Category: Investments

“Wen lambo?” or “Wen moon” are just some of the phrases that is quite common in the crypto world. It is a way to ask crypto investors on when they are going to get rich with their crypto investment. The misspelling looks cool in a way, but investment is actually serious business.

Crypto investment is considered to be a very high risk investment with a very high potential return, the question is do you really want to invest your hard-earned money into it?

Fancy yourself a return of 16,000% per year? It is possible with crypto investment, in fact there were two cryptos that managed to achieve this staggering return on crypto investment in 2021.

Imagine putting in RM100 in 1st January 2021, your crypto investment would be worth RM16,365 by 31st December 2021. Now imagine investing RM1,000, by the end of the year the crypto investment in The Sandbox will be worth RM163,653.

Sounds too good to be true, right? But that is what happened last year.

99.99% Loss In 2 Days

On 9th May 2022, the whole world was shocked when Luna comes crashing down – losing 99.99% percent of its value in just 48 hours. Who would have thought that Luna was once a top 10 cryptocurrency in terms of market capitalisation, would be brought down to its knees in a way that was unimaginable.

Well, that’s crypto for you. You can make big money, and you can also lose it all. We managed to talk to a few financial planners for their advise on crypto investment.

“I won’t advise my clients to invest into crypto investment unless they are higher risk investor and I see they are matured enough for this type of investment. Normally even if they are, we would work out a small portion of their assets or net worth to be invested in alternative investments, which is not more than 10%,” says Ng Ka Hoe, Founder of J Advisory, a personal finance academy.

Before You Start Investing In Crypto

According to Ka Hoe, he would ensure that his clients understand the following before embarking on their crypto investment:

• What are the alternative investments’ underlying assets?
• What are the risk involved?
• Have they invested into traditional investments such as property, stocks and unit trusts? If they haven’t, why not?

It is important not only for the financial planner to understand what makes their client’s emotional ticks, but it is more important for the client
themselves to know and understand their own emotions, as it is truly the investor’s emotions that makes or breaks their investment.

Don’t Go All In With Crypto

Essentially, crypto assets are assets that are non-income generating but more for the crypto investment objective for capital gain. While it is undeniable that crypto currency has helped make many new millionaires, for this wealth to be sustained into the future, one may want to explore how this new wealth can be protected or kept, so that even if the value of the asset class reverses its course, this person will not be knocked back to the ‘pre-crypto’ life.

“Of course, it is perfectly fine if we remain having 100% of our wealth be invested in crypto assets. However, that will also mean we tie our future
financial health and possibility in life to a single asset class,” opines Kevin Neoh, a licensed financial planner and NextGen Money Coach.

Don’t Invest In Crypto

Meanwhile there are also opinions on the other side of the fence that warns against investing in crypto.

“Ask yourself when it comes to crypto, are you investing, trading, speculating or gambling?” says John Chan, CEO of YES Financial, a financial advisory firm.

Apparently, we ourselves are confused with the terms. Trading or investing in crypto may incur a significant level of risk, even worse if you are using an unregulated or an unlicensed platform.

Conventionally, when a person is betting on horse racing, they will tell you all sorts of stories and logic with regards to horse riding. When a person is speculating on crypto, they may tell you all kinds of fintech and futuristic tech stories about blockchain or even the recent hot topic of Metaverse and NFTs to push up prices.

In conventional gambling, there are licensed casino and the underground operators. Why do some governments grant casino a license? The most common reasons are due to profit making, demand and the need to safeguard public interest through monitoring and control.

The Myth Behind Decentralisation

Everyone wants to have freedom, and nobody likes to be controlled. Some level of freedom is good but it would be a disaster if there is absolute freedom.

Imagine that you are living in a place with no government in power What would be the scenario?

“When there is no effective government, there are bound to be warlords or mafias controlling the area. Is it a safe place to stay then?” mentions John.

Instead, there would be chaos all over as everyone will be fighting for power.

Scarcity, Really?

Bitcoin is called Digital Gold as there is a maximum supply of 21 million Bitcoins. This means that Bitcoin has a unique feature of scarcity. This is
where people seem to illustrate the scarcity of Bitcoin to Gold, as there is a limited supply of Gold available on our planet.

However, gold exist and play its role in civilization since ancient times as precious metal, jewelleries, commodity, storage of value, medium of transfer, barter trade, technology components, currencies etc. It is kept by government and central banks as reserves.

“Gold is a natural resources and is not created by human beings. Unlike cryptocurrencies that are created by humans and there are now more than
19,000 cryptocurrencies in existence,” shares John.

Ask yourself, is ‘scarcity’ real then?

Crypto As Legal Tender?

According to BIS Annual Economic Report 2018, for cryptocurrencies with decentralised trust model such as Bitcoin, each user needs to download and verify the history of all transactions ever made. This has the effect of slowing down transaction processing time, making it not scalable to facilitate day-to-day retail payments.

Compared to major international cards networks which is able to process 2,000 to 3,500 transactions per second, Bitcoin is only able to process 3.3 transactions per second.

“Most cryptocurrencies are not likely to be used as payment instruments primarily because they do not exhibit the universal characteristic of money. Not to mention the price volatility, vulnerability to cyber attack, lack of scalability, not a good store of value, payment method and medium of exchange,” John emphasized.

As of March 2022, 87 countries are exploring the issuing of Central Bank Digital Currency (CBDC), according to the Atlantic Council. While CBDC may
adopt blockchain or Distributed Ledger Technology (DLT), CBDC differs from normal crypto as CBDC is legal tender and is backed by a claim on the central bank. Unlike cryptos that are not legal tender and have no intrinsic value.

Bank Negara Financial Sector Blueprint 2022-2026 stated that they are looking into CBDC through multiyear exploration, starting with Phase One via Project Dunbar.

Asset Allocation Is Important

At the end of the day, there is no one investment that suits everyone. It will be best if you diversify your investments into several asset classes, such as stocks, properties, unit trusts, robo-advisors, fixed deposits, bonds etc.

There should be a mixture of low risk investments with low returns, some in medium risk investments with medium returns, and some in high risk
investments with high returns such as crypto investment. Because you never know with crypto, you can go big but you can also go home with nothing.

Think about it. When are times ever ‘easy’? At the time of writing, we face inflation, COVID-19, wars, trade tensions, the ups and downs in interest
rates, currency exchange rates, and commodity prices.

On top of all that, there is the ever-evolving political, economic, and social instability around
the world. It only makes sense to say that ‘uncertainties’ is a certainty in present times.

So, is it still relevant to be investing in uncertain times?

Well, it depends. Some may react by not investing altogether. But that approach is likened to an ostrich burying its head in sand. It is impractical. Today, the awareness to invest has largely increased among the general public.

However, investors may lack a plan to navigate their investments through the stormy seas of the markets today.

Here, I have observed two different approaches to navigating the market and investing in uncertain times. They resulted from having a different mindset towards investing.

Read: 5 Investing Mistakes to Avoid During a Downturn

Let me explain:

Approach 1: Market Predictions

This refers to investors who believe that wealth is about having more money. To them, if they invest in an investment, be it stocks, properties, ETFs, cryptos, so on and so forth, and its price had appreciated, they will consider it to be a good investment.

If its price had fallen, it would be deemed as a failure. Thus, it is common for them to measure investment success based on the following:

Price Goes Up = Good Investment

Price Comes Down = Bad Investment

Hence, they tend to invest during good times, as prices of investments tend to rise in line with heightening optimism. Also, they would avoid investing in uncertain times due to falling investment prices. Some would sell off investments as they have a pessimistic outlook on the future.

In extreme cases, this could lead to manias and panics in the investment markets. Basically, their guiding principle is to buy in good times, sell in bad times.

So, how do they know where the market is heading in the future?

Well, the answer is to try predict the markets. Many would speculate. Some will be checking on the macros and technicalities if they are more sophisticated.

Generally speaking, they are always trying to find the ‘best time’ to invest or to dispose of their investments. To me, that is trading or speculating.

If you are in this group, you will always be anticipating if today or tomorrow may be a ‘better time’ to invest. Even after you have invested, you would always want to find out when would be the ‘best time’ for you to sell off your investments.

That is not my approach when it comes to investing in uncertain times.

Read: Are High-Risk Investments Suitable For Me?

Approach 2: Income Productivity

Unlike the aforementioned approach, this group of investors believe that wealth is about owning assets that are income-productive. Thus, the measure of investment success would be based on the income productivity of the assets.

The more income they produce over time, the more successful the investment.

Income Rises Over Time = Good Investment

Income Falls Over Time = Bad Investment

For this group of investors, they are focused on the assets’ fundamental quality. They want to know if the asset can generate more income in good and bad times.

To them, it does not matter if the stock market, the economy, the Ringgit and the interest rates are going up or down. What matters is this: Is the asset in consideration profitable and sustainable in all economic conditions, particularly in tough times?

By focusing on income productivity, this group of investors would tend to invest differently from the market predictors. Normally, in good times when asset prices are rising, this group of investors would have difficulty in finding income productive assets that are offered at attractive valuation.

Thus, they invest less in good times. This would be different in tough times when asset prices are falling. In this situation, this group of investors will have an easier time acquiring such assets at discounted prices. So, they invest more in bad times.

Therefore: “The answer lies in your belief system when it comes to investing in uncertain times.”

Buy Less / Don’t Buy = Good Times

Buy More = Bad Times

If you are in this group, you would have less tendency to do market predictions. Instead, your focus is on the asset’s fundamental qualities and its valuation, which makes predicting market movements irrelevant.

So, should you be investing in uncertain times?

The answer lies in your belief system when it comes to investing. As for myself, my interest is in the accumulation of fundamentally strong stocks, if they are offered at attractive valuations. This is because I believe wealth is about the income productivity of my assets and thus I had invested accordingly.

If your beliefs on wealth are different from mine, you would invest differently. Ultimately, it is up to you to be navigating the market and be smart when it comes to investing in uncertain times.

Read: 9 Reasons Why You Should Invest For Dividend Yields

About the Author

Ian Tai, Financial Content Machine. Dividend Investor. Produced 200+ Financial Articles featured in KCLau.com in Malaysia. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

The stock market is hugely popular, not only in Malaysia but the entire world. During the Movement Control Order (MCO) back in 2020, retail investors made a huge splash in Bursa Malaysia, and most investors made quite a handsome profit.

Let’s look at the two ways which you can earn in Malaysia share investment.

1. Capital Gain

Capital gain is the increase in a capital asset’s value and is realized when the asset is sold. It is the profit that you get when the selling price of the stock exceeds its purchase price. It is the difference between the selling price (higher) and purchase price (lower) of the stock.

For example:

Stock ABC price = RM1 per unit
Buy 10 lot (100 unit) = RM1 x 100 units
Purchase price = RM1,000

One month later

Stock ABC price = RM1.10 per unit
Selling price = RM1,100
Profit/Capital gain = RM100 or 10%

The above shows an example of how a capital gain of 10% is being made. ABC price went up by RM0.10, and was then sold at RM1.10.

*Note, the profit does not take into consideration costs such as brokerage charges, stamp duty and clearing fees. The net profit should be less after deducting these fees

Read: What Causes Bursa Malaysia Prices To Go Up And Down?

2. Dividend

The second way to earn in Malaysia share investment is through dividend. A dividend is the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors.

When a company generates a profit and accumulates retained earnings, those earnings can be either reinvested in the business or paid out to shareholders as a dividend. Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock.

If the company is not making good profit, or even making a loss, then we shouldn’t expect any dividends from the company. In fact, we don’t invest in these companies that do not have good fundamentals.

Malaysia Share Investment: Capital Gain VS Dividend?

The stock market is suitable for all kinds of investors. There are those who are in for the short term, perhaps capital gain is more suitable. But do keep in mind that if a stock price can go up so fast, it can go down even faster.

Whereas dividend stocks are more suitable for those who are in it for the long term. By investing in good and strong fundamental companies, you should be able to get a steady stream of dividends.

But that shouldn’t stop you from looking for stocks that can give you both capital gain and dividend right?

Make sure you also read:

• 4 Mistakes People Make In Stock Investing
• 5 Investing Lessons from Warren Buffett’s Letters

In a world overflowing with mindless narratives and political polarisation, separating the signal from the noise in the markets can be challenging for anyone. The markets so far this year reminded us all that stock markets are risky. Even SPAC activity has not been this bad for the past five years.

Surely no one can correctly guess where market is heading, where uncertainties are the one thing that is certain.

Never mind that rising inflation is eating away our purchasing power as poor consumers. Oh, for all the coffee lovers out there, coffee, already noticeably imbued with the bitter taste of inflation, is likely to get even costlier, as farmers in world-leading coffee exporters face the fallout of
extreme weather.

Here’s why you shouldn’t be placing too much importance on where market is heading.

Sure, it is easy to get emotional especially if you are stuck in losses, given the significant negative returns across most asset classes in the first
half of the year and can no longer think rationally. On top of recession and inflation concerns, investors also had to deal with a deteriorating geopolitical environment.

Will there be another war somewhere? Who cares!

Where Market Is Heading?

As most of my long-term suffering readers know, I am a big advocate of alternative investments or absolute return strategies. Alternative investments have long been used as a tool in portfolio construction by large institutions, pensions, and endowments.

In recent years, many qualified individual investors have increased exposure to alternative investments to boost returns, generate income, and achieve long-term financial goals. Tech-enabled business models make it possible to serve customers on the lower end of the wealth spectrum.

One of the most attractive aspects of alternative investments is that they typically have a low correlation with equity and bond markets. When used as a complement to traditional investments, alternative investments are a valuable piece of a long-term investment portfolio.

Financial players of all sizes are aggressively pursuing product innovations to survive the competition. My strategic partnerships with trusted managers allow me to move fast with innovation.

Alternative Investments Are Important

From another perspective, alternative investment managers make the capital markets work better and more efficient which gives a meaning as to where the market is heading is not really important. They make them more liquid.

The local financial services industry was a simpler place more than 20 years ago and most investors were happily invested in plain vanilla equity and bond funds back then.

Indeed, one of the primary attractions of alternative investments for me when I began dealing with them in 1995 was that I knew the benefits of traditional diversification are overstated. Let me stress clearly that I am not against local investments. I am an enthusiastic local stock market
investor.

Shifting to another gear, many people assume that if somebody is really wealthy, he or she does not really have to worry about anything. In harsh reality, when you have more money, you have more problems or concerns. One of the concerns is the ability to preserve capital in the long-term.

Most people do not become wealthy by being irresponsible with their hard-earned money. Most of them worry about the downside risk which could affect their portfolio value especially during extreme market conditions. A proven alternative investments help investors to preserve their wealth while achieving growth over the long-term.

Many people mistakenly believe that alternative investments are all about making leveraged bets and getting big returns. In my line of work, some investors are looking to increase the amount of income in their asset allocation. The level of passive income varies greatly based on their wealth. A high income driven strategy is also a solid defence against rising inflation.

But Beware Of Scams

Where market is heading won’t mean a thing if you can’t differentiate financial scams.

Nobody likes to work and everybody loves high and guaranteed returns. If anyone knows how to produce extremely high returns all the time, he or she would already run a properly regulated investment vehicle and the money will find them. Please tell me something that I do not know because I am an “idiot”.

When you have more money, you will likely be the target of some unscrupulous people trying to sell something to you without having your best interests in mind. They can be anyone like your neighbors, relatives, colleagues and even your financial advisors. For these “greedy” sales people, while money cannot buy real happiness, there never seems to be quite enough.

I work with successful alternative investment managers or traders who are rational, analytical, able to control emotions, and performance oriented. They must have an edge and employ good money management by having rigid risk control rules.

I am always cautious about the specific investment ideas in my public articles due to internal compliance, but I will share with you in broad strokes about some of them in this limited space. It is a sample of different opportunities in the world of alternative investments especially for sophisticated investors and family offices, while some of you are still looking for a crash.

I talked about them in detail in a zoom meeting with investors not long ago. Grab that filtered water (cheaper than coffee) and be ready.

Stable Income Is Better Than Losing Money

Regular income despite not giving a damn about where market is heading? An alternative fixed income bond which is also available in the Islamic shariah version offers a solid infrastructure to mitigate the risk and pays a fixed coupon per month, paid quarterly in arrears to the investors. The generous income stream from the profits allow investors to support the lifestyle they desire.

Available in major currencies, the profits are generated from contract arbitrage trading. Contract arbitrage is the simultaneous purchase and sale of an asset to profit from the price differential between a seller and a buyer. The difference in price generates the profit.

Moving to another idea is an alternative global multi strategy fund which invests in global digital assets. The fund has performed very well at a much lesser volatility so far this year, given the sharp sell-offs in cryptocurrencies that hurt some of the high profile players with poor risk management and overleveraged.

Those crypto geniuses who blew up their trades knew what they were doing right?

Consider Digital Assets Too

The emerging digital assets industry has experienced a rollercoaster ride in recent years, with a lack of transparency and significant volatility discouraging some genuine investors from investing. Where the market is heading is not important, as the fund provides a simple, efficient solution for sophisticated investors to gain exposure to the digital assets space with low volatility and minimal exposure to systemic market risk.

On this note, while on a capital raising roadshow in Europe, the fund was well received by some of the largest wealth managers and investment banks. All wealth managers and institutions have plans for adding digital assets or funds to their offering. It is inevitable that sophisticated investors realise that evolution in Blockchain-based applications provides strong growth potential for the foreseeable future.

No Loss, So No Worries On Where Market Is Heading

Taking the world by storm, here is another gem. A global macro strategy fund with no losing years since its inception has continued to provide consistent positive returns amid the volatile market conditions in 2022 so far. The fund aims for consistent absolute returns over a medium-to-long
term period, by leveraging on the fund’s proprietary technology and the manager’s alpha skills in both good and bad times.

The fund invests in equities, fixed income, commodity, forex and interest rates.

To wrap up this article, as an investor, you can prepare your portfolio for uncertainty. Much like preparing for a road trip where you cannot control the traffic on the road, and having to deal with rude drivers and potholes.

Instead of trying to control or fix the problem, you can control how you prepare and react to it. Where market is heading? I don’t care!

About the Author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

The confusion between the correlation and causation is inevitable especially for those who are new in investment and trading. But one must understand the difference between correlation vs causation before opening any investment accounts. The financial analytics bible defines the correlation is a relationship between markets.

For instance, FBMKLCI and DJIA have a positive relationship. But without further statistical test, we cannot say which market is the leader and which market is the laggard. Both markets may share and react on the similar information which is the mediator. So there comes the need of another course of test called causality test. The causation, for example, explains the case when FBMKLCI causes DJIA to move.

The mathematics of assets correlation is simple and straightforward. The correlation test finds the degree of association between the price change of Asset A and Asset B. It is then measured by a statistical tool such as Pearson Correlation coefficient. The causality test on the other hand adopts the similar mathematical formulation but with a little adjustment on the equation parameterization.

Correlation VS Causation

The causality test focuses on finding the correlation of Asset A and Asset B with each other’s history. The most popular causality test used in the Bloomberg terminal is Granger causality test.

The knowledge on assets correlation and causation is crucial for investors as it helps the investors to differentiate and identify market movers. Some of the assets maybe well correlated but not necessarily a price determinant to each other. For instance, the most popular assumption in the agricultural commodity trading is the soybean oil futures traded in US Chicago Board of Trade (CBOT) is the leader for the Malaysian crude palm oil futures (FCPO) in Bursa Malaysia Derivatives (BMD).

A study by Li and Nguyen (2015) provide a crucial piece of evidence where they reveal that the CBOT soybean oil and BMD crude palm oil have a stable long run relationship, but the study discovered that there is bi-directional causality between both futures markets. It shows that the Malaysian crude palm oil price may influence the soybean oil price in the US and vice versa.

Futures Market

Another example, the causality test determines the functionality and reliability of futures market as a hedging avenue for the market players. The futures market is established to be a future price reference for its underlying cash market. The efficient futures market guarantees effective hedging strategy. Therefore, an efficient futures market must have two conditions to be fulfilled.

First, the correlation between the spot and futures must be at perfect positive at all times. Secondly, the futures price must be proven leading the spot price in the causality test. Lacking on any of these prerequisites may render the price risk transfer process from the hedger to speculator to be less efficient. To add further, the causality test helps the global investors in devising their international portfolios.

A good knowledge in cross markets causality will tell whether the bearish mode in the S&P500 tonight maybe spill over to Nikkei 500 in the next morning or not. This is why it is important to have the knowledge about correlation vs causation.

So, the next time you heard an impactful news on a geo-economic event, you can tell that if your portfolio will be impacting or impacted by the global sentiment. Hope you now have a better understanding of correlation vs causation.

About the Author

Dr. Ahmad Danial is a Certified Financial Technician (CFTe) and Senior Lecturer in Finance at Department of Economics and Financial Studies, UiTM Puncak Alam. He has over 10 years’ experience in the financial markets before hopping into the academia. His areas of expertise include financial contagion, trading in stocks and derivatives markets, price discovery, hedging strategy, Econophysics and technical analysis. He can be reached at danialzainudin@uitm.edu.my.

Malaysia became the first country in the ASEAN region to regulate P2P financing with the registration of six P2P operators with the Securities Commission Malaysia (SC) in 2016 – B2B FinPAL, Ethis Kapital, FundedByMe Malaysia, ManagePay Services, Modalku Ventures and Peoplender (Fundaztic)–which were fully operational by 2017. Since then, a few more operators launched their platforms including Cofundr in July 2020 and microLEAP in October 2019.

The question in our minds, it it worth investing in P2P financing?

What Is P2P Financing?

The Peer-to-peer (P2P) financing aims to address funding needs of SMEs to raise working capital or capital for growth. It is also recognised as one of the alternative investments that one can consider which come with different risks and rewards. Nevertheless, an investment still serves the same
purpose; to gain profit and to hedge against inflation.

Based on the data from 2017 until 31 March 2022 by the SC, the total amount raised from P2P financing was RM2.62 billion, with 35,499 campaigns
and 32,925 investors. Thus, P2P financing has been a major contributor in helping SMEs to fund their current operation and expand their businesses.

Of the investors, mostly (86.7%) are retail investors, with 7.9% angel investors while high-net-worth (HNW) individuals and HNW entities made up
the balance.

Smart Investor talks to several industry experts to find out more about P2P financing and investing in P2P financing.

Alternative Financing Through Crowdfunding

Paul Kuan, chief executive officer of Cofundr says that P2P financing is a platform to finance SMEs by raising funds via the internet. The investors
will invest in a portion of the financing known as investment notes for a risk-rated return.

He informs that in every P2P financing, there are three parties involved; the issuer (SMEs), investors and facilitator (the P2P platform such as Cofundr) to facilitate the entire P2P ecosystem.

“In layman terms, P2P financing is a form of alternative financing through crowdfunding which enables businesses to obtain loans directly from individuals, facilitated through a P2P financing platform, cutting out financial institution as the middleman,” adds Jeff Tan, acting chief executive officer of Peoplelender Sdn Bhd that manages the P2P financing platform known as Fundaztic.

“P2P operator facilitates businesses to raise funds from both retail and sophisticated investors through an online platform. Through the SC’s registered platform, an investor may invest in an investment note issued by businesses for a specified tenure with the expectation of a predetermined financial return,” Er Chiang Chuan, head of business development and operations for B2B Finpal, explains.

He adds that with a sophisticated risk algorithm and extensive SME experience, B2B Finpal ecosystem helps to connect those underserved SMEs with investors for quick and easy financing access.

From 2017 until Q1 2022, 99.4% of issuers have successfully fundraised. It shows that the chance of getting successful financing through P2P financing is very high.

How can someone raise funds for their businesses through the P2P platforms? Will it be difficult with stacks of documents needed to be
provided?

Tan briefly shares that for businesses, the general procedure is to ensure that they meet the required criteria in place by the P2P platform. When an issuer applies for funding, the P2P operator will evaluate the issuer’s eligibility, among others, by assessing its capacity to repay through credit
history checks and analysis of any alternative data.

“As a fintech P2P platform, all onboarding procedures are being done via our website or mobile app. This applies to both issuers looking for
financing as well as investors looking for investment opportunities,” Kuan responds.

“microLEAP also provides value-added services, such as Free Personal-Accident (PA) Insurance on the business Key-Person, online video
tutorial on basic debt management and accounting in both Malay and English, as well as absorbing all Shariah-related fees,” adds Marzuki Musa, chief marketing officer of microLEAP.

Each P2P financing platform may have different registration and application process. Er provides us the general overview of how they work:

1. Sign up on the P2P platform
The issuers are required to provide business information and documents such as the nature of their business, contact details, financial information, directors and shareholders information, etc.

2. Verification and approval by the P2P financing platform
The P2P operator will evaluate the issuer’s suitability, among others by assessing its capacity to repay through credit history checks and
analysis of any alternative data.

3. Execute the issuer agreement
Once the issuers have accepted the offer and executed the issuer agreement, their funding request will be published on the P2P financing platform and investors can choose whether or not to fund their business.

4. Receive funds
The funds will be credited to the issuer’s bank account once it has reached the target amount set earlier during the application.

Investing In P2P Financing, Knowing Your Risk Appetite

Generally, for those interested in investing in P2P financing platform’s investment notes, they will first have to open an account with the respective platform and provide information such as their name, address and contact information for the operator to carry out identity verification and undergoes the Know Your Customer (KYC) process.

According to Er, the process is important to protect the investors and P2P operators from misuse of data and it is also required by the law. But what are the criteria or guidelines that an individual need to consider before investing in P2P?

Marzuki shares that there is always an element of default risk when it comes to investing in P2P financing market.

“Hence, microLEAP encourages all investors to diversify their risk by investing in as many investment notes as possible for a given amount of
funds,” he says.

microLEAP is a Shariah-compliant and conventional P2P financing platform that provides alternative financing for MSMEs, that is funded by both investors who are looking for a Shariah-compliant yield as well as impact investment.

“P2P financing indeed provides higher returns than traditional investments, but investors take on higher risks as well,” Er concurs.

He adds that investors need to be aware that the returns from investing in P2P financing are not guaranteed. “The issuers may default on their P2P financing and might not be able to repay their monthly dues to investors. In the event of a default, some platforms may take legal action against defaulted issuers or work with them to propose alternative repayment solutions.”

Furthermore, risk appetite is different for every investor. It is tempting to go for higher-risk businesses that provide higher returns, but Er emphasizes the need to ask yourself on what you can stand to lose if they default on their payments.

“To further help investors, Cofundr uses Factsheet that contains the company background, years established, business sector, litigation status of the company and if the company has been blacklisted before.

However, at Cofundr, we practice a “noname” basis where we do not reveal the issuer’s name. This is to protect the Issuer’s confidentiality,” Kuan shares.

Compared to conventional investments such as equities, unit trust or fixed deposit, is there a safety net for investors that are investing in P2P Financing? Or is there a potential to suffer a total loss from capital? As such, how would an investor mitigate the risks?

“Diversifying your portfolio is by far the best strategy to minimise any risks or losses you may encounter in the long run. To diversify means to spread your investment across as many notes as possible in terms of number as well as type of issuers,” Tan says.

The biggest risk in investing in P2P financing is repayment or default risk where the issuer might not be able to repay the fund in full.

“To mitigate the risk for our investors, our credit assessment team is very selective with the issuers we onboard and we often make an arrangement such as guarantor arrangement, assignment of proceeds, post-dated cheques and others to rotect our investors. Investors can suffer losses when investing in P2P financing. Hence, we always advise investors to diversify their investment into several investment notes rather than focusing on just one,” Kuan further adds.

Going Forward

On what are the future plans for the P2P financing industry players, here are what they share.

“We aim to elevate the financial well-being of the communities through P2P financing. We also plan to offer more dynamic products for both the
issuer and the investor. Recently, we launched our Shariah-compliant products, Takaful Contribution Financing and Islamic Invoice Financing to serve the Islamic market in the P2P ecosystem,” Kuan shares on the plans for Cofundr.

“We will also continue to educate the public about P2P investment and how it can become an alternative investment asset class for them to consider when building their wealth,” he adds.

“After establishing ourselves in several states in Malaysia, we will look to expand regionally. microLEAP’s plans to branch beyond Klang Valley
and increase our presence in other states such as Negeri Sembilan, Johor, Sarawak and Sabah,” Marzuki informs.

B2B Finpal expects to see a V-shaped recovery as consumers start to spend again after the recent COVID-19 pandemic that has hit businesses very hard. “B2B Finpal will be ready to support the recovery of Malaysian SMEs,” Er says.

As for Fundaztic, Tan informs that they will expand their sales force to other states to make Fundaztic accessible to all MSMEs across Malaysia. Fundaztic has also expanded to Singapore since last year and they are now exploring further expansion to other countries as well.

Now that you know more about the P2P financing and have heard from the industry players, do you think that investing in P2P financing should be considered as one of your alternative investments?

Investment is a very hot topic among us Malaysians. If there’s one investment that has been picking up in recent years, it is peer-to-peer financing, or better known as P2P financing.

In a nutshell, P2P financing – a type of digital financing – is an alternative financing raised through crowdfunding that allows businesses to get financing from individuals via a digital platform. Smart Investor speaks to Chai Kien Poon, Country Head of Funding Societies Malaysia, the largest SME digital financing platform in Southeast Asia.

Inflation Is Rising Fast

Investors and businesses alike are facing great challenges due rising inflation. Latest figures show that Malaysia’s inflation has increased by 3.4% to 127.4 in June 2022 from 123.2 in the same month of the preceding year. The Food Index has increased by 6.1% and remained as the main contributor
to the rise in inflation during the month of June 2022. This results in a lower purchasing power and greater pressure to increase one’s income.

Concerns surrounding inflation are coupled with the heightened uncertainties brought forward by geopolitical conflicts and other global issues. Hence, investment diversification is more crucial than ever to maintain a stable portfolio.

“The P2P financing, or SME digital financing portfolios, are not publicly traded and hence, sheltered from daily market fluctuations. SMEs will still be making fixed repayments regardless of short term FTSE Bursa Malaysia KLCI movements or interest rate fluctuations,” Chai says.

With a variety of SME debt investments offered on digital financing platforms, it can cater to investors with different investment objectives and risk
appetites. It is a win-win situation too, as investors will be able to directly support local SMEs needing additional working capital for further growth or meet cash flow requirements, and earn returns.

“Businesses can expect a more challenging period ahead, driven by persistent supply chain disruptions, inflation (rising wage and materials costs) and longer repayment cycle from customers. This has put pressure on margins (as cost increases while consumers lose purchasing power) and
impacted cash flows,” says Chai.

To some extent, a rising rate environment also leads to higher monthly payments (for variable rates financing), adversely impacting SMEs’ overall expenses and pose a threat to their cash flow. Moving forward, lenders such as traditional financial institutions may also tighten their lending criteria.

Subsequently, this will lead to a larger group of creditworthy SMEs to be further underserved, or unserved as the already significant SME financing gap continues to widen during this critical moment as businesses return to their full economic potential.

Why Should Malaysians Invest In Digital Financing?

“Malaysians are more familiar with equity investments: stock market, unit trusts, etc. On Bursa Malaysia, there are about 1,200 publicly listed companies being traded,” shares Chai.

“In contrast, there are 1.2 million micro, small and medium enterprises (MSMEs) in the country, and a huge bulk of these numbers are always looking for financing opportunities to fulfill their business obligations and objectives.”

These underserved, yet creditworthy MSMEs turn to Funding Societies to seek tailored financing solutions for their businesses. They represent a large volume of potential transactions which investors can invest in, and receive the principal invested plus returns upon the maturity or repayment of the financing facilities.

To protect investors, rigorous rounds of background checks are performed based on proprietary evaluation matrices before approval for financing, while simultaneously raising the investment notes for investors.

As we are now in a period of heightened uncertainty, Funding Societies is constantly innovating to offer more investment products to meet the
needs of investors’ investment objectives and risk appetite across business cycles.

Its recently launched Guaranteed Investment Notes (GIN) offer more consistent (albeit lower returns), where the non-repayment or default risk are guaranteed by an appointed guaranteeing entity instead of the investors themselves. This may appeal to investors having a more cautious outlook in the short to medium time horizon.

By having less disposable income, we will be more cautious with our investment – often looking for the diamonds in the rough. So, how well are the businesses being filtered before they are on-boarded onto the digital financing platform?

“When SMEs submit an application through the digital platform, they will be assessed through our Know-Your-Clients (KYC) process that identifies
and validates the SME’s existence and business, and its proprietors or directors,” Chai explains.

Credit and risk assessment on an SME is based on a combination of factors which includes financials, nonfinancials, and behavioral data. A risk
rating will then be generated for each SME. Only qualified SMEs will be placed on Funding Societies’ platform for the crowdfunding process.
A

s for investors, the investments start from as low as RM100 per note. To help investors build a diversified portfolio, investors can limit their exposure to each SME on the platform via the website and mobile application.

Moreover, investors are also provided with a factsheet which they can refer to evaluate the investment opportunities further. These factsheets include information like tenure, paid-up capital, SME credit score, payment behavior, entity type, and number of guarantors.

Digital Financing Is Booming

Launched in 2015, Funding Societies has been doing very well and has since achieved a lot of success. Some of their notable milestones within this
year include crossing the RM1 billion in financing disbursement in Malaysia, its multi-million Series C+ fundraise, its investment in Indonesia’s Bank Index, its expansion into Vietnam as the Group’s latest market entry, as well as its acquisition of regional payment solutions provider, CardUp.

Along with these accomplishments, Funding Societies Malaysia also introduced more new products including the Islamic Trade Financing and BizFund, an enhanced SME-focused term financing product. In terms of businesses, the digital financing platform saw more than 60% increase in MSMEs compared to the same period in 2021. During the same period, total disbursements also grew by more than 60% compared to the same period last year.

As for investors, in the first half of 2022, there was around 10% increase in investors compared to the first half of 2021. Over 60% of its investors comprise Millennials and Gen Zs, with more than 40% of the investors are based in the Klang Valley.

In just seven years, the platform has helped finance over five million business deals, with over RM11 billion in funding. What is even greater, Funding Societies’ default rate remains stable – between 2% to 3% – despite having to navigate the pandemic for the past few years.

Minimising Risks While Maximising Gains

The ‘high risk, high return’ concept rings true when it comes to investment. But with technology on our side, here’s what existing investors have to say about digital financing investment:

“I wanted to diversify into a more convenient asset class, something which I can monitor using a device. After investing through Funding Societies, I
find it to be a platform that empowers users to direct their own funds, minimise risks, while maximising the gains. Returns are predictable and stable, such as with the Guaranteed Investment Notes (GIN). Funding Societies is a great place to start your second stream of income without much
hassle or big capital,” says investor, Rainbow Chan.

Getting The Much-Needed Capital Without Much Hassle

As for the SMEs, digital financing has certainly helped in getting capital in a much easier and faster way.

“We saw an increase in our sales during the pandemic and needed to increase our inventory to cater to these demands. Having been turned down
by traditional financial institutions, we turned to Funding Societies for a term financing. We found the application process to be smooth and seamless and we were able to receive the capital that we needed to replenish our stocks quite fast,” say Abdul Hadi Wisman, Co-Founder & CEO of Sellection Sdn Bhd, a 5-year-old e-Commerce retailer selling imported branded handbags and leather accessories.

Looking For Guaranteed Returns?

Going forward, Funding Societies intends on focusing on providing more Guaranteed Investment Notes (GIN) for investors. GIN is Funding Societies’ first investment product that provides investors with guaranteed principal and interest returns on their investments.

Investors can start with a minimum investment amount of RM100 for a duration of between one to 24 months. GIN investors can enjoy net returns of up to 6% per annum before fees.

The platform is also looking to expand their offerings to include Shariah-compliant financing and investment opportunities. Following the launch of its Islamic trade financing facility in May, there were encouraging responses and high demand on the expansion of Shariah-compliant products, both from the SMEs as well as investors’ sides.

This is in line with the Islamic ECF and financing markets’ performance last year, which saw RM225.9 million being raised. For comparison, only RM1.5 million was raised through this avenue in the previous year.

For those on the lookout to diversify their investments and are considering alternative investment options, it is definitely worth taking a closer look at what digital financing has to offer. Just make sure you do your due diligence and understand the risks involved before diving in. Perhaps start small, just to get your feet wet, and take it from there.

While there are substantial views talking about crypto investment, especially views about cryptocurrency and blockchains are the future of financial services, disruptive fintech, potential lucrative returns and many more about the bright side the asset class.

However, what are the cons and risks, and should you invest in it?

Gambling, Speculating, Trading or Investing?

First and foremost, we must ask ourselves what are your objectives in crypto investment. Are you coming from the angle of financial planning? Which means that it serves as a tools to fit into a portfolio along your journey to achieve your financial objective such as retirement or child education.

Or, are you investing merely to earn fast money? Or, are you merely speculating. Speculating Trading is an active income and it merely cannot categorised as investment. Many people actually confused between trading and investing.

Between speculating and gambling, there are also many similar characteristics. Thus, in other words are you ‘investing’ into Cryptos for ‘gambling’? 

In this modern world where public are generally getting more educated compared to the post-war era, there are least people going for the conventional gambling, but diverting into so-call speculative financial markets to ‘gamble’, yet seems above the class in eye of the public.

Conventionally, when a person is betting on horse racing, they will tell you all sorts of stories and logic in regards to horse riding. Hence, when a person is speculating on Cryptos, they may tell you all kinds of fintech and futuristic tech stories about blockchain or even the recent hot topic of Metaverse and NFTs.

In conventional gambling, there are licensed casino and the underground operators. Why do some governments grant casino a license then? Of course, there are many reasons, but probably few of the common reasons are due to profit making, demand and the need to safeguard public interest thru monitoring and control.

Would it be some similar reasons where many regulators or some financial institutions started to involve in Crypto business recently?  Trading or investing in Crypto may incur significant level of risk, worst still if using unregulated or unlicensed platform.

‘Gambling’ is a bad habit across human civilization. Thus, one had to be aware that is he gambling, trading or investing.

Myth Behind Decentralisation

‘I like freedom!’

These might be the voice from many people especially the young ones. Indeed, everyone wish to have freedom. Some level of freedom is good for overall mankind living. However, would it be disaster behind ‘unregulated’ freedom?

Nobody like to be controlled. However, if you are living in a location which there are no government in place, what would be the scenario? When there are no effective government, there are mafia around. In another word, mafia may be controlling the area. Is it a safe place to stay?

Behind decentralisation, government may have great challenge to control their monetary policies.  If we would imagine that our human body live because of blood as blood carries all the oxygen, nutrients etc to every part of our body in order to keep us alive while the brain is the regulator regulating the blood, then money is medium similar to blood that keep a country alive while the regulators act as ‘the brain’ to regulate.

Thus, every Central Banks and Government are working hard to keep their monetary policies in place and in control.  Some may argue that blockchain technology in the Crypto can actually play the role of transparency and some kind of ‘self-governed’.  Indeed, blockchain is a great technology for financial services. However, many people may be confused. Cryptocurrencies and Blockchain are totally two different matters.

As of March 2022, there are approximately 87 countries are exploring into issuing Central Bank Digital Currency (CBDC), according to the Atlantic Council. While CBDC may adopt blockchain or Distributed Ledger Technology (DLT), CBDC differs from Cryptos as CBDC is legal tender and backed by a claim on the central bank unlike Cryptos that are not legal tender and have no intrinsic value.

Bank Negara Financial Sector Blueprint 2022-202 stated that Bank Negara are exploring into CBDC thru a multi year exploration starting with Phase I via Project Dunbar.

Diagram : Comparison of CBDC, stablecoins and non-backed digital assets

Source : Financial Stability Board (2020), “Enhancing Cross-Border Payment System : Stage 1 Assessment Report to G20”

Crypto As Future Legal Tender?

According to BIS Annual Economic Report 2018, crypto currencies with decentralised trust model, such as Bitcoin, each user needs to download and verify the history of all transactions ever made. This has the effect of slowing down transaction processing time, making it not scalable to facilitate day-to-day retail payments.

Compared to major international cards networks which able to process 2,000 to 3,500 transactions per second, Bitcoin is only able to process 3.3 transactions per second. Most Cryptocurrencies are not likely to be used as payment instruments primarily because they do not exhibit the universal characteristic as money. 

Due to price volatility, vulnerability to cyber attacks and lack of scalability, they are not a good store of value, payment method and medium of exchange.

Scarcity, Really?

People used to describe Bitcoin as Digital Gold as there are only a maximum capacity of 21 million coins in Bitcoin. Thus, it is said that Bitcoin has a unique feature of scarcity.  Many people seems to illustrate the scarcity of Bitcoin to Gold.

There are limited supply of Gold in our planet. However, gold exist and play its role in mankind civilization since the ancient era as precious metal, jewelries, commodity, mean of storage of value, medium of transfer, barter trade, technology components, currencies etc.  It is kept by government and central banks as reserve. 

Gold are natural resources and does not created by human being. Thus, there are no other type of gold in existence. Cryptos are created by human being and there are more than 19,000 cryptocurrencies as to date.

Thus, ‘Scarcity’ is it for real then? Thus, it might not be accurate to compare cryptocurrencies to gold in terms of scarcity. 

In short, one have to be clear about their objectives in investing into crypto. Is he or she gambling, speculating, trading or investing in crypto? Due to numerous uncertainty in regards to crypto market, one had to be very careful while placing their hard earned money into crypto investment.

About the Author

John Chan Ninyii
FAR CMSRL BEng RFP ShRFP MBA PJM
CEO of YES Financial Sdn Bhd
Bank Negara Approved Financial Adviser
Securities Commission Capital Markets Services Licensed Firm
Email: john.chan@yesfinancial.co