Describe about the Fundamental of Investing, a case study of Mr. A?
In the current investment market scenario, investment is a procedure that helps the people to mobilise their savings. In the current case study, Mr.A has retired from it MNC firm for which he has been compensate him with SGD 350000. Since then MR. A is looking for investment opportunities in order to multiply his savings for the future return (Brentani, 2004). There are several offers has been given by the several companies from mutual fund companies to real investment to investment in energy related asset. The study will take through the various risk and return phase in the present investment options.
Mr. A is considering the Michael offers to invest in energy. The price of the oil has been increased has been increased rapidly. The Singapore is one of the premier hub of oil and gas which is valuable sectors that contributes more than 5% of Singapore GDP (Fanchi & Fanchi, 2013). Apart from that, National energy policy report of 2007 shows that, growth in the energy is sector is higher than any other investment. As per the report of S&P, in 2015, Singapore oil and gas sector will be grow with SGD 1.47 billion.
Apart from that , investment in various mutual fund portfolio like equity, insurance and debt and bonds are some of the major investment areas. Since, the Ms. Kelly has asked the Mr.A to invest SGD 100,000 in their business which will give return of nearly 8-12% per annum (Goldstein & Razin, 2002). The demand of shares and equity is been rising but there is higher risk because of 2008 market crash.
Moreover, the demand for the real estate is in Singapore as per the Singapore land authority is higher but due to housing bubble in 2008 has been one of the major drawback of pricing of the pretty has been increased since 2008. But the rumor has it that, it will be bounce back in 2016 (Kaminsky, Lyons & Schmukler, 2001).
Since Mr.A is very much Non aggressive and looking for long term returns.
Investor portfolio as per the Singapore market
|
Investment profiling for Mr. A |
Total investment % |
Total amount SGD (Total amount in cash1.5 million) |
|
Equity |
5% |
7500 |
|
Bond |
20% |
30,000 |
|
Insurance |
25% |
37500 |
|
Investment in energy sector |
50% |
75000 |
|
Real Estate |
20% |
30,000 |
Graph 1: Investor profiling
(Source: Abdul karim & Fleming, 2012, pp-220)
Energy sector is one of the inflation protected securities sector which has been growing since 2005. Apart from that, government bonds are non taxable income against the inflations change.
|
Investment profiling for Mr. A |
Years of investment |
Return in % |
Return of investment |
|
Equity |
2 years |
18% |
8850 |
|
Bond |
3years |
50% |
45000 |
|
Insurance |
10 years |
10.5% |
41437.5 |
|
Investment in energy sector |
3 years |
12% |
84000 |
|
Real Estate |
5 years |
20% |
36000 |
From the above , it has been found that , life cycle of the investment shows that, Mr.A will have greater return on investment from insurance , bon sand energy sector because of high invest are made in these portfolios (Wu, 2012).
As per the legal framework
SFA (Securities and future act) and the financial advisors act 110 has set the regulations for entering into the capital market of Singapore. Market intermediaries those have CMSL capital market licensing are under the act of administrated by the MAS. A person who is looking to trade in these areas needed to be manage need to have the authorization from these houses for equity and bond market (Nelken, 2006).
As per the given report, SGX have more than 1110 market intermediaries under the MAS. The companies act 50 deals with the entire company related stock market from incorporating to winding up.
Ethical trading
While conducting trade within the capital market or investing in the capital market, SGX follows some set of norms:
Capital market: Investment in capital market has been growing as per the SGX report since 1999. The growth in equity, bond and insurance are some of the major growing market is more than 12% per annum. However, there is risk associated with the share and bond market is higher because of the uncertainty and non guaranteed areas (Goldstein & Razin, 2005).
Real estate: Real Estate market is open of the growing market as per the global property guide .com. however, during the 2012, the Singapore housing and land cost is bubble burst because it is decrease of 0.7% in third quarter is one of the major areas of concern (Akiba & Iida, 2004).
Investment in energy sector: Investment in energy sector is one of the better investment opportunities for the investors because the return is more than 3% of total GDP . There is high chances of gaining the higher return (Bellace, 2014). However, forming cartel by the OPEC nation and reform laws are one of the major loopholes areas that can increase the price of oil.
For the chosen the investment patter shows that, equity market would give higher return with 8-12% in SGD. With help of NPV , the entire investment of Mr. A will analysed (Cartier, 1998). This will help the Mr.A to choose the best options viable for him.
|
Investment profiling for Mr. A |
Years of investment |
Return in % |
Return of investment |
|
Equity |
2 years |
18% |
8850 |
|
Bond |
3years |
50% |
45000 |
|
Insurance |
10 years |
10.5% |
41437.5 |
|
Investment in energy sector |
3 years |
12% |
84000 |
|
Real Estate |
5 years |
20% |
36000 |
Equity :NPV=-150000 + 8850 /1.18 +8850/(1.39)
=-150000 + 7500+6367
=-136133
Bond : -150000 +45000/1.5+ 45000/2.25+ 45000/3.37
= -150000 + 30000+ 20,000 + 13353
=-88647
From the above, it has been found that, time value of money for the each of the investment would be different each other. The Reason for taking 1$ today rather than at some point of time because the dollar received today can be invested to make more money in future (Chua & Chou, 2010). Apart from that, saving today allows to earn interest on their saving of 1$ which will give higher return in future.
Investment in capital market: Investment is capital is one of the most prominent way to increase the investment. However, MR. A has to keep track of the every invested money that has been invested in the separate mutual funds including bonds, insurance , equity , foreign stocks and foreign currencies (Fu & Jennen, 2008).
Investment in real estate market: Investment in real estate market in the Singapore is current not worth because of housing bubble scenarios is going to burst (Lecomte & Ooi, 2012). Although the Mr.Lawrance promises to pay more than 20% of the return but the chances of losing the money is higher.
Investment in Energy sector: As per the given report, company Z Michael promise the return would be more than 3% growth at every quarter which is one of the lucrative investment. However, these energy sector are very much under government regulations norms which is gain very risky for more than 1 year of investment (Tu, Ong & Han,2008).
Money market: Other major areas of investment would be money market where the bond is purchase for less than six month and return are fixed guaranteed by the public sector banks.
From the above analysis, the chosen investment area for Mr. A is capital market and investment in energy and retail sector.
Energy sector: Energy sector companies like AD TEK Pty Ltd and EZRA holdings of Singapore has growth of more than 23% from next year (Ema.gov.sg, 2015). Mr.Micheal has made right kind of offer which helps the Mr.A to gain the double the present investment.
Rest, mutual funds and real estate is also booming industry but investment in the land and real estate can be very much risky because of the growth rate of the company is decreasing every year by 2.3% which can creates housing bubble (www.garp.org,. 2015). On the other hand, investing mutual funds would increase the investment with growth of more than 9.05% approximately.
Credit risk: Credit risk for energy sector
|
Credit risk in energy sector of Singapore |
Percent (%) |
|
Too much of borrowing |
8.3% |
|
Weak statements |
22.67% |
|
Poor previous record of energy sector |
17.3% |
|
Total debt |
5.2% |
Method of operation: Energy sector in Singapore uses multi attribute utility theory (MAUT) which help the industry or companies to convert the utility into total quantity. There are various trends within the energy sector of Singapore such as wholesale trading, pricing volatility , real time pricings and environmental regulations and advance technology (Okp.listedcompany.com, 2015). Major profit are coming from the whole selling of the products to the offshore companies and in ASEAN region.
The guarantee: The investment in energy sector is very much has higher return which is backed by the EMA (Energy market authority). Energy market authority is very is regulatory bodies that promise to protect the interest of investors (Tu, Ong & Han,2008).
Energy sector: Investment in energy sector would helps the Mr. A to fund their children higher education along with pay the net and taxes of his monthly expenditure (Fu & Jennen, 2008).
Conclusion
From the above study, it has been found that, Mr.A has various option for investment. Investing mutual fund will help the Mr. A to gain the ROI with 8-12 % per annum. Apart from that investment in real estate will give the Mr.A return worth of 20%. Lastly investment in energy sector would help the Mr.A to gain more than 20% of growth. However, there is risk in mutual fund because of the recent recession. Moreover , there is huge risk in investing in the real estate where the chances of housing bubble is higher as per the SGX report.
Reference List
Brentani, C. (2004). Portfolio management in practice. Oxford [England]: Burlington, MA.
Fanchi, J., & Fanchi, J. (2013). Energy in the 21st century. Singapore: World Scientific.
Goldstein, I., & Razin, A. (2002). An information-based trade off between foreign direct investment and foreign portfolio investment. Cambridge, Mass.: National Bureau of Economic Research.
Goldstein, I., & Razin, A. (2005). Foreign direct investment vs. foreign portfolio investment. Cambridge, Mass.: National Bureau of Economic Research.
Kaminsky, G., Lyons, R., & Schmukler, S. (2001). Mutual fund investment in emerging markets. Washington, DC: World Bank, Development Research Group, Macroeconomics and Growth.
Nelken, I. (2006). Hedge fund investment management. Amsterdam: Elsevier/Butterworth-Heinemann.
Wu, K. (2012). Energy Economy in China. Singapore: World Scientific Publishing Company.
Abdul karim, n., & Fleming, e. (2012). factors affecting foreign direct investment in malaysia’s manufacturing sector: An analysis across states. Singapore Econ. Rev., 57(04), 1250015. doi:10.1142/s0217590812500154
Akiba, h., & Iida, y. (2004). Some empirical evidence of exchange market pressure in singapore. Singapore Econ. Rev., 49(01), 55-69. doi:10.1142/s0217590804000792
Bellace, J. (2014). American unions and the economy — the unheard voice of a shrinking sector. Singapore Econ. Rev., 59(04), 1450029. doi:10.1142/s0217590814500295
Cartier, C. (1998). Mega development in malaysia: from heritage landscapes to “leisurescapes” in melaka’s tourism sector. Singapore J Trop Geo, 19(2), 151-176. doi:10.1111/j.1467-9493.1998.tb00257.x
Chua, K., & Chou, S. (2010). Energy performance of residential buildings in Singapore. Energy, 35(2), 667-678. doi:10.1016/j.energy.2009.10.039
Fu, Y., & Jennen, M. (2008). Office Construction in Singapore and Hong Kong: Testing Real Option Implications. J Real Estate Finance Econ, 38(1), 39-58. doi:10.1007/s11146-008-9145-z
Lecomte, P., & Ooi, J. (2012). Corporate Governance and Performance of Externally Managed Singapore Reits. The Journal Of Real Estate Finance And Economics, 46(4), 664-684. doi:10.1007/s11146-012-9377-9
Tu, Y., Ong, S., & Han, Y. (2008). Turnovers and Housing Price Dynamics: Evidence from Singapore Condominium Market. J Real Estate Finance Econ, 38(3), 254-274. doi:10.1007/s11146-008-9155-x
Ema.gov.sg,. (2015). EMA : Home. Retrieved 25 February 2015, from https://www.ema.gov.sg/index.aspx
www.garp.org,. (2015). CREDIT RISK MANAGEMENT. Retrieved 25 February 2015, from https://www.garp.org/media/489989/credit%20slides.pdf
Okp.listedcompany.com,. (2015). OKP Holdings Limited – Financials. Retrieved 25 February 2015, from https://okp.listedcompany.com/financials.html.
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