Category Archives: Jardine C&C

All about brokerage charges

Let’s face it. Over the years, technology has taken toll on many middle functions. Stock broking is no exception. It is no longer the, once-upon-a-time lucrative high-profile business. Commission rates offered by brokerage houses are so competitive that there are hardly differences separating one from another. All the commission charges have two features in common:

(1) Contract value range ie. 0 and $50,000 (inclusive), above $50,000 to $100,000 (inclusive) and above $100,000.

(2) A minimum brokerage charge, of which almost all the brokerage houses charged at $25.

Generally, the only difference that separates one from another is the brokerage fee rate (in percentage term) for each of the mentioned contract value range. (See youtube video by clicking the link below.)

https://youtu.be/zpa0eWx5o-o

So, once we know the brokerage rate for each contract value range, we can calculate the absolute amount in dollar terms how much one would have to pay for all the transaction fees including brokerage fees when we buy or sell SGX stocks on-line. Certainly, under this circumstance, a video would be extremely useful to demonstrate how it can be done.   

Excel spreadsheet software to calculate brokerage charges

The difference may be not be significant due to their infinitesimally small percentage compare to the trading (or contract) value. As such, a change of one or two bits upwards or downwards could have offset this difference. However, it is still important as an end-customer to know the figures are derived. This would certainly go a long way to help us optimise the brokerage charge. This is particularly true for those who trade very often. Of particular significance are at the transition point from minimum brokerage threshold as well as at the cross-over points at $50,000 and $100,000. They are marked in circles shown in the diagram.

Brokerage fees at different contract value range
  • Transition Point A. The transition charge from the minimum brokerage of $25. Generally, brokerage houses have a minimum charge of $25. The only difference is the transition point from $25 to either 0.275% or 0.28% for most brokerage houses. Consequently, there is a difference in the contract value amount. The higher the transition value, the better it is for the client. The difference, however, is infinitesimally small of less than $0.50 maximum. So, this factor alone is unlikely able to move traders from one broking house to another.
  • Crossover point at B & C. The brokerage charge dips quite significantly at $50,000 and $100,000 contract value mark. What do those numbers mean for clients? To help reduce the brokerage (though insignificant compare to the absolute contract value), trades may be carried out at slightly higher value than $50,000 and $100,000 respectively. Let’s look at the DBS and Jardine C&C as examples. They are trading at about $25 and $36 per share currently. If I were to buy or sell 2000 DBS shares, the contract value would be about $50,000. For $50,000 or less, the brokerage charge is 0.28%. This is calculated to be $140. However, if I were to trade at $25.01 per share, the brokerage rate would have dropped to 0.22% or $110.04. This means that I would have saved $30 in brokerage, but of course, this saving is offset by the higher trading price, which translates to $20 higher for 2,000 shares in order to reach a contract value of $50,000. So, there is actually a small saving of slightly more than $10 including GST. While coming from a viewpoint that if one is able to afford $50,000 a pop to buy or sell 2,000 DBS shares, the $10 extra in brokerage may not mean much, but still it is a good knowledge to know about. The same story goes at the crossover point at $100,000. Assuming if I am waiting to buy 3000 shares of Jardine C&C, it does make sense to buy at $33.34 than at $33.33. For 3000 shares at $33.33 would mean my contract value is $99,999 and the brokerage works out to be $220. However, trading 3,000 shares at $33.34 would mean that the brokerage is $180.04. After accounting for the higher trading value and GST, the savings again works out to be slightly more than $10. This, again, is quite insignificant compare with $100,000 in contract value. (Based on my self-programmed excel software, the difference comes to a little more than $12 for both cases.) This ‘trick’, however, is useful only for high-priced stocks, such as DBS and Jardine C&C. For lower-trading price stocks, they are not useful because it takes a sizeable quantity to reach a contract value of $50,000 or $100,000. Just allowing 1-2 cents increase would magnify the trading value so significantly that a lower brokerage rate would not able to offset the difference in the trading value.

Overall, it is a good mathematical knowledge to know although I do not think the brokerage fee alone will move customers from one broking house to another. Furthermore, they can only happen for ‘special-case’ situations like trading in DBS or Jardine C&C shares. Most of the time, they do not apply. Generally, clients only move due to a confluence of factors.

All that said, it is important that our actions to buy or sell stocks should not be based on penny-pinching decisions of one cent. After all, brokers and remeisiers do work hard in their professional capacity to service clients. Certainly, they deserved to be paid in some ways. What we should be more concerned is whether the stock that we want to buy or sell can move in our favour. That should be the more important factor to look at.                 

Disclaimer – The above pointers are based on the writer’s personal experience. They do not serve as an advice or recommendation for readers to buy into or sell out of the mentioned stocks. Everyone should do their homework before they buy or sell any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

What can we expect from the American election?

Now that the American election is over, and Donald Trump has been announced to be the president-elect. The inauguration is scheduled to be on 20 January 2017. As a biggest economy in the world, we can expect big event changes to have a bearing on the many smaller economies. Certainly, the promises made by Donald Trump during his campaigns would be closely followed, as they may become the new government policies during the term of the new president. Of course, one may argue that these may be promises, and they may not be fulfilled or at most partially fulfilled after looking at the cost-benefits of all these promises. After all, until the fate was sealed on last Thursday, Donald Trump had been an underdog in this neck-to-neck race with Hillary Clinton. To change the odds of winning this election, he might have to resort to populist promises to win votes.

 

However, as investors, we tend to make anticipations of the future to guide us in our buy or sell decisions. So the closest or best clues would be to go along the lines of his background as well as to rely on his promises during the campaigns. As it is, he has been a real estate magnate businessman with zero political back-ground, many would have expected that he would be especially focused on infrastructure developments. These constructions would likely to bring about inflation resulting in FED hiking up interest rates more aggressively. So in all likelihood, our bank interest rates would also perk up in time to come. As it is in the last few days, the local bank stocks such as DBS, OCBC and UOB were holding up relatively well while many local stocks were on a down-trend. In particular, DBS advanced $1.20 or about 8% in the last two days on Thursday and Friday. Conversely, the interest rates sensitive stocks such as bonds, REITs, property counters as well as many debt-laden companies were hit quite badly. Many emerging market currencies are also affected as funds are expected to repatriate back to US in search of higher interest rates. Thus many Asian currencies have also been on the downward trend. In fact, companies, especially the debt-laden ones that borrowed or purchased goods in US dollar are likely to be hardest hit. Consequently, many Indonesian company stock prices fell very hard. They purchased goods in US dollars and sold locally in rupiahs. Stocks like Jardine C&C, which held 50% of Astra shares, had already retreated about 10%. This situation is likely to continue as long as the spectre of interest rate hikes remains in the mind of investors.

 

The other significant factor mentioned in his presidential campaign was pro-American, pro-white policies that point toward protectionism. This means that many economies depending on US for trade will be also affected. These countries include Indonesia, China, Taiwan, Malaysia, South Korea, Philippines, Vietnam and even Singapore. Furthermore, with their respective currencies retreating against the US dollars, it is likely to make things very expensive for these countries. Certainly the respective stock markets are not going to be spared as well. The fear factor should likely continue to weigh on the Asian stock markets in the short term.

 

While the situation looks grim, it is only based on anticipation. The reality may not turn out to be this way after more detailed review of those promises. It could even be that the President may decide to soften his stance on free trades after his inauguration.

 

So, end of the day, it is still important to continue to stick to our long term-plan in building our stock portfolio. The fear factor may even present interesting opportunities for us to buy stocks that are beyond our reach during euphoria.      

Good luck!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Understanding brokerage charges

Brokerage has come down significantly. I remember in the 90s, when I bought my first blue-chip bank, Overseas Union Bank, which had since been subsumed under United Overseas Bank (UOB), I paid something like $100 in additional fees including brokerage, trading fees and so on. I was a rookie investor back then. I did not know the exact fees structure, but I know it was very expensive, something like 1% each way, when buy or sell. With the advent of the internet trading, the brokerage fee is now a fraction of what it used to be. Furthermore, with the possibilities of trades going across borders, to far places such as US and Europe, trading fees charged by stock exchange are also relatively small due to the global competition. Then, with the introduction of script less trading, things have become so convenient. As clients, what does it mean to all of us? All these developments have made it so cheap and so convenient now compare to twenty years ago.

Based on brokerage fee of several broking houses, it typically starts off with a flat fee of $25 up to a certain amount. Then it becomes a percentage, typically 0.275% or 0.28% up to $50k, and then a smaller percentage between $50k and $100k, and then an even smaller percentage beyond $100. (View the attached video on the percentage based on the minimum of $25 broking charge.) There may be some subtle differences between broking charges of the broking houses, but by and large, the difference is not likely to be significant given the competitive nature of the business. Actually, being a customer of a bank, I could get as low as 0.18% for all my trades. However, I used it partially as I have remisier friends, who still find it hard to make ends meet due to the slump in the brokerage rates. After all, they are in an honest business trying to carve out a living. It was unlike 20 years ago, when remisiers are highly sought-after professions, whereby we have to go and look out for them before they consider signing us up as clients. Certainly, paying a tiny fraction for brokerage to remisier friends is much better than incurring heavy losses in the penny stock clash, just like that of October 2013, or buying into ‘unwarranted headaches’ such as buying into junk bonds of offshore-related companies.

That said, still it is important to be watchful of the cost that comes along with our stock transactions. It should be treated the same way as if we are doing a business, and therefore, we have to be watchful of the costs incurred when we buy or sell or stocks.

From the video, it can be seen that if we trade at a very small contract value, then the flat broking fee of $25 would translate to a significant percentage. But as the trade amount get bigger, the flat fee of $25 becomes a smaller percentage. The same methodology can be applied if there are differences in the percentage charges for the first $50k.  Enjoy and hope you can learn something out of it!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Sell in May and go away strategy: Why not a contrarian view?

The old saying sell in May and go away strategy seemed to have taken its toll this year when STI was sharply sold down from 2960.78 on 21st April to 2730.8 on 6th May 2016, a drop of 230 points, representing about 5.8% decrease on the ST index. After that, there appeared to be an increase in volatility as the bull and the bear tussled to tip over each other. By the end of today, after approximately 3 weeks of trading or so, the ST index ended at 2791.06, a mere increase of 60 points from 6th May.

According to The Straits Times (ST, 30 May 2016), it happened four out of five times in the last five years. If that view still holds true, then would it not be interesting for us to take a contrarian view and buy into the market when we bade farewell to the last ship that left us. And, of course, if they do return going forward, we can slowly sell back to the market.

Slide28

Frankly, taking advantage of this apparently universal ‘market theory’, I was actually a net buyer in the month of May. After all, isn’t it important that to gain from stocks, we should either be ahead of the market or, if we are courageous enough, even to act against the market movement. Otherwise, we are just a market follower moving up and down with the market. When market tanks, we lose; and when the market roars, we win. That said, I bought back some of the stocks that I had sold in April such as Jardine C&C and IPC to pocket the difference and yet maintain my original exposure in these stocks. In other words, I ‘squared off’ my position.

Hopefully, I am well-positioned when there is a big buy to propel the market. There could, however, be a stumbling block this year as the spectre of higher interest rate can derail this strategy. Big investors and fund managers may not return any time soon as they go in search of better yield elsewhere especially when local economic outlook still looks uncertain. Should such an event happens, it would affect the market liquidity. Accordingly, we should expect the spread between lending and saving to widen, thereby benefiting the bank stocks. With the cash return from OSIM, following the privatization plan by its chairman and CEO, Mr Ron Sim, I had also increased my stake in the bank stocks. However, one has to be careful about over-exposures in bank stocks in an increasing interest rate environment as non-performance loans (NPL) will also increase as well. If the interest rate continues to perk up, it will come to a time when the deteriorating asset quality will overwhelm the benefits of higher interest margin.

Happy investing!

Disclaimer:

This article is not a recommendation or an advice to buy/sell the mentioned stocks. It is a sharing of his opinions with the readers.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

If this stock market turmoil ends up in a liquidity crunch, do you know what the banks will do?

During the times when there is liquidity crunch, such as now when there is an impending interest rate hike in US or when there is a  stock market rout in the region, what is the most important thing for the banks? Yes, CASH at hand! When there is an extreme liquidity crunch, the banks will tend to play it safe. Whether or not they are going to use it, raising cash is the most important thing to do during such times.

Historically, there were many precedences. During 1998, when there was the Asian Financial Crisis, DBS bought POSB. It was the people’s bank with a huge amount of deposits. The main lending activities of POSB at that time was mainly in secured lending such as housing loans and the deposits at that time was huge.

In the recent global financial crisis in 2008, DBS raised S$4.2 billion through rights issue. Seven hundred and sixty (760) million rights were offered at $5.42c, a hefty discount of 45% from the last day trading price of $9.85. Each right was offered at 1:2 basis, meaning 1 right for every 2 shares owned.

In parallel OCBC went into offering preference shares at $100 per share in August 2008. To sweeten the deal, the dividend was offered at 5.1%, a rate way above bank’s interest rate even until today. OCBC raised $1 billion from that exercise. Following that move, UOB also followed suit with the same offering but at a slightly lower rate of 5.05%. UOB also raised about $1billion from the exercise.

In such times, when people are fearful and cashing out of the stock market, this appeared to be the best time for the banks to raise cash. After all, with bank interest rate at historical low couple with the stock market turmoil, many investors are looking to park their encashed money in safe instruments that offer sufficiently good returns. With the bank’s brand name and offering good dividend payout, it is possible for the banks to raise funds with relative ease.

What do the banks do with those money? Well, during market turmoils is one of the best opportunities for the banks. It is a question of survival of the fittest. Many so-called ‘fantastic companies’ will not be trading at historically fire-sale prices unless during such times. Remember that Astra, was one of the crown-jewel of the Indonesia companies before the 1998 Asian Financial Crisis. It was forced to sell its shares to Cycle and Carriage (C&C) before C&C was taken over by the Jardine group. If the shares of Astra had not been sold to C&C, Astra would not have been in existence or could have been disintegrated into smaller companies. Who knows Danamon Bank in Indonesia may be up for sale once again with better selling conditions. The last time, when the deal fell through was in 2013, when the Indonesian regulators allowed only to a maximum cap of 40%. DBS, on the other hand, was looking into acquiring 67.37% (for a price tag of $542.4m) which will ultimately trigger it to make a take-over offer of the bank.

Shareholders, in particular those who hold blue-chips, should maintain your liquidity now. You may be put in a situation to acquire rights or preference shares at a steep discount. Perhaps if you look at it in a long-term basis, it may not a bad deal. When the good times come back again, maybe you are rewarded with 500 DBS shares or 1000 OCBC shares as dividend in its yearly dividend distribution exercise.

(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.

Jardine C&C: The price for being impatient

The trading of Jardine C&C rights issue had just ended following the annoucement to offer one right for every nine shares (1-to-9) owned in mid-June 2015. The conversion was at $26, at hefty discount of about 25% from its last trading price of $35 when the annoucement was made.

Slide2

The two-weeks rights trading in the first half of July was right in the middle of an uncertainty of whether Greece will be out of the eurozone following the people’s mandate not to accept further austerity measures. Furthermore, the local stock market was also affected by the extreme volatility of the chinese stock markets in both Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange. On the SSE, it had tanked about 30% within 3 weeks of trading from more than 5000 to less than 3500. Certainly, such uncertainties would cause a high-beta stock like Jardine C&C to slide at a great speed, especially when the Jardine group was listed in HKSE, which had also been sliding. Within the first 8 days of trading, the share price dropped from more than $32 to less than $29 per share.  Needless to say, the rights trading tanked even more percentage-wise, dropping from about $5.40 on 2nd July to less than $3.50 on 8 July, easily about 35% in percentage term.

Having been issued with odd-lots as I have some holding of the Jardine C&C mother shares, I have no choice but to buy in more rights so that I can have full trading lots when I exercise the rights. Impatience had been the main culprit as I was too eager to procure the rights, making my average buying price for the rights at $5.06. That would mean that if I were to exercise the rights, my purchase price for the shares would be $31.06. Little did I know that the mother shares tanked significantly to even below $29 in the days that followed. With the rights tanking and in the out-of-money situation, I decided to go for mother shares buying at a few tranches at $30, $29.88 and $29.15. Luckily, the share price has stabilised and is trading at above $31 per share. Theoretically, I would have gained if I were to sell those shares, but still it is a high price to pay for impatience.

(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.