What is Asbestos?

Having often heard and read about some of the risks of property management, I often heard the phrase about people finding asbestos in the roof.  For the longest time, I had no clue on what asbestos is and always assumed that it was just some kind of fungus that grew on roofs and which was costly to remove or repair.

Lately, I did a little research on asbestos again and realised why it is such a huge concern.

What is Asbestos?

Asbestos is a naturally occurring mineral that is often used in buildings because of their desirable physical properties.  The use of asbestos became more common in the 19th century though there have been records of its use even during early history.  Amongst abestos desirable properties include its sound adsorption, affordability and its resistance to fire and heat.

Asbestos was/is used in a wide range of products from plaster, tiles, fire blankets, baby powder, thermal pipe insulation, etc.


What so dangerous about Asbestos?  

Studies have shown that asbestos is carcinogenic - cancer causing.  It causes malignant mesothelioma which is a cancerous tumour of the lung and chest cavity or lining of the abdomen. Asbestos exposure becomes dangerous when it is airborne due to deterioration or damage.  While building occupants can be in danger if they are exposed to it, those most at risk are often the people who disturb it - that is the construction or maintenance workers.  People working in housekeeping might also unknowingly come into contact with asbestos when cleaning things up.

However, with a long latent period between exposure and the first signs of cancer, most people who are exposed to it do not develop cancer until many years later. It is believed that just a small amount of exposure to asbestos will almost certainly lead to the development of malignant mesothelioma.

In Sept 11, 2001, when the World Trade Centre collapsed after the terrorist attacks, a large amount of asbestos was also believed to be released into the air.  Many people believe that the after-effects of this asbestos will probably kill more people compared to those who died on the actual day.  This probably also explains the high death rates (post Sept 11) of emergency workers who were working on site that fateful day.

The use of asbestos has been banned in many countries.  Unfortunately, most bans only came in place during the later part of the 20th century (and some only as recent as the 21st century) so many buildings that are still around were using asbestos.  The removal of asbestos is also highly regulated in most countries since it is a potential health hazard if not properly removed.


Litigation

Analysts believe that the total cost of asbestos litigation in the US alone will reach over US$250billion.  It is currently one of the most expensive mass tort in US history as many individuals are now seeking attorneys to fight their case and make claims against negligent companies that might have exposed them to asbestos.

Building Up Retirement Funds - Two Easy Ways?

There are many ways to build up your retirement funds in Singapore. You can choose to just keep it in the bank or find other ways to make your savings grow. Well, there are actually 2 easy ways to do so that probably helps you beat the low interest paid on bank deposits.

The first way is the Singapore Savings Bond. This is basically government issued debt sold to the public every month. Minimum investment amount is $500 with a cap of $50,000. There is no penalty for cashing out early and the principal is paid at the end of 10 years. The interest paid out increases each year. Holding it to the max of 10 years will give annual average returns of 2.6%. Totally risk free since they are backed by Singapore government

The second method I can think of is to top up your CPF account or even your spouse CPF account. You can claim tax relief ( up to $7000) and you can enjoy 4 to 5% interest depending on how much you have in your CPF. Problem is that you will only be able to touch it many years later at your drawdown age when CPF Life kicks in for you.

So what do you think about the two ways I have outlined? Leave your comments below!

How Much Can I Borrow for Car Loan in Singapore

Ever wondered how much you can borrow for your car loan in Singapore?

Well, on 26 May 2016, MAS announced that it will be easing its rules on motor vehicle financing. This involved the relaxation of both the loan-to-valuation (LTV) as well as the loan tenure.

For motor vehicles with open market value of less than our equal to $20,000, the LTV is now up to 70% from the previous 60%. For those with open market value greater than $20,000, the LTV is now up to 60% from previous 50%.

The maximum loan tenure has also been increased from 5 years to 7 years.

This changes basically means that one is allowed to borrow more and pay a smaller monthly instalment for one's car loan.

Brexit - The unexpected has happened

Well, Brexit has happened and it was really unexpected (at least to me). I had assumed that British common sense would have prevailed even though the opinion polls showed that it was an even split between the Leave and Remain camps leading up to the 23 June referendum.

What struck me was how the markets were actually moving up in anticipation that Remain would win, only for the vote count to reveal otherwise.

The fact that some British people were still googling "What is the EU?" after the referendum only shows how ignorant some people might have been. I think many of those in the Leave camp were probably not entirely clear on what the implications were. They wanted more autonomy, but now probably feel that this is coming at a cost.

Markets dived down sharply on 24th June. One of the worst crashes I have seen so far. The pound also lost quite a bit of its value. I recall seeing FTSE 100 dropping around 7%. It hit a low of 5788.70 but managed to recover some ground on 24th and 27th June. 28th June, the FTSE100 seems to be recovering and is trending up at around 2.6% even as I write. Most Asian markets have avoided a steeper fall on 27th and 28th June. The Nikkei 225 which was the worst hit on 24th June has also recovered some ground.

But only time will tell whether all these new risk factors play out.

As of now, we know that David Cameron will be stepping down as Prime Minister. Even the Labour Party Jeremy Corbyn faces a vote of no confidence. Jonathan Hill has also stepped down as British Commissioner to EU.  Political uncertainty abounds and we can be certain that general elections would be called soon.

Meanwhile, the UK has also had its credit rating cut by S&P and Fitch. S&P had said that the leave result would "weaken the predictability, stability, and effectiveness of policy making in the UK".

David Cameron in his addressee to the House of Commons has also told MPs that negotiating an exit would be the civil service's most complex and important tasks for decades.

Meanwhile, Merkel has already fired off a warning shot that there shall be no "cherry-picking". UK thus does not get to choose market access while rejecting the free flow of people.

Too many moving parts in the coming months and years ahead. A Brexit negotiation might not be done for many more years to come. The two years provision under Article 50 might not be enough.

Research shows how Chinese Companies use Embedded Analysts

So I came across this media release of a research done that shows how Chinese companies use what is called "embedded analysts" to reveal sensitive information. This piqued my interest as I was wondering what is this concept of an embedded analyst. Was it an analyst who works in the firm on secondment?

Anyway, the article is extracted below:

SOURCE: The Chinese University of Hong Kong (CUHK) Business School

Research by CUHK Business School Reveals How Chinese Companies Use ‘Embedded Analysts’ to Reveal Sensitive Information

HONG KONG, CHINA - Media OutReach - June 7, 2016 - Chinese companies face a dilemma. They need to straddle two worlds -- there's the old China where business is still conducted on a "who you know" basis, and the emerging world of financial markets, regulations and transparency, says T.J. Wong, Choh-Ming Li Professor of Accountancy and Director of Centre for Institutions and Governance at the Chinese University of Hong Kong (CUHK) Business School.

"As Chinese financial markets develop, companies want to reduce the cost of borrowing. In order to build trust and inspire investors, they know they need to improve transparency," says Prof. Wong who has researched the issue in the latest study entitled "The dyadic ties of managers and financial analysts and their externality on a firm's information environment" with Prof. Gwen Yu at Harvard Business School and Prof. Zengquan Li at Shanghai University of Finance and Economics.

"But companies know that revealing sensitive information such as their political or strategic ties might also be damaging. So what do they do if they want to borrow cheaply beyond friends and family? The two systems are colliding and companies need a solution," he says.

In the West, as Prof. Wong explains, regulations and economic infrastructure to protect investors are well established. But in emerging economies such as China, legal safeguards are not yet robust enough to reassure lenders that it is safe to invest in unfamiliar companies through stock markets. So if a company wants to borrow, how can it build trust among external investors?

Prof. Wong and his collaborators have been investigating how Chinese companies operate as the nation ploughs on with the economic reform.

"We have investigated what we call 'the embedded analyst'," says Prof. Wong. "This is a financial analyst with personal connections to a company, but with enough professional credibility to be able to inform wider markets about that company. At the same time, companies use these analysts to communicate and to protect sensitive information about strategic ties. We look at how firms exploit this channel of communication to cut their costs of borrowing."

He is keen to point out that it is not a concept dreamed up in the "ivory towers" of academia. He and his collaborators have had lengthy conversations with analysts in China before embarking up on the research examining a comprehensive cross section of listed companies in China and associated analysts for a ten-year period from 2005 to 2014.

The study shows a "spillover" effect that analysts who are well connected with a company can help spread accurate information and forecasts about the firm, and this effect of information beyond the company's and analyst's network is stronger when companies are keen to raise finance.

While the research finding won't surprise anyone working within China's markets, it does help explain to the rest of the world how things work in Chinese companies, says Prof. Wong.

But the research also throws up more questions in the West than it answers, such as: Why is it so important to know about a company's links to politicians or other strategic partnerships?

Previous research has already shown that relationships play a strong role in business in China; historically Chinese firms relied solely on their networks to win contracts. And each business relationship may differ slightly -- making it impossible to compare like for like when evaluating one company against another.

"For example, a chief executive knows someone from schooldays and does a deal. He then does a deal with his brother-in-law, and then another transaction with someone he knows socially. Every deal is different and nothing may be written down formally. You couldn't compare these deals with -- say -- IBM signing a deal with three different companies, where terms of each deal will be spelled out and in the open," he explains.

So why don't Chinese companies move towards greater transparency? Why aren't they more open about their beneficial political or strategic connections?

"There's a high cost -- a domino effect of openly revealing a political relationship -- it may damage other future relationships," says Prof. Wong. "The information doesn't affect just one deal; it affects all future deals," he says.

However, if companies opt not to disclose links which would help them raise more funds on capital markets, then they remain limited to borrowing only from friends and family.

When Prof. Wong presents this research in the West, business students often ask these questions: "Why should we rely on analysts to reveal sensitive information? Why doesn't the chief executive let investors know?"

Prof. Wong explains that unlike managers, who may have a shorter tenure and may be tempted to "big up" company health for personal gain, analysts tend to hold their positions for longer, and so potentially have more professional credibility.

That's not to say that the researchers can rule out any hints of insider trading. The firms' incentives to raise external capital and the intermediaries' market reputation and discipline can to a large extent mitigate such possibility of collusion between the firms and the embedded analysts.

But the academics did allow in their research for some level of commitment from analysts. Respected analysts are playing a bigger role in Chinese domestic markets, which see much activity from individual retail investors. As a nation, the Chinese have the highest savings rate in the world, and are keen to invest, and so are heavily dependent on analysts' forecasts.

By looking publicly available information to determine how analysts might be connected to a company -- either through a shared university, or time spent working together, or geographic proximities, the researchers reveal that this "social capital" allows companies to communicate private information to analysts, who in turn spread the word about a company's health and financial forecasts to their own networks. As a result, the more connected the analysts, the more accurate the earnings forecasts they make.

"It's a tacit agreement between analysts and the company -- they use 'secret' knowledge to make a hard earnings forecast, but because they have a strong reputation in the market, the signal crosses to wider analysts and investors who know they can trust the information," says Prof. Wong.

The researchers also found that more accurate information about a firm emerges when it plans to raise funds through new share issues. Also, companies which are particularly reliant on their political connections, or which have a concentrated number of customers and suppliers, tend to rely more on embedded analysts to release information.

All of which go to make well-connected analysts important players in Chinese markets.

"These embedded intermediaries can build a bridge between emerging economies and the west. They need to have grown up or at least spent a long time working in China and speak the language -- if they have a good reputation in the market, they can be very powerful."

And this role may not be restricted solely to financial analysts, says Prof. Wong, suggesting that future research might also look at other figures with a close connection to Chinese companies -- such as auditors or fund managers.

Back at CUHK Business School, when Prof. Wong introduces his students to these concepts, they are enthusiastic.

"They find it very new," he says. "In textbooks, students only read the Western perspective when it comes to how companies are organised and how they trade. But these cultural and political perspectives are important."

But is this system of informal communication sustainable?

"Until Chinese law, accountancy and market regulations protect investors, companies will need this kind of embedded intermediaries," says Prof. Wong.

"There's no quick fix. It takes a long time, maybe decades, to establish the kind of economic and legal frameworks to build trust in the markets. But we want to show that this level of closeness and ties with analysts isn't necessarily bad as it fulfils an important role in China," he says.


Reference

Zengquan Li, T.J Wong and Gwen Yu, "The dyadic ties of managers and financial analysts and their externality on a firm's information environment", 2016. Working paper.

Dividends and Interest Income for May 2016

This is just a rough estimate of dividends and interest credited to my bank account for this month:

Dividends = $1252
Interest = $197

Total = $1449

How Much To Save Per Month

How much should one save every month? Well, this is really a difficult question to answer. And it is difficult to give a straight answer because it can be quantified in absolute dollar amounts (say, $500 per month) or it can be stated as a percentage of one's salary (say, 20% of household income).

Well of course, one will always hear that you should save 10% of your income. However, I personally think that amount is way too low. It probably is correct when you are first starting out to work and have a low starting base salary (say $2,500). After paying for rent and stuff, it is unlikely that you will have much to spare. So 10% (or $250 per month) is probably a reasonable starting point. But it shouldn't stay that way for long. You probably need to start saving more.

After all (and as a very simple illustration) , if you only have 40 years of working life (let's assume you work from age 25 to 65) and spend 20 years in retirement, common sense or simple mathematics will tell you that you are working for 40 years to support 60 years of living expenses. That means you should only be spending 2/3 (two-thirds) of your income in the first 40 years so that you have 1/3 (one-third) of it left for the remaining 20 years of your life. I am really making many assumptions and simplifying the entire financial planning process so it is really best if you work out for yourself what is a realistic amount. On that basis, saving 33% of your income is probably the way to be safe.

Does this amount sound alarmingly high? Well, yes it is. Life expectancy has gone up and the cost of living has also been creeping up slowly but surely.

Another way to come to a figure is to work out your desired retirement income (or monthly expenses you expect to incur once retired) If you just assume an average expenditure for a married couple of $5000 per month for 20 years, that alone will sum up to $1.2 million dollars in savings that are necessary. That is quite a large sum of money without catering for any buffers. If the couple has a combined household income of $120,000 per annum, it will take them 10 solid years of saving 100% of their salaries just to set aside $1.2 million.

So how much should one save every month? Definitely a lot more than 10% of your salary if you intend to be financially stable and secure. In fact, it might be better to err on the side of caution and save more while you are young rather than to wait till retirement and realise that you have to cut down on your expenditure just to stretch your retirement dollars.