Gini co-ef­fi­cient ex­plained

Portfolio - - IN THIS ISSUE - BY JA­SON LIM

TECH­NOL­OGY Stop this me-too app thought

A lot of what goes into tech­nol­ogy in­vest­ments come up as ‘me-too’ apps. Want to find out what stock to buy? Well, the app store would prob­a­bly have at least 100 apps with over­lap­ping or sim­i­lar ca­pa­bil­i­ties in tech­ni­cal anal­y­sis, val­u­a­tions, etc. It is time to stop the trend of get­ting on the band­wagon or gravy train and start be­ing truly in­no­va­tive in­stead of fol­low­ing the crowd. The real money is made in nov­elty not du­pli­ca­tion.

FI­NANCE Im­pend­ing bub­ble?

Bank­ing the­o­ries are one thing, bank­ing prac­tice within China, how­ever, is per­haps quite an­other. The lack of trans­parency in de­ter­min­ing mar­ket ef­fi­ciency of firms that in­clude state-owned en­ter­prises, and the mask­ing of non-per­form­ing loans through var­i­ous tricks of the trade can be quite a scary thought. The fact that McKin­sey & Co. sug­gested that the of­fi­cial fig­ures on non-per­form­ing loans in 2015 were closer to about four times what was re­ported could be a telling sign. A fi­nan­cial domino ef­fect could be in the hori­zon.

PROP­ERTY Inces­sant buy­ing of con­do­mini­ums

The cur­rent prop­erty de­vel­op­ment strat­egy in build­ing homes in su­per prime dis­tricts of ma­jor cities, pack­ag­ing them neatly into a mar­ket­ing piece and then sell­ing these pack­ages to the rich is still hot and much de­sired. Af­ter all, it is a nice thought to own a piece in the heart of Lon­don, Barcelona, Paris, Kuala Lumpur, Los An­ge­les, New York… you get the drift. Will there be a point where prices come crash­ing be­cause of ir­ra­tional price in­creases? Much re­mains to be seen.

CUL­TURE Ad­just­ing to a Chi­nese hege­mony

For­mer Aus­tralian am­bas­sador to China, Stephen Fitzger­ald, hit the nail on the head when he said that “the in­flu­ence it (China) wielded in its own uni­verse for two thou­sand years be­fore the Euro­peans came is un­known… there’s in­trin­sic worth in un­der­stand­ing Chi­nese cul­ture for its own value”. The be­he­moth of a na­tion has soft power like no other, and it be­hooves us to pre­pare our­selves so as not to be poorly equipped to deal with its dom­i­nance.

NEW IDEAS Re­ward­ing man­age­ment

It is noth­ing but rent-seek­ing be­hav­ior for CEOs to be paid ex­or­bi­tant amounts of money de­spite con­clu­sive ev­i­dence against the per­for­mance-pay ar­gu­ment. Cur­rent mea­sures in­clude ty­ing a larger por­tion of CEO pay to bonuses, but that may only cause them to fo­cus on the short-term while ig­nor­ing the long-term ef­fects. Per­haps bonuses should only be paid out across a much longer term than they are right now, with the op­tion for ‘oblig­a­tory dona­tions’ to char­i­ties and ed­u­ca­tional causes. Not too bad a thought to in­stil a give­back cul­ture start­ing at the apex of the or­gan­i­sa­tion.

SO­CI­ETY An alarm­ing Gini co­ef­fi­cient

The Gini co­ef­fi­cient mea­sures in­come in­equal­ity in a scale of 0 to 1, 1 be­ing the most un­equal and pos­si­bly very shaky so­ci­etal foun­da­tions. China’s Gini co­ef­fi­cient at the mo­ment nearly stands at the 0.5 mark, which is sig­nif­i­cantly higher than the OECD av­er­age. This is a pos­si­ble brew­ing ground for so­cial un­rest in an econ­omy once known to ex­pe­ri­ence “re­form with­out losers” all the way to the 1990s. .

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