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Old 09-04-2020, 09:13 AM   #2026
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For those of you concerned about inflation, the most highly inflation correlated asset is a portfolio of real return (a.k.a. inflation indexed) bonds. Thatís because theyíre tautological instruments: real return bonds produce real (after inflation) yields, by design. Several high quality sovereigns issue real return bonds, and (upon checking now) I see there are some real return bond funds available. As a notable example for non-U.S. persons, IGIL, listed/traded on the London Stock Exchange, is a global inflation linked accumulating bond fund. Its expense ratio is a fairly reasonable 0.25%. Since IGIL holds bonds denominated in a variety of currencies (heaviest in U.S. TIPS of course), it should hold its real value fairly well in Singapore dollar terms no matter what happens with Singapore dollar inflation, especially over the medium and long term.

Iím only answering a question frequently asked, not suggesting you actually go buy IGIL. Iím not particularly concerned about inflation. One reason Iím not is that the next most highly inflation correlated asset is a portfolio of equities. If youíve got an age appropriate investment in a low cost, well diversified stock fund, chances are youíre already substantially protected against inflation if inflation should surge.
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Old 10-04-2020, 11:15 AM   #2027
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Smile Inflation and Velocity

Let’s spend a little more time understanding inflation. Let’s suppose I’m shopping for an average quality, medium sized Fuji apple this month, and it costs S$1 (best available price with reasonable searching, tax inclusive). One year from now I shop for the same item in the same way and its price is S$1.08. So what’s the annualized Singapore dollar consumer inflation rate?

A. 5%
B. 8%
C. 10%
D. Unclear.

The answer is...D. The inflation rate for average quality, medium sized Fuji apples is 8% in this example, but there isn’t enough information to figure out the overall consumer inflation rate. To do that statistical experts look at a reference basket of hundreds or thousands of goods and services that a “typical” household buys, and they carefully, periodically update that basket. Households in Singapore are buying more smartphones and fewer fax machines, for example.

Consumers consistently overestimate inflation. By nature we notice (and sometimes are offended by) price increases, but we gladly accept then forget price decreases. We also make substitutions and don’t always or even often mind doing it. “Fuji apples cost 8% more? OK, let’s try those new Honeycrisps for 95 cents each.”

If all our nominal incomes and wealth are increasing at the same pace as or faster than overall consumer prices, then we really don’t have much of a problem in terms of real lifestyle preservation. At least that’s true with low or moderate levels of inflation. In some countries wages, benefits, tax brackets, and even some bonds are explicitly pegged to inflation, although unfortunately that’s not common in Singapore.

Inflation doesn’t occur on any widespread, sustained basis except in certain specific scenarios. Here are the big examples:

1. The effective collapse of the entity issuing the currency. The currency of the Confederate States of America, the slave states’ central government that lost the U.S. Civil War and ceased to exist in 1865, is now worthless except as a collector’s item. (And not worth much even that way.)

2. A negative supply shock. Global oil prices spiked in two episodes during the 1970s, fueling inflation across the world since the world was much more heavily dependent on oil, suddenly a scarce resource.

3. A positive demand shock. We’re seeing short-term inflation right now rooted in the high demand for ventilators, personal protective equipment, COVID-19 test materials, sedatives (to support intubations), and a few other goods and services.

4. An increase in the money supply, the velocity of money, or both when an economy has little or no idle capacity. We’re not seeing this combination. The velocity of money was already low heading into this COVID-19 crisis, and undoubtedly it’s even lower. And economies around the world definitely have lots of idle capacity. Economists are quite sure that this crisis is much more a negative demand shock than a negative supply shock, and it’s deliberate (engineered) in order to slow the virus.

Also, if we ever do see scenario #4, it’s not a problem. Central banks know how to curb this mode of inflation. They’re too good at this job, really.

Anyway, I wouldn’t be fearful of generalized consumer inflation any time soon. We don’t have the ingredients for it. However, if you are, no problem, typical long-term equity investing is an excellent inflation fighting tool, and there are also real return bonds if you insist.

Last edited by BBCWatcher; 10-04-2020 at 11:17 AM..
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Old 10-04-2020, 12:33 PM   #2028
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Hi BBCW and all,

Hope everyone is keeping well amidst Circuit Breaker.

I have couple questions and hope you could shed some light.

1. Global stocks ETF like VWRA - my basic understanding is they comprises of large/mid cap stocks across the globe tracking the FTSE world index. I’m not so sure of the definition of the index tracking. So question is does the index track in a way like only including top performaning stocks with some criteria in each country like how S&P500 or STI does? Or does it include just about every investable large/mid cap? I’m thinking if some underperforming stocks are filtered out, it will not drag the index’s returns. So as a investor, there is a “automatic balancing” and we are holding on to generally good performing companies.

2. China is currently the 2nd largest economy in the world. Why does the allocation in VWRA (~4-5%?) is much smaller compared to US (~55%).

3. In the discussions i read, why does the returns of MBH is considered to be higher vs ABF? Looking at last dividend paid out by both, they look the same to me at about ~2%


Thanks!
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Old 10-04-2020, 02:43 PM   #2029
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....So question is does the index track in a way like only including top performaning stocks with some criteria in each country like how S&P500 or STI does? Or does it include just about every investable large/mid cap?
It's really more the latter. The index just takes the top 9X% of investable stocks on a market capitalization basis. That excludes stocks with the lowest market values. You can read more about how the FTSE All-World Index is constructed here.

Iím thinking if some underperforming stocks are filtered out, it will not drag the indexís returns. So as a investor, there is a ďautomatic balancingĒ and we are holding on to generally good performing companies.
There is some natural filtering, yes. The bottom X% (single digit percentage) of stocks with the lowest market values are excluded.

2. China is currently the 2nd largest economy in the world. Why does the allocation in VWRA (~4-5%?) is much smaller compared to US (~55%).
China has the world's second largest national GDP. However, stocks listed and traded in Chinese stock markets are not too highly valued.

Keep in mind what drives stock valuations: high and sustained profits. Apple, for example, sells a lot of iPhones, but there are other companies such as Samsung that produce more smartphones. However, Apple is really the only company making much money (a LOT of profit) selling smartphones. That's why the company is much more valuable than Xiaomi, for example.

Also, Apple sells lots of smartphones in China, Singapore, Japan, etc., etc. Just because its stock (AAPL) is listed and traded in the United States doesn't mean its sales and other business activities are all located in the United States.

3. In the discussions i read, why does the returns of MBH is considered to be higher vs ABF? Looking at last dividend paid out by both, they look the same to me at about ~2%
There are lots of previous posts on that topic, and I suggest you read through those. The bottom line is that MBH invests in corporate bonds that will assuredly have a higher long-term yield than the AAA rated sovereign bonds that A35 holds. MBH has never had a long-term or even medium-term, and over the short-term practically anything is possible.
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Old 10-04-2020, 06:47 PM   #2030
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Thanks BBCW, i got your point.

Is my understanding correct that even if emerging countries GDP are growing very fast, it does not mean that by overweighing EM stocks, we may gain as much. Because it depends on the companies that are driving the growth and where they are being listed or not even listed at all.
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Old 10-04-2020, 07:52 PM   #2031
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Is my understanding correct that even if emerging countries GDP are growing very fast, it does not mean that by overweighing EM stocks, we may gain as much. Because it depends on the companies that are driving the growth and where they are being listed or not even listed at all.
There are lots of great countries, and there are lots of great multinational companies. One shouldn't confuse the two.
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Old 11-04-2020, 01:53 AM   #2032
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any idea where can find the breakdown of buying and selling volume? instead of the usual consolidated trading volume.
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Old 11-04-2020, 03:15 AM   #2033
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Right, i think i got them intermixed. Thanks for clarifying that up

There are lots of great countries, and there are lots of great multinational companies. One shouldn't confuse the two.
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Old 11-04-2020, 08:31 AM   #2034
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any idea where can find the breakdown of buying and selling volume? instead of the usual consolidated trading volume.
Iím not sure what you mean. The sales volume ó number of shares traded ó consists of buyers and sellers. Just multiply by two if you want to know how many shares were bought and sold (sales+purchases).
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Old 11-04-2020, 02:20 PM   #2035
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i believe you referring to market depth? you need to $subscribe$ with your brokerage for these

any idea where can find the breakdown of buying and selling volume? instead of the usual consolidated trading volume.

Last edited by rrr2015; 11-04-2020 at 02:24 PM..
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Old 12-04-2020, 10:33 AM   #2036
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bookmark for great info
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Old 12-04-2020, 03:35 PM   #2037
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May I ask as a Singaporean investor invested in the Euronext (France) stock market, how much dividend and capital gains tax would I have to pay?
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Old 12-04-2020, 05:33 PM   #2038
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May I ask as a Singaporean investor invested in the Euronext (France) stock market, how much dividend and capital gains tax would I have to pay?
If you're solely a tax resident of Singapore then per the tax treaty it looks like it's a 15% dividend tax rate (should be on a withholding basis) and a 0% capital gains tax. The ordinary 0.3% French financial transaction tax ("FFTT") typically applies upon acquisition.

The 15% dividend treaty tax rate is quite favorable since the non-treaty rate can get as high as 47.2%. You'll want to check to make sure you're actually paying the treaty rate correctly.

As always, triple check this information. I'm definitely not too familiar with the French tax code.
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Old 12-04-2020, 07:51 PM   #2039
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If you're solely a tax resident of Singapore then per the tax treaty it looks like it's a 15% dividend tax rate (should be on a withholding basis) and a 0% capital gains tax. The ordinary 0.3% French financial transaction tax ("FFTT") typically applies upon acquisition.

The 15% dividend treaty tax rate is quite favorable since the non-treaty rate can get as high as 47.2%. You'll want to check to make sure you're actually paying the treaty rate correctly.

As always, triple check this information. I'm definitely not too familiar with the French tax code.
Thank you. I guess I have to drop IRAS A call or should I contact IBKR who is my broker?
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Old 12-04-2020, 09:03 PM   #2040
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For those of you concerned about inflation, the most highly inflation correlated asset is a portfolio of real return (a.k.a. inflation indexed) bonds. Thatís because theyíre tautological instruments: real return bonds produce real (after inflation) yields, by design. Several high quality sovereigns issue real return bonds, and (upon checking now) I see there are some real return bond funds available. As a notable example for non-U.S. persons, IGIL, listed/traded on the London Stock Exchange, is a global inflation linked accumulating bond fund. Its expense ratio is a fairly reasonable 0.25%. Since IGIL holds bonds denominated in a variety of currencies (heaviest in U.S. TIPS of course), it should hold its real value fairly well in Singapore dollar terms no matter what happens with Singapore dollar inflation, especially over the medium and long term.

Iím only answering a question frequently asked, not suggesting you actually go buy IGIL. Iím not particularly concerned about inflation. One reason Iím not is that the next most highly inflation correlated asset is a portfolio of equities. If youíve got an age appropriate investment in a low cost, well diversified stock fund, chances are youíre already substantially protected against inflation if inflation should surge.
why is this igil so unstable last month? there was a sharp drop followed by an equally sharp rise
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