BANGKOK ON THE BRINK

Wednesday May 19th, 2010 witnessed scenes in Bangkok that shocked the Thai nation, surpassing the civil unrest events of 1992. The army's morning offensive to oust Red Shirt protestors from Bangkok's Rajprasong district may have proved effective forcing the surrender of the movement's leadership, but there were inevitable casualties. Angry protestors then started riots and widespread arson resulting in a heavy price to pay for the city and its citizens. The arson also spread to targeting provincial government buildings located the North and Northeast which are Red Shirt strongholds. A curfew was imposed in Bangkok and 20 other provinces for three nights and then extended in Bangkok on a day by day basis, albeit for a reduced time period. Thankfully, business operations in Bangkok started this week back to normal and the mood suggests we can now start to make some forward progress. However, there is still an air of uncertainty and divisions in society will require very considerable healing to avert further unrest in the future.

Paradoxically the SET finished up for the week when it was forced to close at lunchtime on May 19th. Thailand's stocks are among the leaders in emerging markets as investors have decoupled the market's out from the deadliest riots in two decades according to Templeton's Mark Mobius. Its interesting to note that the SET index has climbed 5.5% since the latest protests started on March 12th , the second best performance behind Turkey on the MSCI Emerging Markets Index. Equally local currency bonds have gained 4.2%, second only to Indonesia among the 10 Asian local currency debt indices compiled by HSBC. The SET has started this week over 2% in negative territory but Mr. Mobius believes investors need to take a historical perspective because Thailand has always recovered from periods of civil unrest in the past.

GREEK TRAGEDY

A tumbling Euro fuelled by contagion fears of sovereign debt defaulting in Greece and the other so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) nations has contributed to sizable market sell offs in May. This month has seen a wide cross section of markets lose significant ground throughout the world amid concerns about the contagion factor in Europe emanating from Greece and the subsequent expected slowdown in Euro-zone demand. In addition, the German Government and its regulators angered other EU nations by acting unilaterally last week to ban certain types of "short selling" and credit derivatives linked to Euro-zone Government debt, triggering a further fall in stock markets and the Euro.

A 750 billion Euro bailout package initiated by the European Central Bank (ECB) which received the backing from Germany's parliament helped steady up the Euro last Friday. EU finance ministers convened a meeting the same day and agreed to formulate a co-ordinated agreement to tackle similar crises in future, so they can react quicker and more efficiently. Implementation of policies to achieve stated objectives will now be high on the agenda of a financial task force that includes all 27 member states of the EU as well the ECB. Provisional agreement has already been reached that EU member states which build up high deficits could lose EU money or voting rights. The combined effect of European political action last Friday helped fuel a bounce upwards in US trading later on.

As the story in Greece continues to unfold there seems certain to be financial woes for some of the characters, however Euripides and his fellow "Tragedians" often concluded with a satisfactory solution to the tragic situation. Leading figures in Europe are now working on such remedial action to ensure future survival of the Euro.

NEW ERA FOR THE UK

The UK now has a new Conservative/Liberal Democrat coalition government formed after a general election that produced the first hung parliament in 36 years. No single political Party received enough votes to form a one party majority Government and subsequently David Cameron (Conservative) and Nick Clegg (Liberal Democrat) agreed to a power sharing coalition lead by the Conservatives after some four days of intense negotiating. The outcome pared UK market losses temporarily until the contagion factor took hold again. Meanwhile, Sterling lost circa 10% in value to the US dollar.

Some quite significant political reforms have been promised, including a referendum on proportional representation. Furthermore, the new coalition has recognized that major austerity measures will be necessary given the UK's current scale of debt. The new Chancellor, George Osborne, stated last Friday, "Britain has the largest budget deficit in the EU and I'm very conscious of that and that's why in Britain we're going to accelerate the reduction of that deficit". It remains to be seen whether the new Chancellor's words translate in to action or just political rhetoric.

FLIGHT TO QUALITY SEEDS BUYING OPPORTUNITY

The fall in stock markets has gone hand-in-hand with a more general flight to quality across financial markets in recent days, as investors dump what they see as more risky assets and shift their money into safer havens. Government bonds perceived as safe - including US Treasuries, German Bunds and UK gilts - have rallied in tandem with the falling stock prices in recent days. Meanwhile, corporate bonds and some commodities have been also been falling. Crude oil in prices in particular are down some 18% since the beginning of May.

An excellent buying opportunity perhaps? Yes, according to the investment management team of the Iveagh Wealth Fund who had been holding a very conservative position since February. They now believe that selective acquisition of equities will yield excellent results for the fund in the second half of 2010 as major economic powers navigate their way out of the current stormy waters. Other than the world's larger economic powerhouses, market corrections in key emerging market counties such as the BRIC nations and Asia in general would appear to be attractive for investment in the second half of 2010.

LONDON PROPERTY BECKONS

Cross market downturns spell disaster for many but also offer opportunities to those who are shrewd enough to find renewed value in collapsed markets. Like stock markets, property offers real growth in the long term and protection against inflation, but investors must be wary of timing and be prepared for short term volatility. For several years we have been dealing with certain specialist companies that seek out developments which would normally be in heavy demand in key locations around the globe . One such location at present is London.

Thanks to a depressed market and lack of availability of mortgages, these companies are able to negotiate the purchase of properties in specific London developments at a significant discount, which can then be passed on to individual buyers. The discount factor has recently been made potentially more attractive by the weakness in Sterling, if source funding is US dollars or any Asia Pac currency. International mortgages are also available for expatriate investors, probably much more easily and much larger than would be available locally.

For those of you interested to learn more on this subject, we have invited one such company called the St. David Group as a speaker at our June Professional Hour "Opportunities Series" presentations (June 8th). The usual invitations will be sent out later this week.

CANADIAN SHOPPING MALLS

In these challenging times, how would you like to earn immediate income of 7.3% income per annum averaged across a 5 year term and significant capital appreciation potential from an existing, simple and secure Canadian asset? PPI has established a business partnership with a very reputable company called Redev that offers direct investment ownership in Canadian shopping malls as units of undivided interest. This investment operates in 5 year cycles and will deliver the above income figure immediately. Its capital appreciation is expected to comfortably reach 10% per annum and the Mall may be sold at any time with the agreement of the investors. However, should an exit not occur before the end of the 5 year term, the mall will be re-valued and re-mortgaged in order to release equity to investors. Thereafter, the next cycle re-commences with the income stream and capital appreciation opportunity intact, as at the outset.

If this interests you, we have also invited Redev to be one of our speakers at our June Professional Hour "Opportunities Series" presentations.

FINE WINE - PASSION INVESTMENT WITH STELLAR RETURNS

Regular readers of this News Update will note that I have made reference to this form of investment in recent editions and those of you who attended our last "Opportunities Series" presentations will recall our business partner Premier Cru presenting. It's a fact that fine wine has been one of the best performing assets in 2010 . Premier Cru state that returns on wine investing are influenced first and foremost by demand - good vintages attract more buyers and since there is a strictly finite quantity (reducing as the wine is drunk) prices tend to rise. Given that Asian consumers are predominantly buying to drink, the demand and supply dynamic remains very much in place. Prices have risen significantly in recent times , with the cost of Chateau Lafite Rothschild, a favourite among Asian consumers, climbing by about 30-50 per cent over the last year. Current chart analysis reveals that a fine wine portfolio has produced in excess of 21% compound annual growth during the past five years and Premier Cru are predicting a further 20% average market growth of fine wines by January 2011, fuelled by demand in Asia, particularly in China.

PROPERTY LINKED INCOME FUNDS

Mortgage Trusts are a very common form of investment in Australia. They make commercial loans with security taken and secure those loans against physical property i.e., land and buildings. Investors provide pooled financing for the Trusts whereas, unlike a bank, they accept the risk of capital loss in exchange for a higher return than bank interest rates (circa160% security effectively means that the borrower is underwriting the loan rather than the tax payer in terms of bank deposit guarantees, which is considerably fairer).

PPI has a long established business partnership with a company called LM Australia managing funds linked to such Trusts. They have been operating for nine years very successfully in this sector, always paying distributions to investors in excess of bank interest rates without ever having suffered a capital loss. LM Australia offer two main income generating funds, where the investment is fully hedged into a variety of international currencies. Leading currency income yields range from 2.75% (Yen) to 9.5% (AUD) per annum depending on the currency, fund and term. Minimum 12 month / maximum 36 month fixed investment terms are on offer; and for one of the funds income distributions are available quarterly (monthly in AUD) or at the end of the investment term. The funds are described as being low to medium risk and have been rated as "5 Star" by Morningstar, their highest rating.

QROPS - A BOOM FOR BRITS WITH UK PENSIONS

Although intended to apply to all EU countries, to date only British expatriates are able to benefit from this dramatic opportunity to break free from the straightjacket of locked-up company pensions. Under existing rules company pensions are very restrictive, although in theory most offer secure, defined benefits that are payable for life. Where they fall down is that they are dependent on the financial health of the company providing them and in any event do not become part of the pensioner's estate upon his death. Several million expatriate Brits are expected to take advantage of the new rule which allows them to move the pensions offshore. We are working together with several QROPS providers to facilitate transfers. If you have a significant UK pension tied up from previous employment this is an option you need to explore before the government changes the rules to stem the large outflows that are now taking place. If your former company is not financially strong there is all the more reason to take action soon. Should you have lost track of any former pensions there is a tracing service available through: www.pensionsservice.gov.uk

CRITICAL ILLNESS COVER - WORTH IT?

Why is critical illness cover so important? Because you are five times as likely to suffer a critical illness than to die before retirement. In the UK cancer is likely to affect 1 in 4 men and 1 in 5 women. With odds like that, critical illness cover makes a lot of sense, particularly if you are an expatriate, because of the additional cost and inconvenience a critical illness may cause. Couldn't happen to you? - It happened to all of the following under 65's: Eva Peron, Kylie Minogue, Olivia Newton-John, Bill Clinton, Dudley Moore. Ask for your PPI adviser for a quote it costs nothing!

Eric Jordan, Bangkok, 24. May 2010
Please note this news update is primarily for information only for clients of the PPI. If you are not a client please seek professional advice before making any investment decisions.