CORRECTION OR DOUBLE-DIP?

In our last News Update we said we couldn't count on the July rally being sustained. Indeed we saw quite a significant fall in global stocks as fear of a double-dip recession in the US spooked markets in August. Both the uncertain employment situation and shaky housing market in the US added to an unprecedented low volume of equity trading on US bourses. The result was that both equities and commodities headed south during the month of August, the only bright spot being gold which is a sign again of investor nervousness. Major market bond yields have fallen to extreme lows meaning they offer a poor prospect for returns but on the other hand they do offer a degree of comfort and security. Hence they continue to form an important part of a balanced portfolio, while emerging market and corporate bonds are more attractive and have provided an important hedge to portfolios in 2010. If your portfolio includes Harmony or Iveagh funds you will have a fair proportion of the fund across a full spectrum of bonds.

Savings plans will probably see the biggest dips in valuations when markets fall but this must be seen as a positive for the long term as current contributions will be buying in effectively at a discount. Gains should be consolidated in the latter stages of the plans; this is when they should be closely monitored. If the opportunity to consolidate gains during the later years has been missed the plan should not be encashed on maturity but should be held until such time as markets are high again.

MARKETS LIFTED BY DATA

After the market jitters of August, encouraging signs of recovery in the US economy were evident from data released at the end of last week. A higher than expected drop in jobless claims and confirmation of a decline in the trade deficit - after US exports to the end of July had reached their highest level in two years - were welcomed positively by world markets. Asian currency traders used the data to sell the yen and give a much needed break to Japanese exporters and China revealed that imports had picked up in August by a forecast-busting 35.2% - the forecast was 25%. This data suggests that the a slowdown in the Chinese economy is not as severe as was feared by some. China's trade surplus also shrank in August which analysts said could take pressure off Beijing over its currency rate.

So, better news for markets in September but volatility and a degree of uncertainty in traditional investment markets has continued to test investors' patients. This aspect and the fact that banks are offering rock bottom interest rates means there is an increasing demand for alternative forms of investment to enhance portfolio returns.

WHAT ALTERNATIVE INVESTMENTS ARE THERE?

The last decade was one which untypically saw major markets returning a loss over the 10 years. This has negatively impacted the long term plans of investors throughout the world. Those relying on income from large cash deposits have fared no better. At one time retirees could count on a livable income of 3% to 5% on a large accumulated sum in the bank. Now that base interest rates in USD, GBP and EURO are close to zero an investment in cash, other than for the purpose of liquidity and short term reserves, is no longer a viable option. Even real estate investments have proved disastrous for those who overstretched themselves.

So where to turn now? Giving up is not the answer! The basic asset classes will continue to be a mixture of cash, bonds and equities. The latter will certainly bounce back in time unless the capitalist system collapses. So we must persevere with our savings plans and building blocks in core asset classes. But we also need to look 'outside the box' to capture growth in areas perhaps not considered in the past. One which we have embraced successfully in recent years is commodities, including energy and precious metals. Another has been Managed Futures funds such as AHL from Man Investments and Tulip Trend from Progressive Capital Partners. Investors who have diversified into these areas have generally done better than those who have stuck to the basic asset classes. Managed Forestry is another and, especially for those who prefer a shorter time span, there are excellent opportunities to purchase mature plots from time to time such as at present. Individual lots of 100 Agarwood trees upwards maturing in three and four years respectively are available currently with net returns comfortably expected to be in double digits. Site visits can be arranged for those interested.

A NEW OPTION: LITIGATION FUNDING

Right now a new opportunity has arisen for retail investors. It may be a short-lived one for them since this particular asset class has previously been funded by institutional investors and hedge funds. Currently the latter cannot supply sufficient funds; hence there is an opportunity for the small investor. What we are looking at are potentially thousands of cases where legal action is not pursued due to lack of funds or fear of losing. Many of these cases are nevertheless identified as almost certainly winnable and lawyers would take them up on a no-win no-fee basis if they had sufficient funds. This is where litigation funding steps in.

Basically, specialist funds raise capital and evaluate loans to law firms that have identified winnable cases and lend money accordingly. These funds collect of a share in the winnings which means the plaintiff may not win as much as he would have by suing directly but does not have to risk a cent of his own money. Since only strong cases are accepted the defending company or organisation agrees to settle out of court in the majority of cases once it is known there are unlimited funds to fight the case.

Following extensive due diligence, PPI has approved specialist funds that occupy this niche sector and, to highlight one in particular, we currently can offer an opportunity to invest in successive tranches of a large sum being raised by Argentum Litigation Investments Ltd. There are two options for investors; one involves taking a percentage of winnings with some guarantees, the other offers participation in the main fund via structured notes which pay a quarterly income. These structure notes are backed by an insurance company that pays out if the case is lost, another insurance company that steps in if the first insurance fails to pay for any reason and a third that pays out should the defending party be unable to pay. While we would normally be skeptical of an investment that offers such high returns these guarantees, plus the British law community environment and the oversight of the FSA provides a high degree of comfort. The main features of the notes are as follows:

Option B - Structured Notes

• 100% principal protection
• Investment protection via three insurance products
• Linked to the performance of the Quantum Fund
• Minimum investment - £10.000 over 2 years
• 10% per annum paid quarterly
• 10% maturity bonus
• 20% case win bonus based on value invested paid on completion of the case

You will note that the currency is GBP but the returns should be sufficient to interest investors in other base currencies who would like some diversification. Many of you were aware of the previous tranche releases of the Argentum Quantum fund. Quantum Series IV will be launched on September 14th and available for subscription until October 16th 2010. At present there is one PPI seminar arranged for the launch day in Pattaya tomorrow evening and watch this space for more to be announced in other PPI locations before the deadline date. Please contact us without delay if you would like to be included or if you would just like more information.

Bear in mind this is an 'outside the box' investment and should be considered only by experienced investors as a complement to their existing investments. More information on litigation investments can be found on the PPI website using the Enhanced Income Investments.

ASIAN CURRENCIES INCREASE STRENGTH

For those of you that receive an income in British Pounds, Euros or US dollars it won't have escaped your notice that exchange rates throughout Asia have strengthened considerably this year, which has had an additional inflationary effect, particularly for retirees. Only last week the Japanese yen hit a fifteen high against the US dollar and the Malaysian Ringgit and Singapore dollar have had significant gains. Business leaders in Thailand are very concerned about the surge in value of the baht which is now trading 7.6% higher than it value in January. This is the highest year-to-date currency rise in the ASEAN region ahead of the Malaysian Ringgit, representing a thirteen year high against the US dollar. Thailand's export dependence is higher than most of its neighbours, so there will undoubtedly be pressure on Bank of Thailand to intervene if the surge continues. However, experience tells us that intervention only slows down a trend at best and with Thailand's interest rates relatively high compared to others in the region the baht strength looks set to continue.

PPI SPONSORS SEPTEMBER GOM EVENT IN PHUKET

PPI was a proud sponsor of the GOM monthly gathering in aid of charity at Alan Colinge's Chalong Pier Beer Garden on September 6th . Feedback from Chairman Warren Crowe confirmed record attendance with 12 new members and also a record night for fund raising! Food and beverage provided the hosts was excellent as ever and all in all the evening was a resounding success. GOM member Richard Faulkner is PPI's Senior Adviser based in Phuket and he will happily explain about GOM to any Phuket based clients wishing to join. Richard can be contacted at richard.faulkner@ppi-advisory.com .

PROFESSIONAL HOUR UPDATE

For those of you who regularly attend PPI's monthly Professional Hour networking event, you will have noticed that we changed the format recently to include an industry specialist presentation per event. The decision to provide a monthly presentation was based on attendee feedback and the change certainly seems to have been well received judging by recent attendances and comments received. Our next event will be held at the Queen Victoria Pub, Sukumvit Soi 23 on Tuesday September 12th with another industry specialist speaking on The Benefits Of Regular Savings And Life Insurance. As usual invitations will be sent out via email and please remember to confirm your attendance to professionalhour@ppi-advisory.com .

WEBSITE UPDATES

PPI has added some new features to its website home page during July and August, including content associated with specific areas of client interest such as Enhanced Income Investments and Pension Transfers. Please take a look when time permits and let us know your feedback !

MY WHEREABOUTS IN SEPTEMBER

Please note that I will visiting Europe on business and leave from September 14th until the end of September. I will respond to emails but please allow a little longer than usual for a reply!

Eric Jordan, Bangkok, 13. September 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.