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Best picks for 2003
Written by: Tomáš Prouza (www.penize.cz)
Photo by: Vladimír Weiss
So you've gotten your nice Christmas
bonus, and you're wondering where to invest it? We've compiled a
few special tips for you.
There exist endless investment opportunities, and nearly no one
can state with complete assurance that he knows the best investments.
Czech national bonds? American stocks? Japanese corporate bonds?
The EU money market? And what about real estate, not to mention
art, antiques, or wine? There are many options, but when choosing
your investments for the inchoate year of 2003, we will rely on
the usual distribution: the money market, stocks and bonds, and,
last but not least - the real estate market, which has great prospects.
"The basis of a good investment strategy is the term over which
we want to make our investment, and how much funding we have on
hand," points out Henk de Bruijne, the general director of
ING Investment Management for the Czech Republic. If you just want
to park some money for six months while you're buying a house, it
isn't worth it to risk putting it anywhere else than in a money
market fund. Of course the interest isn't great, but the fund protects
your cash against inflation, and you can use it at any time. Planning
larger investment strategies pays only in the event that you won't
need your cash for at least a year, ideally three.
So let's say you're planning for the long term. How do you see 2003?
"I think this won't be an exciting year for Czech investors,"
de Bruijne says, and adds that this year (i.e., 2003) better results
can be expected on the stock market, with bonds doing less well.
If we understand a well-balanced portfolio to consist of one third
in money market instruments (with lower but stable yields), one
third in bonds (somewhat higher yields, but with the danger of fluctuating
investment values), and one third in stocks (with potentially high
profits but also the risk of sharp losses), it's simple to make
a recommendation for 2003: sell some of your money market funds,
and buy bonds and, especially, stocks.
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Petr Beneš |
Photo:
Vladimír Weiss |
The money market and bonds - worse than
last year
"Because interest rates in the Czech Republic and Europe are
at historical lows, you can't expect any miracles on the money market,"
de Bruijne comments. On the other hand, investment on money market
funds should never be considered as long-term money-makers, they
are simply places for putting emergency cash, money you can take
out any time you need it without worrying about share price declines
or even total investment loss.
And Czech bonds won't do as well as in recent years, either. "Nevertheless,
unless interest rates rise sharply, bond fund returns will markedly
exceed the level of inflation, and that's reason enough for investing
in them," says Petr Beneš, vice-chairman of První investiční's
board of directors. And what if you're going for more? "Corporate
bonds could be interesting, since sometimes their yields make up
for the higher risks that follow from the current volatile situations
on local and global markets," Beneš explains. However, you
have to be very careful and painstakingly select which bonds to
buy. According to Beneš, this year it will be good to watch euro-denominated
bonds issued by large companies, but the main thing is to find a
good portfolio manager. "Especially when yields are low and
every tenth of a percent counts, it's important to have a manager
who knows how to diversify properly," Beneš affirms.
Will stockshave a brighter future?
Stocks could be good news for investors. Beneš says that the stock
markets have the worst behind them, so better times have to come.
"The last three years were horrible for shares," de Bruijne
agrees. However, Czech stocks managed to escape from the general
trend last year, finishing in the black. "The American and
European economies will grow at a below-average rate, and even though
the central European economies should be able to avoid this trend
and record much greater growth, you have to be careful," de
Bruijne cautions. He still sees many risks that investors somehow
pay insufficient attention to. "Mainly, there's the possible
war in Iraq and a spike in oil prices, ominous developments in Brazil,
the slow growth of the advanced economies, and the problems with
rising deficits encountered by many EU members," he explains.
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Henk de Bruijne |
Photo:
archiv |
If an investor decides to put money in stocks, he should stick
with the Czech Republic. "Compared with western Europe, the
Czech Republic and the rest of central Europe make up a region of
high growth," de Bruijne points out, adding that it's impossible
to anticipate more rapid growth this year in western Europe. "Many
firms focus on cutting costs, and lower expenditures by firms and
their employees are dampening the growth of European economies,"
de Bruijne says admonishingly. Of course in the Czech Republic we
face the problem that there are only a very few truly negotiable
stocks to invest in. But if you want to invest in other countries,
be sure to distribute your investments as much as you can, in order
to limit the risks of various problems in single industries or regions.
For those who want to go into stocks, but still don't have faith
in a long-term recovery, we can recommend guaranteed funds. These
are based on the assurance that their investors get the invested
funds back after a certain period of time (usually four to five
years) if the market turns sour, while if the market rises the shareholder
receives a greater part of that increase. "It's the ideal investment,
especially at a time when stock markets are expected to rise but
certain risks persist," Beneš notes.
Whatever you decide to invest in, remember not to put all your eggs
in one basket - spread your money out as much as you can in order
to limit your risks to the greatest possible degree. Don't believe
promises of staggering returns, and pay attention to what the experts
say - they can often help you avoid fatal errors.
| Real
estate - an insider's tip
WHILE ENRICHING one's portfolio with real estate is
unusual these days, according to Petr Beneš, vice-chairman
of První investiční's board of directors, 2003 will be a good
time for such investments. "Although newer apartments
and parcels are already quite high, you still enjoy yields
on rent of 6-10%, while in the EU the return is only 3-4%,"
Beneš stresses, saying that this marked interest differential
will force further real estate price increases and greater
investment returns with the country's imminent EU accession.
Also stimulating real estate price growth will be the establishment
of real estate funds, which should be allowed by a new law
on collective investment, probably effective in 2004. "These
funds are designated for people who want to invest in real
estate but don't have a few million on hand to buy buildings
or land," Beneš explains. Just a few hundred thousand
crowns will suffice investing in real estate funds, the establishment
of which will bring new money into real estate purchases (in
other words, further price growth). Real estate investments
also have another great advantage - they are relatively transparent,
and even a layman can understand them. "Thanks to the
internet, it's very easy to research price levels in any area;
one can just check on information at the registry of deeds,
so it's quite easy to get the critical information,"
Beneš says. The role played by brokers is currently being
limited to only consulting, so overall costs not related to
the investment are declining.
Furthermore, Beneš says that it also pays to borrow to buy
real estate. A person with above-average income can get a
mortgage at 5-6% interest (after accounting for the tax break
and possible government subsidies, this figure could be even
lower), while rent yields are often twice that..
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