Make the most of your
bonus
Experts suggest using the money to reduce
debt, invest and build up cash flow
Alvin Foo
Consider
investing in regional currencies. Commodity-linked ones such as the
Australian dollar usually perform well after the US Fed's
quantitative easing. -- PHOTO: ST FILE
Bonus season is here, the time of the year when bank accounts
get their annual fattening, and nearly everyone feels that bit
richer.
Many financial institutions, listed firms and small
and medium- sized enterprises are expected to pay the bulk of
bonuses this month or the next, in time for Chinese New Year.
Apart from the urge to splurge on that long-awaited
European holiday or brand-name handbag, you could also consider
investing the hard-earned money.
Sinking the bonus into a new car or an investment
property may seem more elusive now, given the sky-high certificate
of entitlement prices and the recent round of hard-hitting property
cooling measures.
Analysts expect property transaction volume to
slump 30 per cent this year as investors pull out, and forecast
that home prices could sink by between 5 and 25 per cent in the
coming years.
As a rule of thumb, financial advisers suggest
using a third of your bonus to reduce debt such as housing loans or
credit cards, while investing another third.
The final third may be used to build up a cash
buffer for a rainy day or deposited in the Supplementary Retirement
Scheme to increase your retirement savings while reaping income tax
benefits.
They say this approach will free up your current
cash flow and reduce debts. The additional cash saved can be used
to invest in stocks or property in the event of a market
correction.
In a season of near-zero interest rates and
burgeoning inflation, putting too much of your bonus in bank
deposits may not be the best idea.
Wealth experts suggest areas in which you could
invest your extra funds.
• Cash not king
currently
Cash may be crucial in times of severe economic
recession, but holding a substantial portion of it in your
investment portfolio now is not ideal, say the experts.
That's because cash is generating
negative returns after taking into account inflation.
Mr Kelvin Tay, UBS' chief investment
officer for Southern Asia Pacific, said: "It may not be advisable
to leave your money in fixed deposits... fixed deposit rates here
are around 0.25 per cent while inflation is hovering near 4 per
cent."
Over the past 13 years, a one-year
rolling Singapore dollar deposit has lost almost 1 per cent of
purchasing power a year on average, said Mr Steve Brice, Standard
Chartered Bank's chief investment strategist in the wealth
management division.
This is highly unlikely to change
dramatically in the next 12 to 24 months, he noted.
He said: "The appropriate cash
allocation depends on your risk profile, but we have a 0 per cent
weighting in investment portfolios for an investor with a moderate
risk - or higher - profile."
However, you should still stash some
cash in case of a rainy day.
"Typically, one should set aside
three to six months of their monthly expenses as emergency funds
and put the rest to work," said Mr Michael Tan, head of premier
wealth advisory at OCBC Bank.
• Go for Asian
equities
Stocks are proving to be a hit with the experts,
with several analysts tipping them to be the best-performing asset
class this year.
Among them is DBS Private Bank chief
investment officer Lim Say Boon, who said a concerted wave of
central bank intervention has kept the fear of extreme market risk
at bay.
The Vix Index - the best gauge of
investors' fear on Wall Street - tumbled to a 5½-year low
recently.
Global fund managers have become
increasingly bullish on equities.
Fund flows into Asian stocks have
been buoyant in recent weeks, and nearly all regional stock markets
have charged up between 1 and 6 per cent thus far this
year.
"There's a big wall of liquidity at
the doorstep of the emerging markets. A big slice of this will end
up in equities," said Mr Dennis Lim, Templeton Emerging Markets
Group portfolio manager.
He is bullish about Asean markets
such as Thailand and Indonesia, and tips the materials (such as
oil, gas and base metals) and consumer-related sectors as those to
watch.
He added: "When Asia picks up,
Singapore is going to benefit as it is a very open
economy."
UBS' Mr Tay advises investors to go
for high dividend-yielding stocks.
Analysts are mainly upbeat over
Singapore equities. For instance, UOB Kay Hian has a year-end
Straits Times Index (STI) target of 3,400 points. The STI closed at
3,211.22 last Friday.
• Look at regional
currencies
The prospects of brighter economic growth for
China this year should create an upbeat backdrop for regional
currencies to thrive this year, say analysts.
HSBC is bullish over Asian
currencies as worries over the euro zone have subsided in recent
months, and China's economy continues to turn upwards.
Mr Paul Mackel, HSBC's head of Asian
currency research, said: "A key support for Asia currencies is a
continuation of inflows into local markets encouraged by the
region's economic growth."
The bank's top regional picks are
the South Korean won and Philippine peso, as both are backed by
strong current account surpluses and high-quality portfolio
inflows.
This means the appreciation of the
two currencies should be persistent and less exposed to reversals
in fund flows, said HSBC.
Commodity-linked currencies such as
the Australian dollar and the New Zealand dollar usually perform
well after the US Federal Reserve's quantitative easing moves, said
OCBC's Mr Tan.
He added: "We believe they will
remain supported, especially given signs of a recovery in
China."
OCBC sees support at the $1.26 mark
for the Australian dollar against the Sing dollar, and support for
the New Zealand dollar against the Sing dollar at around the $0.995
level.
• Avoid bonds, go
for gold
While bonds were popular with investors last
year, their outlook is now somewhat dimmer.
Analysts now tip equities to be a
more attractive investment option than bonds.
DBS' Mr Lim said: "We feel that
bonds are overbought and offer poor value."
In contrast, gold prices are tipped
to soar for the 13th straight year this year as demand from China
and India remain robust.
The low interest rate environment
and weak US dollar usually result in a rise in the price of
gold.
"We suggest buying gold on dips at
around the US$1,650 to US$1,700 per ounce region and see the
precious metal appreciating to US$1,950 per ounce in 2013," said
OCBC's wealth management vice-president Vasu Menon.
A seasonal pick-up in demand early
this year could see gold prices crossing the US$1,700 mark, noted
Phillip Futures.
Invest, The Sunday Times, January 20 2013, Pg
33-34
