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Alternative Investments for Individual Investors

Alternative investments for individual investors are financial assets that do not fall into conventional asset classes and often tend to attract younger investors. Firstly, what are alternative investments? They are labelled as such because these financial assets do not fall into the more conventional asset classes of equity, bonds, properties, or cash investments. Alternate investments can be further divided into subcategories such as commodities, private equity, collectibles, and cryptocurrencies. Typically, alternate investments do not form the core of your investment portfolio but instead form less than 10% of your overall portfolio.

No matter what you call alternative investments, this asset class has been grabbing headlines. At the forefront is cryptocurrency with bitcoin having skyrocketed to new highs above US$40,000 (RM160,000). Another increasingly popular alternative investment is gold which has gained some new followers with fintech now allowing you to buy fractional gold via an app. Lastly, we have P2P financing which allows investors to legally lend money to small businesses and entrepreneurs via an online P2P platform.

Why Do Alternative Investments Appeal to Young Investors?

Alternative investments are generally viewed as high risk and highly volatile. These investments are also more often embraced by younger (and young at heart) investors who are comfortable with technology, while older (or more risk averse) investors may shun away from investing online or via an app into an investment that talks about blockchain or fractional investing. Older investors may also have a preference towards more traditional investments such as stocks and property.

Younger investors tend to find investing in alternative investments, especially those powered by fintech, as more transparent and are often attracted by the lower fees. Alternative investments also provide higher potential returns while allowing investors to diversify and own assets that aren’t correlated to the stock market. As it’s more volatile, alternative investments also provide an avenue for trading which allows investors who like trading to scratch an itch!

How Do Alternative Investments Perform?

Along with the higher risk and volatility, alternative investments also enjoy potentially higher returns. For example, bitcoin’s price rise in 2020 was over 300%, towering above most if not all other asset classes, while the YTD rise for gold is around 23%. For P2P financing, returns can range from 10% to 18% according to data provided by P2P financing operators in Malaysia.

While alternative investments appear to be doing well, it’s a double-edged sword as investments could potentially go downwards significantly as well. For example, the Great Crypto Crash of 2018 saw the price of bitcoin drop 80% from its peak which is an even bigger magnitude of loss than the dot-com crash.

Gold is also often falsely perceived as a low risk asset and a safe investment during times of crisis. In fact, gold is highly volatile with an average volatility moving upwards (or downwards) of 16% a year! P2P financing investors on the other hand face risks in the face of rising default rates whereby borrowers are unable to pay and the losses affect investor returns.

What You Need to Know about Investing in Alternative Investments

This comes with its fair share of risks and know-how. For example, a common question when investing in alternative investments is whether you will be taxed in Malaysia. Cryptocurrency is not taxed if you are not trading crypto as your primary source of income.

However, for P2P financing, investors are required to declare gains and will be taxed. For gold investing if you are a Muslim, you will need to pay zakat, a mandatory form of Islamic obligation tax, if you hold gold above 85 grams. This applies even if you cannot see or touch the gold physically as halal gold must be backed up by actual physical gold to be Syariah compliant.

Let us narrow down good rules of thumb for investing in these alternate investments. Bitcoin is a highly speculative investment with massive gains and drops thus you may want to hold no more than 5% of your investment portfolio in cryptocurrency. It’s also important to note that cryptocurrency is not viewed as legal tender in Malaysia but there are three digital asset exchanges (cryptocurrency exchanges) recognised by the Securities Commission.

P2P financing also faces the risk of defaults, so you may want to ensure you spread your risk across different borrowers (or even different P2P financing platforms). Do read up on the borrower’s financial information before investing in any P2P financing notes. Gold has its fair share of criticism as well as it does not generate any returns but is a good hedge against times of crisis. Do be aware of the gold spread, which is the difference between the buying and selling price of gold, and any fees charged which will reduce your returns.

What Lies Ahead for Alternative Investments

Cryptocurrency especially is an interesting alternative asset to watch. It’s increasingly being viewed as a store of value, thus earning the nickname of digital gold. Digital payment platforms PayPal and Venmo announced that they will support transactions in bitcoin and other cryptocurrencies driving an increase in usage and liquidity. There is also a growing number of institutional investors in bitcoin as a reserve asset and an alternative to fiat currency such as the US dollar which is showing a decline in value.

Overall, alternative investments are becoming increasingly popular with financial technology and slick, shiny apps appealing to young and young at heart investors. Increased competition, lowered costs with fintech, and an increasingly global investment market will further spur growth in these risky but promising investments.

About the author

Stephen Yong (MBA, CFP cert ™) is a licensed financial planner and can be contacted at stev.yong@wealthvantage.com.my.

February 8, 2021
How to: Achieve Financial Independence in 5 Years
In the digital age, many young Malaysians are eager to invest and grow their hard-earned money.

Through information, they have obtained on the internet and through their peers, they understand the importance of growing their wealth through investing and have a desire to achieve financial independence as early as possible.

There are also young adults who find it more comfortable to not invest until their financial situation becomes more stable or they have more money to invest.

For this category, they are looking to invest and will do so when they have the extra disposable income to set aside.

There are also others who have embraced the YOLO lifestyle, looking to live in the present and are accustomed to instant gratification.

They spend every ringgit they earn, and perhaps even more by borrowing through their credit card or personal loans and choosing to let tomorrow worry about itself.

Whichever category you may fit in, one key point to take home is that if you’re in your 20s, you have a big advantage over many others when it comes to investing.

Here are three reasons why your age can be your biggest advantage:

1. Time and Compounding Interest

There is a famous saying attributed to Albert Einstein where he called compound interest the “8th Wonder of the World.”

Whether Einstein said this or not, compound interest is the key that allows young investors to grow their wealth over time.

Compound interest requires only two things: the reinvestment of earnings and time.
- Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than the simple interest which is calculated only on the principal amount.
- Interest can be compounded on any given frequency schedule from daily, to annually.
- When calculating compound interest, the number of compounding periods makes a significant difference.
Assuming a 6% interest rate per annum, the table below shows the stark difference in the final amount based on how long an initial investment of RM10,000 is put to work:

Starting Age Compounding Period (Years) Final Amount at Age 60

20 40 RM 102,857

30 30 RM 57,434

40 20 RM 32,071

The longer money is put to work, the more wealth it can generate in the future for you.

Here’s another chart that demonstrates how much you would need to set aside every month at different ages, assuming you are looking to accumulate RM1 million for your retirement.

As shown below, if you start investing at an earlier age, it is much easier to hit your financial targets through the sheer power of compounding interest.

2. The Ability To Take Risk

It goes without saying that higher-risk investments that are more volatile yield the highest return. Simply put, the higher the risk, the higher the return and the lower risk, the lower the return.

Younger investors are usually focused on growing their wealth and should invest in higher return investments.

This is because you have the time to recover if something were to go wrong, giving you the opportunity to make riskier moves. For example, when you are in your 20s, even if you suffer a loss today, you’ll be working for the next 25-40 years and have many years to earn an income. In short, you’ll likely recover from that investment loss.

Those who begin to invest late in life are often inherently more cautious with how they invest their money.

As one nears retirement, one usually starts allocating their investment portfolio to lower risk assets which correspondingly have lower returns. By starting late and having lower returns, one might fall short of their financial goals.

3. Learning by Doing

As a younger investor, you have the flexibility and time to study investing and learn from both successes and failures.

Since investing has a fairly lengthy learning curve, young adults are at an advantage because they have years to study the markets and refine their investing strategies.

You will make money, and lose money on some investments.

Examples of things one needs to learn can include opening a stock trading account, opening a mutual fund account, buying real estate, or even calculating investment returns – these are all best learnt through experience.

There are many other aspects when it comes to investing such as understanding how the market works, how the economic cycle affects your investment, or how mutual funds and Robo-advisor fees can affect your returns.

Gaining this experience at a younger age will give you the confidence and knowledge to invest and grow your wealth to achieve your financial goals in the long term.

Capitalise on Your Biggest Advantage

There are many factors that one looks at when designing an investment portfolio. Ultimately, it should be designed to allow you to achieve your financial goals, be it short-term such as planning for a wedding, or long-term such as retirement.

It cannot be overstated how beneficial it is to start early. In today’s information age, it’s your responsibility as a young investor to educate yourself on investing and take action to capitalise on the key advantage you have, which is time.

Time cannot be bought and unlike investment losses, lost time cannot be recovered.

Every day you delay is an opportunity loss to capitalise on the power of compounding interest and the ability to take risks.

When one starts early, you get to learn from experience and make mistakes when they are less costly (ie. you have less money to lose) compared to when you get older.

About the author

Nicholas Wong is a licensed financial planner and can be contacted at nicholas.wong@ipp.com.my.
February 5, 2021
A Multi-Generational Wealth Manager for HNWIs

For many high-net-worth individuals (HNWIs) in the region, managing and growing their wealth has become ever more complex with the heightened uncertainties and volatility of recent times.

This is especially so given the Covid-19-induced global economic shock, US-China trade tensions, rising geo-political risks and prospect of Black Swan events. This is where the value of family offices and private wealth managers come to the fore in helping these HNWIs strengthen the pillars of their wealth.

And this is a business segment that Affin Hwang Asset Management has seen growth in recent years. In fact, the wealth segment will be a key business focus over the next five years for the asset management firm, which has total assets under administration of RM60 billion as of 30 June 2020.

“With more focus and resources, we can continue to grow this segment in line with Affin Hwang AM’s aspirations to be a distinguished wealth manager in Malaysia and the region,” says Shawn Kong, senior director, Institution, Corporate & High-net-worth individuals (HNWI) Business.

It also sees a transfer of wealth across generations with more millennials becoming high-net-worth individuals in the coming years. In reaching out to this group, Kong says Affin Hwang AM will continue adapting to become “a multi-generational wealth manager” by listening to their needs and growing together with its clients. Here are excerpts of our interview with Kong on the company’s fast-growing private wealth business.

Smart Investor: Wealth structuring whether it’s wealth creation, capital preservation or intergenerational planning has become more complex in light of heightened volatility and black swan events like Covid-19. What is your take on this and how do you think the private wealth landscape has evolved in the new normal?

Shawn Kong: Investments and markets today have evolved. Market cycles are a lot shorter and more volatile, as we saw this year with the pandemic. Interest rates are low and overall economic growth is slow. As such, investment and wealth management has become more complex and challenging.

In a world of complexity, the team at Affin Hwang AM is all for simplifying wealth management to our clients. It is crucial to first understand the objective of the wealth structuring for a person or a family before putting in wealth planning tools or products. Upon understanding the investment objective and risk tolerance, we can then craft a suitable diversified portfolio for our clients.

With heightened volatility, it is essential for clients to first understand the risks of their investment to ensure they are comfortable with the risk they are taking. A litmus test question that I always find helpful would be to ask clients if they are able to sleep at night with the level of risk or volatility that they are taking.

SI: What have your conversations been with private wealth clients and their main concerns today?

SK: As we enter a historically low interest rate environment, our recent conversations with clients have centred around the search for yield. There is renewed interest in fixed income and dividend yielders as investors seek to enhance portfolio yields to beat long-term inflation.

On the other end of the risk spectrum, another common conversation would revolve around the sharp equity recovery since the rout in March due to Covid-19. Many would have felt that they might have missed out on the strong rebound in markets.

A divergence between how well global and regional equity markets have performed due to ample liquidity versus poor economic fundamentals on the ground presents a dilemma for equity investors. Is it too late? Is the rally sustainable? Those are the questions that keep cropping up.

Eventually, our client engagements would lead to crafting a well-diversified core portfolio that would provide long-term exposure to a broad range of asset classes, investment strategies and regions. We would overlay that portfolio with some tactical ideas or strategies to capture shorter-term opportunities. It is also crucial to have an on-going portfolio monitoring and review with clients regularly.

SI: Is there strong appetite for risk including alternative asset classes? How are you guiding asset allocation for your private wealth clients?

SK: Alternative asset classes like private equity, private debt/ mezzanine funding or private real estate can be very attractive diversification opportunities aside from public equity and fixed income.

Private equity will provide clients with the opportunity to participate in the growth of a business in the earlier stage before it goes public, thus enhancing the long-term returns.

On the other hand, private debt or mezzanine funding, which behaves more debt-like instruments, will give recurring income via coupons (typically higher than tradable bonds in the market). The trade-off for these asset classes would be liquidity and usually a longer investment horizon, compared to the public markets.

We would guide our clients to invest into these asset class according to their risk profile and investment horizon. A more aggressive client may have a higher allocation to private equity while a more conservative client would be more suitable to private debt.

It is key to know what t he underlying investment is and to understand the risks as well as how the returns are generated. In the case of investing into private funds, it is also important to understand the style of the manager and their track record.

We have recently provided clients with access to private real estate related deals, from asset-backed securities (ABS) to private REITs; whereby the listing of the asset 3-5 years down the road would give investors a decent total return. All these alternative options provide ways for investors to gain further diversification especially from traditionally listed equities or fixed income that are publicly traded.

SI: We are seeing a massive transfer of wealth across generations with a larger number of millennials becoming high-net-worth individuals. How is Affin Hwang AM adapting to this demographic shift and catering to the needs of a new generation of wealthy investors?

SK: The millennial generation has access to infinite amount of information via technology. How Affin Hwang AM can add value is to make sense of all that information or data to help clients translate them into investment decisions. Digitalisation is also important to enhance their investing experience whether it is portfolio monitoring or smoother execution of transactions.

We have also been running various “future leaders” programmes which include seminars, workshops, study visits and networking sessions to create value for the younger generation of our investor base. Seminar topics range from investment and market updates, wealth preservation concerns as well as leadership and business innovation.

We are mindful of the large transfer of wealth that is going to take place across Asia (Malaysia included) over the next 20 years. Thus, it is imperative that Affin Hwang AM continues to adapt to be a multi-generational wealth manager over time by listening to their needs and growing together with our clients.

SI: What further plans does Affin Hwang AM have to grow its private wealth segment?

SK: This wealth segment is one of our key business focus over the next five years. We have made some encouraging initial progress and growth over the past five years. With more focus and resources, we can continue to grow this segment in line with Affin Hwang AM’s aspirations to be a distinguished wealth manager in Malaysia and the region.

Among our plans is to continually expand our investment offerings and solutions (e.g. asset classes, strategies, regions and currencies) to help our clients achieve optimal diversification in their portfolios.

Within the wider wealth management ecosystem, we can then also build other pillars of our client’s wealth including wealth preservation and distribution. We are also continuously upskilling our people and talents as we grow the team.

Our key proposition as a wealth manager is that we are investment-led, given our roots in asset management as well as client-focus, where we strive to live up to our mantra to always put our client’s interests first.

Our long-term growth and success has been anchored by this singular trust that we have built with our clients over the years.

This article was originally published in the September-October 2020 issue of Smart Investor.

February 2, 2021
3 Tips to Building Your Emergency Fund

In the previous month, I talked about the importance of having an emergency fund. This will put us in a better place to deal with surprises and curveballs in life.

Sometimes, this sounds like a no-brainer as most of us are well aware of this. Yet, according to some statistics published in the media, we are constantly reminded of the dire situation among consumers.

The most infamous one is the Bank Negara Malaysia study that showed 75% of Malaysians would struggle to come up with RM1,000 to deal with unexpected situations.

This is the kind of number that makes me feel frustrated, and sad at the same time.

On one hand, people gladly use this revelation as a ‘sales tool’ to create a need for consumers to buy their financial products.

On the other hand, it does highlight a serious scenario that needs attention. People are finding it hard to save, and worse, deal with any unexpected situation, which we’re almost ‘guaranteed’ to face in life.

As painful as it sounds, I really hope I can play my part to help people build up their savings.

Here are some suggestions that you can use as a guide in your efforts to build up your own emergency fund.

I hope this will help make it easier, and together, we’ll bring down that 75% to a much lower number!

A Ringgit Saved = A Ringgit Earned

Commonly, people tend to say “I will save what I have at the end of the month”.

Just because most people adopt this mindset, it doesn’t mean this is an effective approach. In fact, based on experience, almost everyone that struggles to save money has told themselves this.

The results show that this mindset will only get us limited results.

If you’re a salaried person, have you ever struggled to pay your income tax bill? The answer is most likely “No”. Why do you think this is?

That’s because, before the money even reaches your hand, it’s already been ‘taken out’ and ‘paid’ to where it should go.

If you’re still not convinced, how do you think your EPF account continues to grow in size each year?

While the dividend is a good reason, however, the main reason you see the amount grow is due to the regular contribution, which again, before you can ever touch it, has already been redirected towards your EPF account.

If you want to see a different outcome, from “I can’t save” to “I am saving”, you just have to change the sequence.

Save first, spend the rest. It’s as easy as this!

Where Do You Keep This Money?

Keeping your savings in your salary-receiving account is never a good idea.

A majority of people I’ve interacted with seemed to know this. Some of them who have trouble saving up their emergency fund tend to keep this money in a separate account.

However, this account also tends to be their ‘day-to-day’ account. Perhaps that’s another reason why your savings won’t sit there for long.

We’re creatures of habit, and our basic instinct is wired to spend money.

To build on this instinct, we’re also constantly bombarded by messages, advertisements, and opportunities that induce us to spend and part with our money. This eventually creates an inevitable outcome, which is helping us to spend.

For what it’s worth, do note that there’s nothing wrong with keeping your emergency savings in your day-to-day account. It’s just that it increases the likelihood for the money to leave you.

For example, in the middle of last month, I saw my day-to-day account still had about RM4,000.

This immediately made me feel excited knowing I still have RM4,000 to spend for the next two weeks.

However, when I checked my credit card used for the past 2 weeks, I noted that the balance has already built up to about RM2,000+.

This instantly means my real spending amount is not RM4,000 (although the money is there), but just the leftover after paying off my credit card.

This is what is likely to happen to emergency savings if mixed with your day-to-day account. And since emergency savings are so important, you should avoid this possibility at all costs.

In general, an ideal place to keep this money will be a place where we don’t have to worry about the value of the money.

This means it shouldn’t be placed in accounts or asset classes that tend to be volatile. The idea is for it to be easily accessible anytime we need it, and as soon as possible.

How Much Do I Need to Save?

While there are plenty of guides or rules of thumb offering answers to this question, please note that you can actually determine this.

You don’t have to let existing guides tell you how much you need to save up.

Have you ever tried travelling to the moon? I can confidently ‘predict’ that most of you haven’t or even thought about doing this.

For things that you don’t think is possible, chances are you’ll never even bother trying to do it.

Another common situation I tend to encounter often is that people ‘plan’ to save a huge amount, or when they apply the rule of thumb, the projected amount made them feel hopeless.

This feeling ends up making them feel defeated, resulting in them giving up trying. To them, this amount is like travelling to the moon!

When it comes to emergencies, we can never predict what will happen, hence it’s impossible to predict how much we’ll need.

Therefore, you can aim for emergency savings as low as RM1,000. Even RM50 can be crucial. Imagine someone without any savings, who one day needed to go to the clinic to get a consultation for a fever. To them, RM50 is a huge deal.

So, if you’re low on your emergency savings, don’t despair. Start saving up in small amounts. It’ll be better than when you haven’t set aside this small amount that doesn’t seem to matter now.

When you’ve built enough momentum and have a small fund, start to make it a goal to save up for one month of your expenses, then three months, then six months, then a year or more.

Just like collecting water in a tank, you must ensure you store as much as possible and refill it to the maximum level each time you use it up when there’s a water disruption.

If you have to dip your hand into this pot in between, make it a point to refill it.

About the author

Kevin Neoh is a NextGen Money Coach and can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.

January 29, 2021
Should I Pay Off My Car Loan Early?

Pre-payment of a loan is the payment of the outstanding loan amount before it becomes due. This usually comes in the form of a car loan.

For example, if you have a house loan for 35 years, you can opt to pay off the remaining balance at year 10 and free yourself from the monthly repayment from year 11 onwards.

The way I see it, loans when used correctly can be very powerful, but when abused / ignorant it will be destructive.

Today, I want to take an objective angle on this – backed with numbers, of course. Before answering the question “Should I settle my loan early?”, I want to highlight a term.

Opportunity Cost

This often comes up in the subject of finance and economics. In truth, you experience this in our lives daily. Opportunity cost refers to the loss of something when you choose one option over the other.

If you snooze your alarm, you lose 10 minutes of being awake for the benefit of 10 more minutes of sleep/rest.

When you choose to drive to work, it takes 30 minutes of focus on the road vs paying RM10 for 30 minutes of free time in a cab. Spending RM5,000 on a new phone takes RM5,000 away from other things like investment, a holiday to Thailand, a laptop for work, etc.

Investing in stock A means less/no cash to invest in other companies.

You will always face the question of “what is the opportunity cost” when you make choices. And you make lots of choices every day, though some are more obvious than others.

Loans and prepayments present a very relevant opportunity cost issue – interest rates.

Interest Rates

Fixed Rates

Fixed interest rates are not affected by the changes in the market and will remain the same throughout the tenure of the loan.

Variable/Floating Rates

Variable interest rates are tied to and will change in accordance with the market reference rate – this usually means the change of the overnight policy rates (OPR) in Malaysia or “prime/base rates”.

Structure – Flat

A flat interest rate structure calculates the interest rates based on the original loan amount regardless of how much principal has been paid down.

Structure – Reducing Balance

Reducing balance calculates the interest rate payable based on the amount of principal outstanding.

The interest portion of the loan instalment reduces (and the principal portion increases) every month because the principal is being paid down in each instalment.

Structure (TRAP) – Rule of 78

This is commonly found in cars and personal loans. In short, you pay most of your interest rates at the start of the loan as opposed to evenly distributing across the loan tenure.

Yes, this means that if you prepay at a later stage of the loan tenure, there are not much interest savings because you would have paid up most of our interest portion by then.

You can read up about the rule of 78 by doing your own research, but be warned that you might get upset once you discover how some bank loans work!

4 Horsemen of Loans for Individuals

I’ll approach this section on four fronts – interest rate type, loan structure, interest rate and prepayment opportunity cost.

1. House Loan

Interest Rate Type: Commonly variable / floating

Loan Structure: Reducing balance

Interest Rate: Base Lending Rate minus 2.5% (Averages around 3.3% as of now)

Opportunity Cost: A house loan is typically quite a big sum.

Hence, to prepay it involves coughing out big money! This will forgo a lot of other purchases/investment opportunities that may generate income more than the 3% – 5% interest rate (floating rate) paid here.

Verdict: Given the interest rate that we are paying and the reducing balance interest rate, it is better to use the capital to invest in assets that can generate returns beyond 5%, including ASB / ASM, REITS, etc.

On top of that, if it’s an investment property that is generating rental income, then is the monthly instalment actually still an issue?

2. Car Loan

Interest Rate Type: Fixed

Loan Structure: Flat + Rule of 78 Trap

Interest Rate: 2.9% – 3.3% (Effective Interest Rate is 5.5% – 6.2%)

Opportunity Cost: The amount of interest savings from prepayment depends on when we prepay. The earlier we prepay -> The more interest we save -> But the more capital we need.

Prepaying early would require bigger capital, hence losing out on investment returns. Prepaying later would be sacrificing investment returns for not many savings in interest payment.

Verdict: Given the nature of the Rule of 78 and the EIR of about 6%, we have screwed all ways.

It’s highly likely not worth it to prepay since the interest savings would not be much a few years down the loan tenure.

The capital can be better used to invest in assets that can generate higher returns than the interest rate and compound the returns from such investments.

If you want to prepay very early in the loan, you might as well buy the car in cash!

3. Personal Loan

Interest Rate Type: Fixed

Loan Structure: Flat + Rule of 78 Trap

Interest Rate: 4% – 7% (Effective Interest Rate is 7.5% – 13.5%)

Opportunity Cost: Forgo investment returns on the prepayment capital in exchange for saving effectively 7.5% – 13.5% interest charges annually. But again, this is subject to the Rule of 78 issues, similar to the car loan.

Verdict: Given the high EIR, it’s highly likely that prepayment is a better choice to avoid serving an extended loan.

I suggest using a loan settlement calculator to see how much you would save, before deciding whether your capital is better used to prepay or to invest and generate higher returns.

4. Credit Card Loan

Interest Rate Type: Fixed

Loan Structure: Special as it is based on your last month’s outstanding amount but with an interest that is compounded daily – read more on iMoney for the exact details

Interest Rate: 15% – 18% tiered and compounded daily effectively making it up to 20%

Opportunity Cost: Forgo investment returns on the prepayment capital in exchange for saving up to 20% interest charges annually.

Verdict: I’ve said before that I love using credit cards compared to other payment methods.

However, as a loan, it’s ridiculous due to the way the interest is structured as well as the exorbitant interest rates.

If you don’t pay your credit card loan ASAP, you’d incur the interest rate wrath of up to 20% effectively (due to the daily compounding).

I don’t know any investments out there that provide more than 20% returns consistently, so I won’t hesitate to prepay this in full today. In my opinion, avoid getting into this loan in the first place!

The Ultimate Opportunity Cost

So, should I settle my loan early? To answer this question – it depends on what your opportunity cost is when you choose to prepay.

In my choices above, I won’t prepay if I can use the capital to generate higher returns elsewhere compared to the interest rate that I am paying for.

The ultimate opportunity cost here is this – getting a loan allows you to use less capital to acquire an asset in exchange for paying an “interest rate”.

If I have RM100,000, I can use RM10,000 to pay for the downpayment of a house worth RM100,000.

I could borrow RM90,000 with an interest rate of 3%, but use this RM90,000 to invest into a REIT that pays out 5% dividend yield.

From this 5% return, I pay the loan of 3% and I still have 2% in returns that I can reinvest to get more returns.

Essentially, I own a house with RM10,000, and RM90,000 worth of REIT shares and generate a net return of 2% on the RM90,000, which will be compounded.

And this is without renting out the property. It’s a simple example, but it showcases the power of using loans the right way.

The other option is using RM100,000 to buy the house in cash. I now have a house and no cash or extra investments. Are you seeing what I see?

About the Author

This article was originally published at betweenthemoney.com, a personal finance website by Jason Loh that focuses on money matters and investment topics for Malaysians.

January 27, 2021
What are The Many Benefits of E-Wallets in Malaysia?
“What is your preferred method to make your payment?”

“We accept cash, cards and e-wallets.”

“For e-wallet, we accept Boost, GrabPay, Touch ‘n Go…”

Does this sound familiar to you? This tedious decision can be quite a challenge for those who are indecisive. However, this is a common scenario these days; we’re never short of payment methods although we may be short of funds! Undoubtedly, the rise of e-wallets has given impetus to the evolution of our spending habits.

Most Popular E-Wallets in Malaysia

With the help of the government, many are adopting e-wallets through subsidies like e-Tunai and e-Penjana. The three most popular e-wallets in Malaysia are Boost, GrabPay and Touch ‘n Go.

Boost
- Backed by Axiata Group
- One of the pioneers in the Malaysian e-wallet market
- Accepted at any UnionPay QR merchants
- BoostUp Reward Programme and CashUp Cashback Programme
GrabPay
- Backed by Grab
- Leverages the Grab Ecosystem for GrabFood, GrabRide and other provided services
- Partnership with Maybank for cross platform use
- Earn GrabRewards Points from every transaction
Touch ‘n Go e-Wallet
- Backed by Alipay and Touch ‘n Go
- Taps into the large existing user base of Touch ‘n Go cards
- PayDirect: link your Touch ‘n Go Card and pay toll fare directly with your e-wallet balance at participating highways
- Money-back guarantee: full refund within five working days if your e-wallet is charged erroneously
Irresistible Benefits

1. Convenience & safety

What is the first thing you take when you head out? Your wallet or phone? Frankly speaking, I will often forget my wallet, but never my phone. We heavily rely on smartphones today and with the high adoption of e-wallets among merchants, we can easily make payments without cash on hand. Besides, I think everyone has faced the awkward situation of having to squeeze the notes and “syiling” back into your wallet after receiving your change. With an e-wallet, problem solved!

The safety of digital payments is also a concern for some, but data in the e-wallets are encrypted and some providers even provide money back guarantee features to ensure the safety of using their services. It can be also argued that e-wallets have helped to reduce theft cases, which usually occurs with physical cash!

2. A hassle-free spending tracker

Do you always get shocked when checking your bank balance? Clueless on where the money has gone? You can easily check your e-wallet where all transactions made are recorded. Gone are the days of forgetting where you spent your money. Keeping track of your daily spending is crucial to cultivating good financial habits. This provides an overview of your spending patterns and insight as to where you could improve.

3. Promotions and rewards

While having many e-wallets has been confusing for some, the war to acquire users has been beneficial for us consumers. All e-wallets offer their own rewards, and it’s up to you to make the most of it:
- Boost allows you to earn BoostUp coins with every transaction and exchange for gifts
- GrabRewards Points comes with an extendable validity feature which technically makes it technically a “never expiring” points system (every point-earning transaction will extend the expiry date of your GrabRewards points till the last day of the 3rd month)
- Touch n’ Go e-wallet rewards frequent user with cashback vouchers for selected merchants
All the e-wallet players partner with various merchants to provide attractive promotions to users in a bid to increase their market share. So look out for where you can save and earn through regular activities like refueling your car, buying groceries or even reloading your mobile credit. But please don’t use these promotions as an excuse to spend more than you need to!

4. Your one-stop “private assistant”

Paying your utility bills? Use e-wallet!

Topping up your mobile credit? Use e-wallet!

Sending money to your spouse? Use e-wallet!

The utility of e-wallets is increasing by the day, and are no longer just avenues for sending or receiving money. Many can be used to pay for your parking, buy insurance, settling utility bills and more! There will be definitely more that an e-wallet can do in the near future!

Curbing Your Digital Spending?

For some, e-wallets or digital payments makes it easy to overspend with its convenience. Compared to counting out physical cash notes by hand, a big purchase simply requires a scan or swipe. Credit cards already made it easy to spend in the past, so the focus should not be on blaming such platforms, but rather on what you can control in terms of your spending habits:

1. Set a monthly top-up limit

To avoid overspending, you must know how much you have. For example, if your spending budget is set at RM500, only reload RM500 into your e-wallet and make sure it lasts the whole month! If you’re out of credit before the month is over, you’ll know you need to fix your spending habits. Don’t top-up until next month as a reminder to stick to your budget!

2. Only reload with your bank account or debit card

I understand many will argue that we should optimise rewards on both ends by reloading e-wallets with credit cards. However, from a licensed financial planner’s perspective, this is not necessarily suitable for beginners who have just started to learn how to manage their spending. Only use this option when you are confident about your financial planning. If not, please don’t borrow money from your credit card to support your e-wallet spending habits!

About the Author

Ocean Pon is a Licensed Financial Planner and likes to help millennials make wiser financial decisions to achieve financial independence. He can be contacted at oceanpon@finwealth.com.my.
January 25, 2021
How To Check And Claim Unclaimed Money in Malaysia Online
In 2019, the sum of money NOT being claimed by Malaysians was reportedly over RM10 billion, which is quite a sizeable amount! According to the news article, the Accountant-General’s Department (AGD) wanted to help Malaysians check the status of their unclaimed monies, leading to the development of an online system for this purpose.

Previously, to check whether you have any unclaimed monies (eg. from tax relief), you’ll need to queue up without knowing if you even have any unclaimed money! However, earlier in 2020, the AGD’s eGUMIS portal went live and it was a significant improvement for people wanting to check whether they had any unclaimed monies.

Despite this breakthrough, if you wanted to claim the money, you were still required to pay a visit to the AGD’s office to submit a physical form (Borang Permohonan Bayaran Balik WTD “UMA-7”).

I remembered I had a small sum of money unclaimed, but due to the trouble and since the amount was not significant, I procrastinated and left the money unclaimed, on purpose. Towards the end of 2020, I read an article on The Star that stated the government could consider using unclaimed monies as a “source of revenue” – this triggered me to check my unclaimed money again.

I was asked to create an account again as my account had expired after six months of inactivity. As I registered for another account, I realised that the user interface had changed and the more I explored, the more I realised that eGUMIS now allowed us to submit forms online.

My step-by step experience of claiming my unclaimed monies is outlined below, and be sure to read till the end as I will also explain how to overcome a certain bug (as of 28 November 2020) in the system:

Step 1: Register For a New Account

First, head over to this link to register for a new account. Then click on ‘Registration’ in the top right corner as per the screenshot below to get started.

Note: You may first need to change the default language to English, or you may proceed in Bahasa Melayu.

You may then fill in the form to register your new account.

Your account will be deactivated after six months of inactivity, so if you have previously registered and have not logged in for the past six months, you’ll need to register for a new account.

Step 2: Update your Profile

Next, update your profile. Make sure to fill up all the boxes that is marked as compulsory (*).

Step 3: Check for Unclaimed Monies

Click on “Search for Unclaimed Moneys” and enter your Identification Number into the provided space. If you have any unclaimed money, it will show up in the search result.

I also helped my parents check their unclaimed money through my account. However, I’m not sure if I can actually process the claims using my account, so to be on the safe side, I registered new accounts for them to help them claim their money.

Do note that you can only check a maximum of two IDs per day.

Step 4: Application Form

If you have any unclaimed money, here is what you need to do to claim it:

Don’t click anything other than the following two steps. As the system doesn’t save your search results, if you use up your quota of two searches per day, you have to wait for the next day to proceed to the next step.

Select the “check all” box, as I assume everyone wants to claim all their unclaimed monies.

Select the “Proceed to Application” box.

Step 4.5: (Workaround) Bug in the System

In my experience, for some reason, there is a bug in the English version of eGUMIS which prevented me from proceeding to the next step. I’ll save your time without boring you with the details; here’s the work around:

Visit this link and under “Semakan” click “Log Masuk”. This is the Bahasa Malaysia version of eGUMIS.

Step 5: Enter Payee Information

This screenshot was taken in the English version. In the Bahasa Malaysia version, “Tambah Penerima” is also located in the same position.

Once you click on “Tambah Penerima” (Payee), a pop-up will appear and you’ll need to fill in your particulars and bank account number accordingly.

After you’ve saved the Payee details, check the two boxes below and click on the “Hantar” button.

Step 6: Almost there

Once you’ve completed your application, you should receive an email by the AGD. To complete the claim, you are required to submit:
- A copy of your ID (IC / passport / company certificate)
- Bank statement (from the same bank that you entered in the Payee column).
Submit the above document to permohonan_wtd@anm.gov.my with the application number as the email subject.

(Please be reminded that each email cannot exceed 15MB.)

Final Thoughts

Even though there’s no time limit as to when you can claim your money, it’s better to claim it as soon as possible. This is because the Registrar of Unclaimed Money doesn’t pay any interest on the money claimed while your money can be invested elsewhere to generate a return.

One common reason why money remains unclaimed is because the legal beneficiaries don’t know about the money after the owner passes away. This is especially true if the owner dies unexpectedly. Therefore, it’s good to have a simple will (at the very least) to avoid this scenario.

Don’t stop at checking your own account; if you have elderly parents or family members, do help them to check as well.

However, please be reminded that the Ministry of Finance or the Registrar of Unclaimed Money doesn’t appoint any individual/firm/company as agents for the refund of unclaimed monies. Be extra careful if anyone claims that they can help you claim the money.

This article was originally published at planNERD.

About the Author

Marshall Wong is a licensed financial planner and can be contacted through his website or marshallwong@fa.my.
January 22, 2021
What Is Financial Abuse?
Are You Being Financially Abused? What Is Financial Abuse?

Abuse comes in many forms and one of it is financial abuse. In a marriage, money is usually co-owned but in many cases, the husband may control every aspect of finances and the wife doesn’t have access to it.

If she needs to ask for money, the assumption is that she doesn’t have any access to the bank accounts.

This can be the case in many situations, especially if the husband is the sole breadwinner in the family, with his income going directly into a bank account that only he can access and control.

In some instances, the wife won’t have her name on it and will need to ask for money in order to purchase basic household items.

Other than the fact that she’s in a very dangerous position if anything happens to the husband, the marriage is built on the principle that he is above her in terms of finances.

He makes all the financial decisions, and then decides if he wants her input while she has no control over it because she has no access to the money.

From the beginning, if a marriage is built on the basis that money is “his”, and he’s doing her a favour by letting her have some of it, this is not acceptable in today’s climate.

Marriage is for two people to come together as one flesh and a partnership, not for one to be fully dependent on the other.

If your partner is denying you access to finances and is treating it like it’s only “your” money instead of the marriage’s money, that can be categorised as financial abuse.

Money as a Method of Control

The partner often uses money as a weapon to maintain control in the relationship.

Your partner may assure you that they have it all covered, but the reality is that he or she is restraining you of your rights and potentially robbing you of your freedom.

Financial abuse in a relationship is often hard to identify considering that the abuse is embedded with complex beliefs and social norms, so it can often go unrecognised by the person experiencing this.

This robs the woman’s or man’s right to acquire and maintain economic resources, threatening their financial security and pushing them to not be self-sufficient.

Types of Financial Abuse
1. The controllers – This person uses a combination of abusive behaviours to exert their power over their family
2. The exploiters – This person takes all responsibility and also uses all kinds of abuse to financially exploit their partner for their own needs
3. The schemers – They have a specific plan in place to steal their partner’s financial resources and leave
Research has shown that the traditional stereotypes and attitudes toward gender roles and attitudes make grounds for controlling, exploitative and abusive behaviours regarding finances.

In most cases, women trust their partner to act in the best interest of their family.

However, their judgment is often clouded by the belief that their partner knows what’s best for the relationship, resulting in them fully relinquishing all financial responsibility to the abusive partner.

It Doesn’t Get Easier After the Separation

If the partner decides to leave the abusive marriage, it doesn’t mean that the effects of the abuse stops.

Studies have shown that their income decreases further and suffers more after leaving their marriage, in addition to being impacted psychologically, whereby they experience a loss of confidence, guilt and also shame.

“Each year, more women are touched by domestic violence than breast cancer, ovarian cancer, and lung cancer combined.”

– Purple Purse, Allstate Foundation

How Do I Get Out of a Financially Abusive Relationship?

Most of the time, people tend to feel trapped in their position. They stay in an unhappy marriage or relationship out of fear that they can’t afford to feed, clothe and house their children, as a result of having no idea about their partner’s income, or even the assets and debts in their name.

The first step to move on is to understand and believe that there are ways to leave this financial abuse in the past.

It’s so important that you’re mentally prepared and have decided that you’ll do whatever it takes to leave this toxic relationship for that light at the end of this tunnel.

Step two is to gather all the information about your finances. Every single detail is needed to take the first steps towards regaining your power.

The last step is to start planning out your new financial life. Write down all your hopes and dreams for yourself and your future. Think of realistic ways for you to take steps towards achieving your financial dream.

The journey is a long one. It’ll be tough psychologically, physically and financially but the earlier you take the necessary steps to gain control of your finances, the better the chances are of you determining your own financial future.

About the Author

Nurul Yahi is a financial enthusiast and you can find her at dearduit.com. You can also find Nurul on Twitter, Instagram and Facebook.
January 20, 2021
All You Need to Know About the PERMAI Assistance Package 2021
In 2020, the Malaysian Government announced four stimulus packages worth RM305 billion to keep the economy running against the backdrop of a global pandemic. Coupled with the initiatives under Budget 2021, it was hoped that 2021 would be a year of swift economic recovery given Malaysia’s past success in managing the Covid-19 outbreak. However, record high cases and widespread community infection had necessitated the re-imposition of the Movement Control Order (MCO 2.0) and a declaration of a National Emergency, the first of its kind for the country in this century.

In response to these new developments, the Malaysian Government has announced the PERMAI Assistance Package worth RM15 bil. This round of economic assistance aims to at provide vital support to businesses and the general public who may be affected by MCO 2.0. Continued cash assistance to selected groups, improvements in the i-Sinar program, tax reliefs for screening and detection, and loan moratorium extensions stand out as key policy announcements to help uplift the ailing Malaysian economy amid this crisis.

Despite many hoping that 2021 would see a return to “business-as-usual” practices, it seems that greater uncertainties now lie ahead. For now, the only thing that remains certain is that economic challenges remain and may only abate once global vaccine rollouts have reached optimum levels. In the meantime, taxpayers are faced with further economic uncertainties along with questions as to how these initiatives will help them weather this storm.

Key Highlights at a Glance

The focus is on the extension and enhancement of existing schemes that were introduced in 2020, including various tax exemptions and relief, cash assistance. This includes bringing forward the final payment of the Bantuan Prihatin Nasional (BPN 2.0) to 21 January 2021, while households earning up to RM5,000 per month will receive RM300 each, with single individuals earning up to RM2,000 per month receiving RM150 as the first instalment payment under phase one of Bantuan Prihatin Rakyat (BPR) scheme.

Other highlights include:
- Expansion of tax relief for full health screening expenses, increased from RM500 to RM1,000 under Budget 2021, to cover COVID-19 screening.
- The period of claiming special deduction on rental discounts given by landlords of private business premises to Small and Medium Enterprises (SME) is extended to 30 June 2021 and the deduction is expanded to include rental reduction given to non-SMEs.
- The period of claiming the special tax relief of up to RM2,500 on the purchase of mobile phones, computers and tablets is extended to 31 December 2021.
- The period of full Sales Tax exemption for purchase of locally assembled cars and 50% exemption of Sales Tax for purchase of imported passenger cars is extended to 30 June 2021.
- Enhancement and extension of the Wage Subsidy Programme for a further period of 1 month with subsidy of RM600 per employee per month for all eligible employers operating in the states affected by the Movement Control Order (MCO).
- Relaxation of the condition for Excise Duty and Sales Tax exemption on the disposal of taxi owned more than a period of 7 years to 5 years.
- Extension of the effective period of inability to perform contractual obligations under the Temporary Measures for Reducing the Impact of COVID-19 Act 2020 to 31 March 2021.
Image from crowe.com/my

Employers and Businesses

In a bid to curb an economic recession, the government has pledged to continue schemes that aim to distribute funds, speed up processes and delay loans. Discounts have also been promised for essential services, with an electricity rebate to all Tenaga Nasional Berhad (TNB) users at a rate of 2 sen per kilowatt-hour from 1 January 2021 to 30 June 2021. Six business sectors will also receive 10% off on their electricity bills from January to March 2021, comprising of hotel operators, theme parks, convention centres, shopping malls, local airline offices as well as travel and tour agencies.

Other highlights include:
- Moratorium on MARA loans will be given until 31 March 2021 and MARA will provide a 30% rental discount on business premises for 6 months from November 2020 to April 2021.
- A guarantee of RM1 billion is given for the Bus and Taxi Hire Purchase Rehabilitation Scheme where a 50% guarantee on financing from hire purchase and leasing companies will be provided for selected buses such as sightseeing buses, and taxis.
- The implementation of microcredit schemes to micro-enterprises and SMEs that had been announced previously will be expedited.
- One-off financial assistance of RM500 will be given to tourist guides, drivers of taxis, school buses, tour buses, rental cars and e-hailing vehicles.
- An allocation of RM300 million is provided to accelerate the implementation of the SME and Micro SME e-Commerce Campaign and Shop Malaysia Online campaign.
- Enhancement of the Danajamin PRIHATIN Guarantee Scheme with the maximum financing limit increased to RM1 billion and the scope of financing expanded to include working capital with a guarantee period of up to 10 years. The scheme is also now open to foreign-owned companies operating in Malaysia as long as Malaysians make up at least 75% of their workforce.
- The conditions for the Employment Insurance Scheme program will be relaxed for those who lost their jobs during the enforcement of the MCO.
- An allocation of RM24 million is provided to fund the full contribution under SOCSO’s Self-Employment Social Security Scheme for delivery riders.
- An additional allocation of RM650 million is given for the expansion of the Prihatin Special Grant Plus assistance to cover 500,000 SMEs in the 7 MCO states with a payment of RM1,000 each, while 300,000 SMEs in other states will receive RM500 each.
People

For citizens, the various allocations are aimed at sustaining the general population, especially those in the B40 and M40 categories, with a focus on essential goods and services that aim to tide them through this trying period of time. RM50 mil will be allocated to the Food Basket Program, which will provide essential food items worth RM100 for each eligible household, while the Employees Provident Fund (EPF) will advance RM1,000 from the amount applied under the i-Sinar Category 2 facility.

Other highlights include:
- The free internet connectivity of 1Gb per day initiative will be extended until the end of April 2021.
- A matching grant with government-linked companies of RM25 million is allocated under the GLIC/GLC Disaster Relief Network for the provision of community assistance to the elderly, homeless, disabled and flood victims.
- Electricity rebates to all TNB users, both domestic and non-domestic at a rate of two sen per kilowatt-hour, which is equivalent to a reduction in electricity bills of up to 9% for a period of 6 months, from Jan 1 to June 30, 2021
- Moratorium facility including extension of the moratorium and restructuring of loan repayment will continue to be offered by banks.
- PTPTN borrowers affected by the pandemic or floods can apply for a 3-month PTPTN loan repayment moratorium and application for this moratorium can be made until 31 March 2021.
Healthcare Initiatives

There are several initiatives being extended to frontliners who are tirelessly serving the nation, with funds allocated to healthcare services and personnel in a bid to ensure that the fight against Covid-19 will continue. A one-off payment of RM500 to healthcare frontliners and RM300 to other frontliners will be paid in the first quarter of this year, while the existing special monthly allowance of RM600 to healthcare frontliners and RM200 to other frontliners will continue until the COVID-19 pandemic is over.

Other highlights include:
- An additional 3,500 healthcare personnel will be recruited at the end of January 2021 with an allocation of RM150 million.
- An allocation of RM1 billion will be provided to the Ministry of Health, National Security Council and other relevant agencies for supplies specifically for the healthcare frontliners.
- An allocation of RM100 million is dedicated for private hospitals to treat Covid-19 and non-Covid-19 patients.
- RM3 billion is allocated for the Covid-19 National Immunisation Programme.
Accelerating the Bantuan Prihatin Rakyat (BPR) Assistance

Bantuan Prihatin National (BPN) 2.0 was introduced by the Government in a special announcement under Kita Prihatin on 23 September 2020. Currently, the amount of assistance channelled under BPN 2.0 is as follows:
- B40 households – RM1,000
- B40 single individuals – RM500
- M40 households – RM600
- M40 single individuals – RM300
- The BPN 2.0 payment will be made in two instalments. The first instalment payment was made on 26 October 2020 and the second instalment is expected to be paid in January 2021.
A similar scheme known as the Bantuan Prihatin Rakyat (BPR) was introduced by the Government in the Budget 2021 to replace the previous Bantuan Sara Hidup. However, information on this payment scheme was not made available during the Budget 2021 announcement. It is proposed that the second instalment payment of the BPN 2.0 will start from 21 January 2021 onwards, but there was no mention on the payment date for BPR.

Click here to read the full special report from Crowe Malaysia.

By Crowe Malaysia
January 19, 2021
Asia-Pacific REITs: Past, Present and Future

Despite a volatile and unpredictable 2020, it is always important to remember why investors choose to invest in REITs. While they certainly can offer the possibility for price appreciation (or depreciation), stable and predictable income payouts through dividends has been the main historical source of return.

Chart 1: AP REITs historical payout

Annual total returns of Asia ex-Japan REITs (2010 –2020 YTD)

Indeed, over the past 10 years, AP REITs have provided, on average, a 6.8% annualised return; roughly 5% of the total return came from dividend payouts. To put this dividend yield in perspective, Asia (ex-Japan) equity markets offered, on average, a 5.4% total return, with only 2.4% coming from dividends over the same time period.

Despite the notable challenges of the past year, from another perspective, AP REITs historical yield is also attractive in the current “lower for longer” interest rate environment. As Chart 2 shows, developed markets’ sovereign bond yields have steadily declined since December 2015.

In some developed markets, bond yields have even turned negative, with the current level of negative-yielding debt instruments near US$18 trillion and expected to climb even further in the near-term.

Chart 2: Negative yielding bonds

Developed market 10-year government bonds yields

Negative-yielding debts size mounted

While the lower for longer interest rate environment is a headwind for many fixed income segments, it is supportive for REITs due to lower borrowing costs.

Despite these traditional strengths, 2020 was indeed a challenging year for REITs globally as well as Asia, as the economic impact of the COVID-19 pandemic called into the question the asset class’s predictable history of dividend payout.

The Past: Early 2020

The global outbreak of COVID-19 had a varying impact across the sub-sectors of real estate, but initially led many to question the viability of dividend pay-outs in a worsening environment. The worst hit sector globally was retail as a result of national lockdowns and social distancing requirements.

In contrast, industrial/specialised real estate assets continued to generate stable cashflows and high-income visibility, as the acceleration in e-commerce trends led to stronger demand in warehousing and logistics facilities.

Many segments of AP REITs have gradually recovered from the economic shock due to unprecedented monetary and fiscal policy measures. Policy responses from governments such as Singapore and Australia have helped save jobs and companies, with some packages totalling up to 20% of GDP.

At the same time, central banks across the region have slashed rates, with the Reserve Bank of Australia starting quantitative easing for the first time in 2020.

The Present: End of 2020

The top priority across all landlords and REITs managers has been to ensure high cleaning/maintenance standards, temperature checks to ensure safety for all their tenants and instil confidence for people to visit their facilities. The pandemic has brought about unprecedented economic impact and all stakeholders in one form or another must bear some pain from it.

Landlords for commercial assets in Singapore and Australia are mandated to provide rental holidays for tenants who were badly affected by the loss of sales/income. landlords have also offered help in terms of rental commissions, waiver of management fees, lease restructuring to tide tenants through the difficult period.

We saw suburban retail landlords have also accelerated their digital marketing plans to help their tenants to sell their products online or food delivery services for their food and beverage tenants, with more people working from home, these suburban malls have ramped out digital offering to capture the sales in their neighbourhood.

The Future: 2021

Moving into 2021, we envisage the macroeconomic backdrop should gradually improve across the region, with significant dispersion in economic growth across the region. Despite the economic rebound, we expect that the low interest rate environment should remain a strong tailwind for the asset class. The low cost of borrowing continues to underpin healthy demand in trophy assets across Asia.

Our base case scenario is that key markets like Singapore, Hong Kong, and Australia should not enter into national lockdowns given policy learnings and experiences. The positive newsbytes on vaccines successes could restore confidence in consumer and corporate spending in 2021.

Retail landlords should enjoy recovery in cashflows given the low base in 2020 (high rental reliefs) and industrial REITs remain stable with growth boosted from accretive acquisitions.

Based on this base case and favourable macro backdrop, the outlook for yields of AP REITs should remain attractive next year (see Chart 3). Forecasted yield for AP REITs is approximately 5.1% compared to a 2.1% yield for Asian equities. In our view, this payout is expected to remain stable over the long-term, largely due to the strength of the asset class and improved economic conditions.

Chart 3: AP REITs offer attractive forward yield

Conclusion

In our view, the main attraction of AP REITs as an asset class is the stable, sustainable payout of dividends to investors. While this assumption was challenged in early 2020, the response by governments and central banks helped to stabilise the real estate sector. Moving into 2021, we believe an improving economic outlook and continued low interest rates should be beneficial for the asset class.

January 18, 2021