MARKETS SLUGGISH The past few weeks have seen no significant moves in any direction, perhaps due partly to the holiday season. Confidence seems to be rising in the US, which generally sets the pace for other markets. A recent survey of top investment bankers indicated that a sharp increase was planned in capital spending and acquisitions. On the other hand earnings are still mixed and valuations not overly attractive. Then again the US is faced with major twin deficits, budget and balance of payments. Treasury bonds are certainly one area to retreat from as pressure starts to build on long term interest rates. Treasuries fell heavily in July. (For those who take heed refer to my June Newsletter ‘Beware of the bond bubble’.) What should the confused investor do right now? Proceed with caution is the answer, taking care as always to diversify and separate short term from long term needs.

WHICH CURRENCIES TO CHOOSE NOW? A year ago this was not too difficult a question to answer. In more than one newsletter I advised diversifying out of US Dollars. Those who did so and moved into Euro or Australian Dollars have seen currency gains of around 20%. The situation now, however, is not so clear. The US Dollar has recovered some of its losses thanks to increased confidence in the US economy. Also, weakness in European economies has hurt the Euro. There are two schools of thought, the Dollar optimists and those who think the twin deficits are going to pull the Dollar down again before the year is out. The fallout from Iraq could also hit the Dollar as well as Sterling. The Rupiah could be affected later on by the decision to abandon the IMF.

TERRORIST ATTACKS – DOES YOUR LIFE INSURANCE COVER YOU?
One of my clients was injured in the recent J.W.Marriott bombing but happily he survived and is recuperating in Singapore. We all wish him a speedy recovery. We asked several of the insurance companies we deal with whether clients would be covered in the event of a terrorist attack. The answer generally was yes as long as they were not ‘actively participating in the incident’. One insurance company advised that cover would not be valid in the event the British Foreign Office advised UK citizens to leave. As things stand the British embassy is advising UK nationals to consider leaving. This is not as strong as actually advising, so according to the insurance company, cover is still valid. While statistically the chances of becoming a victim are small, we never know what lies around the corner so I suggest you review your level of life cover now. Pure life insurance is relatively inexpensive and it is a small price for peace of mind. For example, with one plan a premium of around US$1,500 would provide cover at age 40 of US$1,000,000 for one year. Future premiums would rise with age. Other plans offer a fixed premium for a given term. Just call or e-mail if you would like a quote.

SETTING YOUR BENCHMARKS One of the things we now try to establish with clients is how they manage their expectations. Gone are the days when the industry promotes the concept of 12% per annum growth ad infinitum. Anyone who now expects that level of growth must also accept the level of risk that goes with it. We have been marketing a number of hedge funds that have indeed achieved that level and more, but it would be unwise to assume such levels can be maintained indefinitely. A more realistic benchmark would be that of inflation in your home country. The object of your investing should be to beat that benchmark significantly over a period of time. A full article on benchmarks can be accessed via the last Financial Partners corporate newsletter.

APPROVED PENSION PLANS THE BEST SOLUTION FOR LOCAL STAFF There has been much controversy lately over legislation covering severance pay to the extent that it is actually deterring employers from hiring new staff. The problem is unlikely to go away. The best solution is to set up a pension plan that is approved by the Indonesian government. This then exempts the employer from the obligation to pay severance and service benefits upon the employee’s retirement. Contributions are also tax deductible and perhaps above all, the scheme should improve employee relations and help to attract and retain good quality staff. If you are responsible for local employees and you do not have an approved scheme we will be happy to advise.

HEDGE FUNDS CONTINUE TO THRIVE Our higher net worth clients continue to benefit from the steady and sometimes significant returns from leading hedge funds. The Australian OM-IP 220 series has been returning close to 20% per annum (Series 9 closes shortly) while the less volatile Momentum All Weather has managed an annualized return of 9.3% since launch in 1995. The latest US$ product from Man (the basic fund manager behind OM-IP) is now available. The Man product families have produced annualized returns of between 16% and 20%. The GAM Diversity Fund is about to cap its holdings at a staggering US$3.2 billion and will shortly close to new business. Although it is tempting to place a large portion of one’s assets into hedge funds due to their strong out performance in recent years, I believe they should form just a modest, albeit important, part of a portfolio. They are generally not suitable for smaller investors.

DISRUPTION TO E-MAILS The latest Sobig virus caused considerable disruption to the internet around the world. I am unsure if this was behind it but I understand a number of e-mails sent to me were returned over the past few days. If you have sent me an e-mail and have not had a reply please resend to both the addresses below. When Newsletter no.1 went out in 1994 it went by local mail and fax. Hopefully the internet will survive the attacks and we will not have to revert to primitive means of communication!

Colin Bloodworth, 29 August 2003. PPI / PFS / Financial Partners International.
Plaza Chase 6thFloor, Jl Jend. Sudirman Kav 21, Jakarta 12920. Tel.520 8099, Fax 520 8097.
E-mail: ppi.indonesia@attglobal.net  or colin.bloodworth@financial-partners.biz 
The opinions expressed by the writer are not necessarily those of Financial Partners and are addressed primarily for general information to clients of the writer. For more information about the group visit our website at: www.financial-partners.biz