Higher Commodity Prices and the End of Economic Growth Without Inflation

• We expect commodity prices to be generally rising going forward, though with volatility and differentiation among commodities.
• Emerging markets going through a particularly commodity and energy intensive phase of growth may affect what developed-world consumers pay for commodities.
• Currencies are another factor. If developed-world policymakers attempt to make their economies more competitive via a cheaper currency, that could lead to higher inflation for those that are net importers

PIMCO’s portfolio manager, Mihir Worah, discusses commodity prices and their potential to affect global inflation as well as opportunities and risks of investing in commodities in a Q&A format. Read more >>

Investment House Outlook (Nov 2010)

Investment House Outlook (Nov 2010)

DBS offers S$500m preference shares

The above headlines was used in Straits Times to report DBS’s preference share issue to retail investors. This is good news to retails investors who could not participate in the S$1.7 billion preference shares offered to institutional investors in Oct 2010. The dividend yield of 4.7% per annum for 10years is attractive and we can expect this offer to be oversubscribed.

However, I found the article alittle disturbing. It started the report with:

RETAIL investors looking for a product yielding far more than bank deposits have a new option to consider.

and they go on in the article comparing it to bonds and bank deposits:

The shares, which operate in a similar manner to bonds, pay an attractive dividend of 4.7 per cent a year for 10 years – well above the 0.125 per cent interest that a saver currently gets on a POSB savings account.

The discerning investor may find the article somewhat misleading. Preference shares are not bonds, and should not be compared to deposits because it is an investment.

You should consider the following risks before buying:

• The dividend yield is not guaranteed as it is conditional on the DBS making a level of profit sufficient to pay the dividend.
• The shares are non-cumulative, so dividend payouts that are missed will not be paid retrospectively when financial conditions improve.
• There is the possibility that investors receive less than the principle amount if the preference shares are sold on the open market. A possible scenario is when market interest rates rise significantly.

If you find this investment a good complement to your portfolio, after considering the risks, go get it. It is already open for sale from now till 12.00 noon on 18 November 2010 via DBS, UOB or OCBC ATMs. And like we said earlier, we can expect this offer to be oversubscribed.

Investment House Outlook (Oct 2010)