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
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?
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.
Number of campaigns and amount raised by year. Source: SC
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.
Type of P2P Financing investors. Source: SC
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.
Paul Kuan, chief executive officer of Cofundr
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.
Jeff Tan, acting chief executive officer, 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.
Er Chiang Chuan, head of business development and operations for B2B Finpal
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.
Percentage of issuers who have successfully and unsuccessfully raised funds. Source: SC
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.
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?
This is one of the most heated debate in the financial industry, saving vs investing. Before we get into it, let’s first take a look at the definition of saving and investing.
“Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recurring costs.”
-Wikipedia
Saving is your income, either from your monthly salary or sales commission, being put aside somewhere. This could be in your savings account or cash.
“Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.”
-Wikipedia
Whereas investing is putting in your money in an instrument where you can watch it grow. The longer you invest, the bigger returns from your investment.
Saving vs Investing
As you can see from the above, you won’t be able to invest if you don’t have money in the first place. Which also means that if you don’t have any savings, then you can’t invest.
And did you know that according to statistics, 75% of Malaysians can’t even come out with RM1,000 for any emergency? The culture of saving is sorely missing in our community.
In case anything untoward happens such as meeting with an accident, car repairs, or dengue fever which requires hospitalization, then you may have to resort to borrowing money from family members or friends. Worse if there’s no one to help, then you turn to ‘ah long’ and be trapped in a vicious cycle.
So in the case of saving vs investing, make sure you have sufficient savings first.
RM5.2 Billion Lost To Scammers
According to the Inspector-General of Police, Tan Sri Acryl Sani Abdullah Sani, there were 71,833 fraud cases recorded since 2020 until May 2022, with a loss amounting to RM5.2 billion.
Hang on a minute, but didn’t you say that Malaysians don’t save but they have tons of money to invest, and ultimately gets scammed in the process?
It goes to show how poor we are in managing our finances. We don’t have savings, and we invest in investment that is not legitimate or scams. When we lose it all to scammers, then we don’t have anything to fall back on – because we don’t have any savings.
Of course everyone wants the fastest way to getting rich, myself included. But bear in mind that investment should be a long-term game. For example you want to build up your retirement fund, and you have 30 years until you hit the retirement age of 60. That means you have time on your side, and still can afford to make mistakes.
Compared with someone in his 50’s and have less than 10 years to retire, he/she needs to invest for a shorter time period and take lesser risk.
So again, get your priorities right when it comes to saving vs investing.
Save Before Invest
That’s why you need to get your priorities right. Save at least 3-6 months of your monthly salary. If your salary is RM5,000 per month, have at least RM15,000 in an emergency fund for rainy days ahead. Best if you can have RM30,000, to better prepare for any emergencies.
If there’s anything that the pandemic has shown us, is that no plan can prepare us for something of that magnitude. Even if you have done the necessary preparation, you should still feel the effects of it.
Let alone those who didn’t have any savings. Thankfully the government came out with many schemes to help us out.
Now you know what to do when faced with the dilemma of saving vs investing?
Invest In A Diversified Portfolio
I’m sure we all have heard of the phrase, “High risk high return”. Which literally means that in order to get a high return, you need to take a high risk.
And I’m also pretty sure that you have heard of “Don’t put all your eggs in one basket”.
Combine the two of them, and you should be investing in a diversified portfolio – some in low-risk instruments (with low returns) such as fixed deposits or money market funds, some in medium-risk instruments (with medium returns) such as unit trust or property, and some in high-risk instruments (with high returns) such as stocks and crypto.
By having a diversified portfolio, should any ‘basket’ were to fall and break all the eggs inside it, you will still have other basket of eggs that can compensate for your loss.
But in the case of saving vs investing – make sure you have some savings first before deciding to invest.
What About The Upcoming Recession Next Year?
In a recent survey on saving vs investing that was carried out by Palindrome Communications, 40 percent of respondents said that they thought that investing is more important in a recession than holding on to cash. 60 percent of the respondents said that holding on to cash is more important than investing.
The data displayed a cautious sentiment among professionals in Malaysia as we head into what might possibly be an upcoming recession. Respondents were made up completely of professionals in the fintech and tech sectors.
Palindrome helps finance companies communicate more effectively in the market. More info here.
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
Chai Kien Poon, Country Head of Funding Societies Malaysia
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
Rainbow Chan
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.
When it comes to investing, you can either do it yourself (DIY) or you can rely on a professional.
The DIY approach requires you to take the time to study each investment asset and search for a brokerage firm or platform that will allow you to build your own portfolio.
However, the DIY approach can be very time-consuming. It also comes with increased responsibilities and worries. On your own, you will be more sensitive to shifts in the market and you may feel pressured into buying or selling the wrong asset at the wrong time, which can lead to heavy investment losses.
Additionally, certain investment products may be out of your reach. You may also be required to put up more capital than you are comfortable with.
The second option, relying on a professional, offers a safer investment experience. For investing in Unit Trusts, this means engaging the services of a Unit Trust Consultant, or a professional fund manager at a Unit Trust Management Company (UTMC) or at a funds distributor, such as at an Institutional Unit Trust Adviser (IUTA) or Corporate Unit Trust Adviser (CUTA).
What Can A Consultant Do For You?
Generally, Unit Trust Consultants are there to assist investor/client in establishing his/her investment objectives and to propose Unit Trusts products that are suitable to the investor/client based on his/her risk appetite. Additionally, Consultants are expected to provide prompt, efficient and continuous service to their investors/clients.
In short, Consultants have the necessary skills, relevant experience and dedicated resources to help you with your Unit Trust investments. They can help guide you towards your financial goals by helping you choose the right funds that suit your needs.
In addition, they can introduce investors to Unit Trusts that invests in assets/options that would otherwise not be accessible to an average DIY investor, vastly increasing your investment opportunities.
If you feel any hesitation about placing your trust – and your money – in the hands of another person, you can rest assured that legitimate Consultants are bound by FIMM’s Code of Ethics.
A good Consultant should have the following characteristics: honesty and integrity, professionalism, acting in the best interest of investors, deal with investors in good faith, comply with all requirements, avoid any conflicts of interest, provide accurate, timely and adequate information, and maintain investor confidentiality.
All these are meant to ensure that the Consultants’ ultimate duty is to help you reach your financial goals in the best way possible. Similar requirements are also applicable to the Private Retirement Scheme (PRS) Consultants.
The Benefits Of Choosing A Consultant
First-time investors, or those who have a particular financial goal in mind, would especially benefit from the advice that a Consultant can provide. The Consultant’s job is to educate you and help guide you along your investment journey.
A Consultant can also deliver a more personal touch, especially for investors that are new to or less familiar with Unit Trusts and Private Retirement Scheme (PRS).
Investors can engage a Consultant via the UTMC, IUTA, CUTA or even search for one themselves on the internet or through social media.
However, it is important to keep in mind that all Unit Trust and PRS Consultants are required to be registered with FIMM prior to them being able to market and distribute Unit Trusts and PRS. And it is easy to find out if your Consultant is legitimate.
By visiting FIMM’s website, anyone can check if a Consultant is authorised by FIMM or not. All he/she has to do is search the Consultant’s name or registration number. Additionally, anyone can reach out to FIMM – just send an email to info@fimm.com.my to make enquiries or to complaints@fimm.com.my to lodge a complaint.
This allows you to have a safety net while you embark on your investment journey. It also assures you that all your interests are safeguarded.
Bring Confidence To Investors
There are various channels to buy Unit Trusts, and investors who feel that they do not need advice may choose the DIY option without having to pay a sales charge or advisory fee.
One of the most common reasons for people not wanting to engage a Consultant has to do with the increasing amount of freely-available investment information over the internet.
Nonetheless, Consultants can provide a wealth of resources that investors doing DIY may lack. As investors become more aware of personal wealth management, continuous efforts in upskilling Consultants in advisory (goal-based investing) and client servicing (after-sales service) will add value and bring confidence to investors.
Regarding the issue of costs, in the form of consultant fees, it should be noted that all fees are clearly disclosed in the funds’ offering documents (i.e. prospectus), which is lodged with the Securities Commission Malaysia. Consultants cannot simply charge any fee that is not disclosed in the offering documents.
Furthermore, ongoing after-sales services from Consultants can also help investors achieve their financial goals by monitoring and keeping the investor informed of their progress, and reviewing the investment portfolio regularly and recommending changes where necessary.
The Final Word
Ultimately, the decision on how you wish to proceed with your investment is in your hands. Nonetheless, you must understand your investment objective and equip yourself with basic investment knowledge before you start investing.
Visit www.fimm.com.my for more information on Unit Trusts and Unit Trust Consultants.
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
Financial planning is a very important life skill that most of us had to learn on our own. At times, especially when we were young, we don’t realise how important it is to plan for our financial future until we hit a life-changing moment, such as marriage or having our first child, which require a lot of money.
As such, some of us will have to start making up for lost time, increasing the pressure to reach a certain financial goal. It may not be enough to just save money. We will need to invest too in search of better returns.
One option is to invest in Unit Trust Schemes, or Unit Trusts.
What Are Unit Trusts?
A Unit Trust is an investment scheme that pools money from many investors who have similar investment objectives, strategies and risk appetites. The pooled moneys are then invested into a diversified portfolio of investment assets, such as shares, bonds, and cash equivalents.
Unit Trusts are managed by professional fund/investment managers who have been licensed by the Securities Commission Malaysia. These professionals will be investing your money, using their expertise to help you reach your financial goals. With the professional fund managers making investments on your behalf, you are free from having to study the markets yourselves and making decisions on each individual investment.
Additionally, investing in Unit Trusts is an affordable option, especially for those who are just beginning their financial freedom journey. Only a small amount of capital is needed for you to start investing.
How Long Should I Invest In Unit Trust Schemes?
There are many reasons why investing in Unit Trusts makes good financial sense, particularly if you already have a goal in mind. You can choose to invest in a Unit Trust for varying lengths of time, from one to three years (usually defined as short-term), three to five years (medium-term) or more than five years (long-term).
Here are some examples of how these investment strategies would work with your particular goals:
Short-term: These are good for more immediate goals such as buying a car, looking to take a holiday, or wanting to start a family.
Medium-term: These are suitable if you are looking for slightly higher returns to be used towards the down payment for a house or seeking capital to start a new business in the near future.
Long-term: These are more suitable for big financial goals that you have lined up for the future, such as paying for your young child’s tertiary education or if you want a comfortable nest egg for retirement.
What Are The Risks Involved?
As with most forms of investments, there are risks involved in investing in Unit Trusts. But the beauty of investing in Unit Trusts is that you can choose an investment strategy that best fits your risk appetite.
In general, there are three types of investment strategies you can consider, based on your preferred level of risk:
Conservative: This is often the best strategy for older investors who have a large amount of capital and prefer stability over quick gains. Investments in this risk category tend to be in safe assets that are not easily susceptible to market shocks or swings, and very often, help to preserve the principal amount you invested.
Moderate: For investors who are willing to take some risks, this strategy is the perfect balance between wanting to preserve your principal investment, while still taking advantage of some assets that can offer potential growth.
Aggressive: For younger investors, a small amount of capital can go a long way, especially if you are willing to invest for the long term. While there might be a chance that you may lose some of the initial capital, the fact that you have time on your side means that you can take higher risks to maximise growth.
Let’s see how Unit Trusts measure up to other forms of investments and savings:
Unit Trusts offer a middle ground when it comes to investment options. Generally, it is safer than investing directly in the market and yet, it has the potential to offer better returns than standard savings accounts. For those looking to safeguard their financial future or grow their wealth, it is well worth considering investing your money into Unit Trusts.
Visit FIMM’s website for more information on Unit Trusts.
Bursa Malaysia Berhad (“Bursa Malaysia” or the “Exchange”) today launched two new ESG themed indices under the FTSE Bursa Malaysia Index Series which are the FTSE Bursa Malaysia Top 100 ESG Low Carbon Select Index (FBM100LC) and the FTSE Bursa Malaysia Top 100 ESG Low Carbon Select Shariah Index (FBM100LS).
These new indices add to the existing portfolio in the FBM Index Series suite that the Exchange jointly issues with index partner FTSE Russell. These additions expand the Exchange’s benchmarking offerings in the ESG, low carbon and climate risk index space to cater to evolving investors’ demand.
The FBM100LC Index tracks companies in the FBM Top 100 Index based on their ESG and carbon intensity performance, thus providing an opportunity for investors to reduce their investment portfolio’s carbon footprint.
The index methodology addresses ESG and climate change risks from multiple dimensions based on clear, transparent and targeted objectives. It is constructed using the FTSE Russell Target Exposure methodology, which applies succussive tilts to capture target exposure and climate outcomes.
The index aims to achieve a maximum 30% reduction in Fossil Fuel Reserves Intensity, 30% reduction in Carbon Emissions Intensity, and 20% uplift in ESG Ratings. It excludes companies involved with controversial product activities such as weapons, thermal coal, extraction and electricity generation, tobacco, nuclear power, gambling, adult entertainment, and companies involved with controversies related to the UN Global Compact principles.
“We are delighted to expand on our strong partnership with Bursa Malaysia to bring these new ESG themed indices to the market. As sustainable investing continues to be embraced in Malaysia, the new indices provide a powerful tool for investors to increase company ESG transparency and performance,” said Helena Fung, Head of Sustainable Investment, Asia Pacific at FTSE Russell.
The launch of the index aims to further encourage ESG and low carbon adoption within the local capital market ecosystem, in line with the Exchange’s vision to be a leading sustainable and globally connected marketplace.
“ESG has become a staple of the investment management landscape. Clients have started to demand products that make it easier for them to manage their portfolios with better ESG compliance and risk management,” said Datuk Muhamad Umar Swift, Chief Executive Officer of Bursa Malaysia. “We are pleased to again partner with a respected name like FTSE Russell to develop new products that emphasize our commitment towards a low carbon economy.”
A Shariah version of the index is available where further screening is applied on the constituents to only include Shariah-compliant companies.
About Bursa Malaysia
Bursa Malaysia is an exchange holding company incorporated in 1976 and listed in 2005, and has grown to be one of the largest bourses in ASEAN today. Bursa Malaysia operates and regulates a fully-integrated exchange offering a comprehensive range of exchange-related facilities, and is committed to Creating Opportunities, Growing Value. Learn more at www.bursamalaysia.com.
