Investment Report: Increasing the Initial Capital and Investing in International Markets

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Investment Goal

The goal of this investment plan is to increase the initial capital of AED 400,000 by at least 0.5% within 3 months beginning 08/01/2013 to 11/31/2013. A secondary goal of this investment plan is to invest in international markets within Asia such as the Philippines instead of in local markets. The reason behind this goal is because the Philippines has consistently shown rapid economic gains over the past year with an estimated 7 percent GDP growth by the end of 2013 which outpaces that of its regional neighbors. Along with obtaining an investment-grade rating from Moody’s as well as Standard and Poor, this is indicative of a potentially lucrative investment opportunity that should not be missed.

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Investment Plan

When examining the acceptable risk tolerance for this type of investment plan, it was decided to invest the sum of AED 300,000 funds within the local market in the Philippines in the form of stocks related to real estate, telecom and other major corporations within the Philippines. Additionally, AED 100,000 will also be invested into local markets in the U.A.E

A conservative estimate of the annual yields derived from this particular strategy is around 1.5 to 2 percent depending on the current condition of the economy. Do note though that when taking into consideration the current problems in Europe over their debt crisis, the rise in value of the yen as well as unstable global supplies of oil due to increasing tensions within the Middle East, the yield estimate on investments is actually a rather generous estimate given the potential for the various problems to spill over into other markets which would adversely impact even the most robust portfolio (The fatal flaw in the Philippines’ investment-grade bid, 2013).

One of the primary reasons behind investing in the local stock market is the potentially high yields that can be attained through investing in such an investment vehicle given the current growth of the local market. If yield estimates were lowered to 0.5% to 1% the strategy that would normally be utilized would be to reduce the number of investments into the property fund by at least 10 to 15 percent given the higher risk/lower yield dynamic while investing more into the stock market fund. However, given the current instructions in the readout about diversified investments it would be necessary to select different types of stocks in different industries in order to help mitigate potential losses should one industry underperform (S&P follows Fitch raises the Philippines to IG, 2013).

Evaluating Investment Vehicles

Stocks

Can be defined as a type of investment vehicle wherein an investor owns a particular share of a company by buying one of that’s company’s stocks. The value of a stock is thus defined by the type of company, its inherent value within its respective industry, its performance, as well as general demand for the stock itself. Given the limited amount of time for this investment report, stocks were chosen as the primary investment vehicle for this analysis.

Bonds

Bonds, such as government treasury bonds, are different from ordinary types of investment since it acts more like a loan to the company or organization that is issuing the bond. Bonds are usually considered as a “safe” investment especially if it is a country that is issuing them. Do note though that due to their relative “safety” as an investment vehicle, the inherent return on investment is quite low and takes several months or up to a year to receive any returns. It is based on this and the inherent limitations of the current time frame for this investment report that bonds would not be a preferred investment choice.

Mutual Funds

Mutual funds are a type of investment vehicle that is professionally managed and can be considered as a “collective investment scheme” wherein numerous individuals entrust their money to an investor who then selectively invests the cash “en masse” (i.e. the collective funds). While utilizing this particular investment vehicle ensures that the money that is invested is professionally managed, the fact of the matter is that most mutual funds have contractual time limits on investments wherein the money must remain within the fund for a certain amount of time. Thus, given the limited time frame associated with this investment report, mutual funds cannot be utilized.

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Derivatives

Derivatives are a type of financial contract that focuses on the performance of a particular type of asset. For example, if an investor were to invest in the “rice futures” derivative of a particular country, their investment is then pegged based on the performance of that particular industry. This means that if rice harvests do particularly well that year, the price of the derivate will go up. However, if the production of rice goes badly, the value of the derivative will go down. It is based on this that derivative performance usually takes months to properly determine and, as such, cannot be utilized in this particular type of investment report

Precious Metals

Metals such as gold and silver are considered a “safe” purchase due to their inherent value and demand in international markets. While this would be an ideal investment platform, the fact remains that it is unlikely that the price of gold or silver would increase substantially within the next few months and, as such, does not seem like a viable investment vehicle for the short term.

Real estate

Real estate involves the purchase of properties in order to take advantage of selling them at a later date, renting it out or developing the property to increase its market value. Given the inherent time constraints inherent in this investment report, there simply is not enough time to invest in real estate properties.

Foreign Exchange

When it comes to foreign exchange markets, you are trading in currencies and reaping the benefits of different rates of exchange. However, investing in FOREX is incredibly risky given the inherent volatility of foreign exchange rates and financial markets. Taking this into consideration, FOREX can be defined as being far too risk intensive to be a viable investment platform in the short term.

Philippine Business Sectors

The Philippine market is composed of six distinct sectors, each with its own unique characteristics, advantages/disadvantages, as well as an assortment of external contributing factors that suit a variety of investment styles. These sectors are composed of the following:

The Financial Sector

The financial sector of the Philippines is relatively stable and it is due to this level of stability that many of the country’s local banks such as Asia United Bank and the Philippine Business Bank have conducted IPOs for expansion into the local market (Botman, Klemm & Baqir, 2010). The problem really with this expansion is the current market saturation level that makes investing in these IPOs an uncertain given the control that the three major banks BDO, BPI and Metro Bank have over the local banking sector and the sheer amount of branches they have (Country Conditions, 2013).

The Industrial Sector

With the continued expansion of the Philippine economy, investing in the industrial sector would seem like an ideal investment (Dean, 2008). However, given the rather low rate of international expansion as well as a considerable degree of “lag” in terms of exports as compared to other countries within South East Asia, the industrial sector has much that needs to be put into play before it can be considered a relatively safe long term investment (Economic Growth: Capital Investment – Recent Developments, 2012).

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Holding Firms

Holding firms within the country are relatively few in number but do hold significant assets. This is due to local laws which allow only 40% ownership of local companies by foreign entities as a protectionist measure. (Foreign Investment Climate, 2013)

The Property Sector

Current estimates from the Philippine Association of Real Estate Boards (PAREB) estimate that there are between 1 to 3 million excess real estate units that have yet to be sold to local buyers that have been built (Saigal, 2013).

The Services Sector

An examination of the diversified services sector of the Philippines reveals a considerable level of growth and development over the past few years. Considering the continued expansion of the Philippine economy combined with an increase in the population, it can be expected that the services industry within the country will continue to be relatively robust for many years to come and, as such, would be an ideal sector for investment (Moderation In Growth Under Way, 2011).

The Mining and Oil Sector

The Philippine mining and oil sector has a relatively low level of growth as of late due to a lack of foreign direct investments into the local mining industry (Vivoda, 2008). This may be due to the considerable tax rate (40% in some cases) as well as strict environmental protection laws.

Reasons why Other Industries and Investment Vehicles were not Chosen

This report chose to invest in stocks and the Philippines given the current growth potential the country has as compared to other international locations. Etisalat was also chosen since it seemed to be the best and most stable choice out of other local corporations in the U.A.E

Local Industry Investment: Etisalat

In this initial section what will be evaluated is an initial investment of AED 100,000 into Etisalat which is one of the largest telecommunications companies within the U.A.E and seems to be a viable investment. The investment period is from 08/1/2013 to 11/31/2013.

Local Industry Investment: Etisalat

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The following is the method utilized to examine the rate of return of stock within the indicated period:

Po = Intrinsic Value of the stock

D1 = Estimated amount of dividend at the end of the year

P1 = Estimated value of the stock at the end of the year

K = Desired rate of return

Po = D1 + P1

1 + k

Po = 13 + 0.33

1 + 0.5

= 8.86

Based on the examination conducted, it can be seen that the Po is much lower than the current value of the stock and is indicative of a potentially bad investment.

Results

The results of the examination showed that on 08/1/2013, the initial price of the stock was AED 11.75, however, by 11/31/2013 the price of the stock went down to 11.50

The end result was a loss of AED 2,127 for the initial stock pick of this report in the local market.

Services Sector Stock Pick

The second stock pick for this report involves the company Pure Gold in the Philippines. Pure Gold is one of the country’s largest grocery chains and focuses on the sale of low-cost items to the masses. It can be compared to Carrefour in Abu Dhabi or Wal-Mart in the U.S. where the goods are oriented towards a low to mid-range type of consumer.

Justification for Investment

Based on an analysis of the local services sector, it was shown that with the holidays approaching this would be a period of time where there would be increased activity from the local population resulting in higher amounts of product purchases. As a result, this should increase the amount of profit gained by supermarket chains like Pure Gold.

The period of investment for the stock is between 08/1/2013 and 11/31/2013.

The amount to be invested is AED 275,000 which is equivalent to PHP 3,330,838

The following analysis examines the viability of the stock Pure Gold (PGOLD). What will be examined is the intrinsic value of the chosen stock and its potential as a viable investment.

The following is the method utilized to examine the rate of return of stock within the indicated period:

Po = Intrinsic Value of the stock

D1 = Estimated amount of dividend at the end of the year

P1 = Estimated value of the stock at the end of the year

K = Desired rate of return

Po = D1 + P1

1 + k

Po = 0.20 + 43

1 + 0.5

= 28.8

Based on the examination that was conducted, the Po of the stock at a desired rate of return is noted as 28.8 based on the data available during 08/1/2013. Since the estimated stock value at the end of the year was 43 while the current value is 41. The results of the examination reveal that investing in Pure Gold would be a bad idea. However, external indicators such as the upcoming holiday season, the general robustness of Philippine consumerism, and other such factors make this investment potentially lucrative.

The following section will examine the returns after the indicated investment period.

Year Stock Cash Splits. Rights Ex-Date Record Date Payable
YEAR STOCK CASH SPLITS RIGHTS EX-DATE RECORD PAYABLE
2013 0.20 (reg) 27-Dec-2013 06-Jan-2014 30-Jan-2014
2013 0.10 (spcl) 27-Dec-2013 06-Jan-2014 30-Jan-2014
2013 0.10 (reg) 09-Jan-2013 14-Jan-2013 07-Feb-2013
2013 0.10 (spcl) 09-Jan-2013 14-Jan-2013 07-Feb-2013
2012 0.20 (spcl) 17-May-2012 22-May-2012 05-Jun-2012

Justification for Investment

The results of the investment show that with an initial value of 41.20 on 08/1/2013 the value rose to 43.40 by 11/31/2013

The initial amount of shares bought with PHP 3,330,838 was equal to 80,845 shares.

By 11/312013 the value of these shares rose to: PHP 3,508,698 which created a profit margin of PHP 177,860

The total profit for this particular investment was AED 14,693

Justification for Investment

The real estate market within the Philippines is insufficiently expansive in that it has little in the way of expansive rural developments and instead focuses primarily on urban development (Investors start to stock up on Philippine sovereign bonds as potential investment-grade status hits radar for 2013, 2012).

Stock Picks

Based on an analysis of the Philippine real estate market, this part of the report will invest in Ayala Land (ALI) as its primary stock pick in the long term. The reason behind this is due to the fact that they are the most robust out of all the developers that I have examined so far and show the most potential in being able to continue real estate development within the country in such a way that it would benefit their shareholders.

Given the current state of the Philippine economy which shows a projected growth potential to last at least 5 to 6 years more, this would create positive developments within the Philippines especially in the case of the property sector as more Filipinos with cash drive up demand for real estate within the country. As such, Ayala Land (ALI) would be the best choice of stock picks in the long term.

Examination of Stock Pick

The following analysis examines the viability of the stock Ayala Land (ALI) between the periods of 08/01/2013 to 11/30/2013. What will be examined is the intrinsic value of the chosen stock and its potential as a viable investment.

The following is the method utilized to examine the rate of return of stock within the indicated period:

Po = Intrinsic Value of the stock

D1 = Estimated amount of dividend at the end of the year

P1 = Estimated value of the stock at the end of the year

K = Desired rate of return

Po = D1 + P1

1 + k

Current History of Ayala Land Stock Dividend per share.

Year Dividends per Share Dividend Yield (%) Dividend Payout (%)
2012 0.2133 0.81 0.33
2011 0.1466 0.97 0.27
2010 0.0930 0.57 0.2244
2009 0.0600 0.53 0.1961
2008 0.0600 0.94 0.1639

Price Rates of Shares

Price Ratios
Year Price to Earnings Price to Sales Price to Book Value Price to Cash Price to Cash Flow Price to Free Cash Flow PEG Ratio
2012 40.45 7.29 4.42 12.72 32.69 49.76 1.98
2011 27.93 4.80 3.17 8.04 20.92 128.18 0.90
2010 39.71 6.05 3.77 11.90 29.50 28.41 1.12
2009 36.76 5.27 2.79 13.89 25.10 36.97 (2.24)
2008 17.48 2.71 1.69 6.56 13.67 (18.22) 0.67
Per Share Data
Year Earnings per Share Sales Per Share Book Value Per Share Cash Per Share Cash Flow Per Share Free Cash Flow Per Share
2012 0.65 3.63 5.99 2.08 0.81 0.53
2011 0.54 3.16 4.78 1.89 0.72 0.1183
2010 0.41 2.72 4.37 1.38 0.56 0.58
2009 0.31 2.13 4.03 0.81 0.45 0.30
2008 0.37 2.36 3.78 0.98 0.47 (0.35
Year-End
Year Yr End Price Fiscal Yr End Price
2012 26.45 26.45
2011 15.16 15.16
2010 16.46 16.46
2009 11.25 11.25
2008 6.40 6.4

Examination of stock viability

Po = 0.33 + 30

1 + 1

= 15.16

Based on the initial examination of the intrinsic value of the stock through a 1% desired rate of return, it was noted that Po was lower than MPo (i.e. market value of the stock) which is 29.01. When examining this particular indicator of stock value, it would normally be noted that purchasing this stock would be a bad idea since the indicators show that the intrinsic value of the stock versus the desired rate of return of 1 percent is simply not feasible. The next section will examine the movement of the stock from the initial investment date of 08/1/2013 to 11/30/2013.

Examination of stock viability

The following chart shows that when the stock was purchased on 08/1/2013, the stock price was at 29.93 with the MACD going lower over the divergence zone at this particular time. While the RSI was at 40, the initial indicators did show that the stock price could potentially go up in the coming months. Unfortunately by 09/02/2013 the MACD plunged to -1.0 with only a brief rally by 11/01/2013. Current data on the price of the stock shows that by 11/30/2013 the price had reached 26. Unfortunately both the RSI (which crashed to 30) and the MACD (which hit -0.5) showed that general demand for the stock had disappeared resulting in a plunge in value from 29.93 to 26. The following is the end result of the investment period:

Of the AED 25,000 (PHP 302,635) that was invested into 10,111 shares of Ayala Land, the end result was a net loss of PHP 39,737 (AED 3,281) or nearly 1/3rd of the total investment. Taking the end result into consideration, it can be stated that given the result of Po examination and the low MACD and RSI, in hindsight it should have been obvious that investing in the company in the short term would have been a bad idea.

Total Profit

The results of the report show the following:

Ayala Land Investment (LOSS): AED 3,281

Etisalat Investmeent (LOSS): AED 2,127

Pure Gold Investment (PROFIT): AED 14,693

Total profit: AED 9,825

From the investment period of 08/1/2013 to 11/31/2013, this investment report was able to accumulate a total profit of AED 9,825 despite the initial investment losses.

Conclusion

In this investment report, three assets were invested into, Etisalat, Pure Gold, and Ayala Land. While the real estate unit (i.e. Ayala Land) shows considerable potential for long-term investment, the result was that there was a considerable decline in the overall value of the stock. On the other end of the spectrum, Pure Gold did marginally well but the profit made from investing into this particular asset is insufficient in mitigating the losses from investing into Ayala Land and Etisalat. All types of analysis that were conducted actually did indicate that the Ayala Land and Etisalat stock was not viable at this time; however, investment was still made resulting in considerable losses. Considering the results of the ill-advised investment, this report still states that the Philippine property sector and UA.E. telecommunications sector continue to remain a viable investment vehicle, however, more caution needs to be done to prevent subsequent losses. The tapering of the quantitative easing program by the U.S. Federal reserve could result in a potential bear market within the Philippines resulting in lower stock prices. On the other hand, the services sector was able to prove itself as a viable investment given the amount of profit that was obtained from investing in the stock. When taking into consideration the results from the investment, more interest should be taken into investing in the services sector within the country since it seems to be relatively robust enough. Taking this into consideration, it can thus be stated 2014 would be an ideal period to buy shares when prices seem to be falling then sell them by 2015 when prices return to normal.

Reference List

Botman, D., Klemm, A., & Baqir, R. (2010). Investment incentives and effective tax rates in the Philippines: a comparison with neighboring countries. Journal Of The Asia Pacific Economy, 15(2), 166-191.

Country Conditions. (2013). Political Risk Yearbook: Philippines Country Report, 1-23.

Dean, Y. (2008). International Migration, Remittances and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks. Economic Journal118(528), 591-630.

Economic Growth: Capital Investment – Recent Developments. (2012). Philippines Country Monitor, 8. Foreign Investment Climate. (2013). Philippines Country Review, 93-94.

Investors start to stock up on Philippine sovereign bonds as potential investment grade status hits radar for 2013. (2012). Euroweek, (1279), 134.

Moderation In Growth Under Way. (2011). Asia Monitor: South East Asia Monitor Volume 2, 22(7), 4.

Saigal, K. (2013). Foreign investors flock into the Philippines. Euromoney, 43(528), 43.

The fatal flaw in the Philippines’ investment-grade bid. (2013). Euromoney, 43(528), 12.

S&P follows Fitch raises the Philippines to IG. (2013). Euroweek, (1303), 6.

Vivoda, V. (2008). Assessment of the Governance Performance of the Regulatory Regime Governing Foreign Mining Investment in the Philippines. Minerals & Energy, 23(3), 127-143.

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BusinessEssay. (2022, March 25). Investment Report: Increasing the Initial Capital and Investing in International Markets. Retrieved from https://business-essay.com/investment-report-increasing-the-initial-capital-and-investing-in-international-markets/

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BusinessEssay. (2022, March 25). Investment Report: Increasing the Initial Capital and Investing in International Markets. https://business-essay.com/investment-report-increasing-the-initial-capital-and-investing-in-international-markets/

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BusinessEssay. 2022. "Investment Report: Increasing the Initial Capital and Investing in International Markets." March 25, 2022. https://business-essay.com/investment-report-increasing-the-initial-capital-and-investing-in-international-markets/.

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BusinessEssay. "Investment Report: Increasing the Initial Capital and Investing in International Markets." March 25, 2022. https://business-essay.com/investment-report-increasing-the-initial-capital-and-investing-in-international-markets/.