentage point of growth from China’s GDP. More importantly, the Chinese government has enough policy space to bolster domestic demand and offset the negative impacts of trade. China’s debt-to-GDP ratio of 50 per cent.
The Trump administration overestimated the impacts of the trade war on foreign investment in China. Despite outcries over companies moving away from China, such claims are not significant. In a US–China Business Council survey, 97 per cent of US businesses in China stated that they are profitable. Of this, 87 per cent had not relocated or had no plans to relocate their activities. Some companies which moved from China to countries like Vietnam soon found themselves facing skilled labour shortages or limited infrastructure and had to move back to China.
Export-oriented investors may consider leaving China due to heightened export costs as a result of the US tariff hike. But market-oriented investors produce and sell in China to avoid tariffs. Around 35 per cent of US companies are adopting the ‘in China, for China’ strategy, including Tesla and Microsoft. There is simply no evidence that companies are leaving China in droves.
Meanwhile the Trump administration’s departure from multilateral globalism has involved attacking several trading partners. It has distanced itself from strategic allies, even calling Germany and Canada national threats for sending their steel to the United States. The United States also backed out from the Trans-Pacific Partnership, giving China more room to ally with important trading partners. Even though China’s exports to the United States dropped by 8 per cent in the first half of 2019, its overall exports inched up by 0.1 per cent.
The trade war undermines Trump’s own economic and political bases of domestic support as tariffs on imports are a tax paid by US importers and consumers. It is estimated that Trump’s tariffs on Chinese imports will cost US households on average US$1000 annually.
One could argue that jobs will be saved or created if the tariffs reduce imports and persuade US companies back home. Unfortunately, this is wishful thinking. The United States has transitioned out of a manufacturing economy since the 1980s. Between 1980 and 2000 the manufacturing sector shed 2 million jobs, while from 2000 to 2016 it lost another 5 million jobs. The US economy has transitioned into a service-based economy and it is this structural transformation that accounts for the great majority of manufacturing job losses.
While tariffs imposed on Chinese imports may cause US companies to shift some production locations away from China, they are not returning to the United States but to Vietnam, Cambodia or Malaysia . Moreover, US companies rely heavily on Chinese suppliers for their global supply chain. The added tariff costs will force them either to relocate the global supply chain — a costly move — or cut back on investment and expansion. By some estimates, Trump’s tariffs would shed half a percentage point from US growth.
China’s retaliation has focussed on US agricultural exports, undermining Trump’s electoral base. Between July 2018 and June 2019, the number of farms that have filed Chapter 12 bankruptcy increased by 13 per cent. The real, prolonged economic losses faced by US farmers will perhaps weaken public support for Trump’s China agenda.
The US trade war with China is driven by Trump’s intention to contain China’s growth and outcompete the presumed superpower. But while China embraces multilateralism and forges ahead with further market reforms, the Trump administration is retreating from global economic leadership. The US–China trade war is bringing short term pains to both the United States and China, but the long term gains are a mirage. The Phase 1 Agreement on trade is a sham, it is just rolling back the tariffs and nothing more. The U.S. has to focus on productivity and intellectual property rights rather than tariffs.
The key to all this, for Malaysia, is to balance the trade repercussions by a very neutral stance. We need both China and the U.S. It is perhaps best for us to “speak softly and carry a big gift” to both (paraphrased Theodore Roosevelt’s doctrine of “speak softly and carry a big stick”).

1. Trump might lose the US-China trade war, Yan Liang, Willamette University (htpps://www.eastasianforum.org)
2. The US will badly in the trade war with China and imperil the world economy if both countries don’t cooperate, David Brown (www.scmp.com)
3. Three reasons Midwest farmers hurt by the US-China trade war still support Trump, The Conversation, November 4, 2019