Terence K. J. Nunis, Consultant

In Thomas Hobbes’ concept of the state of nature, property rights are quite different from those in a structured society.  Hobbes describes the state of nature as a condition where there is no governing authority or laws.  In this state, individuals have a natural right to everything, leading to a situation he famously describes as “solitary, poor, nasty, brutish, and short”.  In the absence of a governing authority, individuals have a natural right to claim and use any resources they can acquire.  This means that there are no formal property rights, and everything is up for grabs.  This is initial chaos.  Since everyone has the right to everything, this leads to constant conflict and competition as individuals strive to secure resources for their survival.  The primary law of nature, according to Hobbes, is self-preservation.  This means that individuals will do whatever is necessary to protect their own lives and well-being, including claiming resources and defending them against others. Hobbes argues that to escape the chaos of the state of nature, individuals collectively agree to form a social contract and establish a sovereign authority.  This sovereign authority then defines and enforces property rights, providing stability and order.  In Hobbes' view, the sovereign has the power to create and regulate property rights.  This means that property rights are not inherent but are granted and protected by the authority of the sovereign.  Consider a group of people stranded on an uninhabited island, the state of nature.  Each person has the right to claim any resources they find, such as food, shelter, or tools.  This leads to constant conflict as everyone tries to secure what they need.  To resolve this, they agree to appoint a leader, the sovereign, who will establish rules for how resources are distributed and protected, creating a system of property rights. In modern law, the concepts introduced by Hobbes in his state of nature have evolved significantly.  In Hobbes’ state of nature, there are no formal property rights, leading to conflict and competition.  Modern legal systems establish clear property rights through laws and regulations.  These laws define how property is acquired, transferred, and protected.  In Singapore, the Land Titles Act provides a comprehensive legal framework for property ownership and transfers, ensuring that property rights are clearly defined and protected.  Contracts play a crucial role in modern property transactions, providing a legal basis for the exchange of property rights.  A lease agreement between a landlord and tenant outlines the terms and conditions of property use, ensuring that both parties' rights are protected. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

Definitely, no.  Investing in index funds with a time horizon of less than two years is extremely risky.  Index funds are typically designed for long-term investment, as they provide broad market exposure and tend to perform well over time.  With a short time horizon, you might not have enough time to ride out market fluctuations and benefit from the long-term growth potential of index funds.  The stock market is volatile in the short term, and you will experience significant fluctuations in the value of your investment. If you need the money within two years, you might be forced to sell your investment at a loss if the market is down.  Short-term investments should generally be more conservative to minimise the risk of loss. There are better alternative options for short-term investment.  High-yield savings accounts offer a stable return with low risk and easy access to your funds.  Money market funds invest in short-term, high-quality securities and provide a stable value with low risk.  Certificates of Deposit (CDs) offer a fixed interest rate for a specified term, providing a predictable return with low risk.  Suppose you have S$10,000 to invest and need the money in two years.  Investing in an index fund might expose you to market volatility, potentially resulting in a lower value when you need to withdraw the funds.  On the other hand, placing the money in a high-yield savings account or a CD would provide a more stable return with less risk. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets and current liabilities.  It measures a company’s short-term liquidity and its ability to cover its short-term obligations.  Current assets include cash, accounts receivable, inventory, and other assets that can be converted into cash within one year.  Current liabilities are accounts payable, short-term debts, and other obligations due within one year.  Suppose a company has current assets of S$500,000 and current liabilities of S$300,000.  Its working capital would be S$200,000 (S$500,000 - S$300,000). On the other hand, non-working capital refers to long-term assets and investments that are not easily converted into cash within a year.  These assets are used for the long-term operations and growth of the business.  Long-term assets include property, plant, equipment, and other long-term investments; while long-term liabilities include long-term debts and obligations that are due beyond one year.  A company’s non-working capital might include a factory building valued at S$1,000,000 and a long-term loan of S$600,000.  These assets and liabilities are not part of the working capital calculation, but are crucial for the company’s long-term operations. Working capital is a key indicator of a company’s liquidity and its ability to meet short-term obligations.  Non-working capital, on the other hand, represents the company’s long-term investments and financial stability.  Positive working capital indicates that a company can fund its day-to-day operations and invest in growth opportunities.  Negative working capital suggests potential liquidity issues and the need for better cash flow management. Both working capital and non-working capital are essential for assessing a company’s overall financial health.  While working capital focuses on short-term financial stability, non-working capital provides insight into the company's long-term growth potential.  Consider a retail company like Amazon.  Amazon’s working capital includes cash, accounts receivable from customers, and inventory of products ready for sale.  Amazon’s non-working capital includes long-term investments in technology infrastructure, warehouses, and other assets that support its operations over the long term.  The difference between working capital and non-working capital establishes whether businesses manage their finances effectively, ensuring they have enough liquidity to meet short-term needs while investing in long-term growth. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

The following are commonly asked questions in a pitching competition with data and examples from real pitches.  They fall into various categories, pertaining to the business, the market and the team.  Examples of how successful startups addressed these concerns are found on sites that have deck teardowns and even interviews with founders where they talked about their actual pitches. How does your product or service work? Airbnb’s pitch deck effectively explained how their platform connects travellers with hosts, showcasing the simplicity and convenience of their service. Who are your customers? Uber identified their target market as urban commuters and travellers, highlighting the widespread need for convenient transportation solutions. What problem does your product solve? DoorDash emphasised the problem of limited food delivery options in certain areas, presenting their service as a solution to this gap. What is your unique selling proposition (USP)? LinkedIn’s pitch deck focused on their USP of professional networking, explaining how their platform differentiated itself from social media networks. How do you plan to make money? Facebook’s pitch deck detailed their revenue model, which included advertising and premium services, demonstrating a clear path to profitability. What is your business model? Dropbox outlined their freemium business model, explaining how they would convert free users into paying customers through additional storage and features. Who are your competitors? Peloton identified competitors like traditional gyms and home fitness equipment, but emphasised their unique approach of combining fitness with community and technology. What is your market size and growth potential? WeWork presented data on the growing demand for flexible office spaces, projecting significant market growth and potential for expansion. How do you plan to scale your business? Uber highlighted their plans for global expansion, detailing strategies for entering new markets and scaling their operations. What are your key milestones and timelines? Airbnb set clear milestones for their growth, including user acquisition targets and expansion into new cities, providing a timeline for achieving these goals. Who are the key members of your team? LinkedIn’s pitch deck introduced the founding team, highlighting their relevant experience and expertise in technology and business development. What are their backgrounds and relevant experience? Dropbox’s pitch deck detailed the founders’ backgrounds in computer science and their previous successful projects, showcasing their capability to execute the business plan. How do you complement each other's skills? Airbnb emphasised the diverse skill sets of their team, explaining how each member’s expertise contributed to different aspects of the business, from technology to marketing. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

There are no insurance agents in Singapore.  The job has long since evolved, and they are now financial consultants.  The evolution of insurance agents into financial consultants in Singapore has been driven by several factors, including changing consumer expectations, regulatory changes, and the need for more comprehensive financial planning services.  Consumers in Singapore have become more sophisticated and demand a broader range of financial services beyond just insurance.  They seek holistic financial planning that includes investment advice, retirement planning, and wealth management. The Monetary Authority of Singapore (MAS) has introduced regulations to ensure that financial advisors act in the best interests of their clients.  This has led to a shift towards more transparent and client-centric advisory services. Increased competition in the financial services industry has pushed insurance agents to diversify their offerings and provide more value-added services to retain and attract clients.  According to a study by the CFA Institute of Singapore, only about 10% of respondents believe that financial advisors put their clients' interests first.  This low level of trust has driven the industry to adopt more client-focused practices.  Singaporeans are underinsured, with a critical illness insurance protection gap of 80%.  This indicates a need for more comprehensive financial planning and education. Traditionally, insurance agents in Singapore were tied agents who could only sell products from the company they represented.  However, to overcome the perception of bias, some insurance companies have set up wholly-owned financial advisory (FA) subsidiary firms.  These FA firms can offer a wider range of products from multiple insurance companies, providing more options for clients.  Tied agencies still exist, but they offer more comprehensive services solely within the company they support.  Financial consultants provide a more comprehensive approach to managing clients’ finances, including insurance, investments, and retirement planning.  By focusing on client interests and offering transparent services, financial consultants can rebuild trust and improve their reputation in the industry. The effects of this change can be seen in the performance of the industry.  In the life insurance sector, new business total weighted premiums were S$2.86 billion in the first half of 2024, a 30.4% increase compared to the same period last year.  Weighted premiums for single-premium policies increased by 32.9% year-on-year, amounting to S$918.0 million in total for 1H 2024.  Weighted premiums for annual premium policies increased by 29.3% year-on-year, amounting to S$1.94 billion in 1H 2024.  The industry recorded a total of S$70.2 billion in total sum assured during 1H 2024, a growth of 6.7% over the same period last year. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

You cannot have it both ways: full protection and control. In an irrevocable life insurance trust (ILIT), the beneficiary does not have direct control over the money.  Instead, the trustee manages the trust assets according to the terms set out in the trust deed.  The trustee is responsible for managing the trust assets, including the life insurance policy proceeds.  The trustee must act in the best interests of the beneficiaries and in accordance with the trust deed.  The beneficiary has a beneficial interest in the trust, meaning they are entitled to receive the benefits of the trust assets as specified in the trust deed.  However, they do not have direct control over the assets or the decisions regarding their management. In Singapore, the Trustee Act governs the duties and responsibilities of trustees.  Trustees must act prudently and in the best interests of the beneficiaries.  Assets held in an irrevocable trust are generally not considered part of the grantor’s estate for tax purposes, which can provide tax benefits.  This can be particularly advantageous for estate planning and asset protection. Suppose a grantor establishes an ILIT and transfers a life insurance policy into the trust.  The trustee will manage the policy and distribute the proceeds to the beneficiaries according to the trust deed.  The beneficiaries cannot change the terms of the trust or direct the trustee on how to manage the assets.  In Singapore, a high-net-worth individual might use an ILIT to protect their assets from potential creditors and reduce estate taxes.  The trustee would manage the trust assets, ensuring they are used for the benefit of the designated beneficiaries. Assets in an ILIT are protected from creditors and legal claims against the grantor.  ILITs help minimise estate taxes and ensure a smooth transfer of wealth to beneficiaries.  The grantor can set specific conditions for how and when beneficiaries receive the trust assets, ensuring their wishes are carried out. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

The European Central Bank (ECB) implemented two interest rate cuts in 2024.  In June 2024, the ECB first cut its key interest rate by 25 basis points (bps) from 3.75% to 3.50%.  And then in October 2024, the ECB made a second consecutive 25 bps cut, lowering the rate from 3.50% to 3.25%.  These rate cuts were aimed at addressing economic challenges, such as slowing growth and inflation below the ECB's target of 2%. The ECB’s interest rate cuts are aimed at stimulating economic growth by making borrowing cheaper for businesses and consumers.  Lower interest rates reduce the cost of loans, encouraging investment and spending.  The ECB’s primary goal is to maintain price stability, with a target inflation rate of 2%.  The recent interest rate cuts are part of efforts to bring inflation down from higher levels.  Inflation in the Eurozone fell to 1.7% in September 2024, the lowest in over three years.  Those efforts were successful. These cuts have a good reason.  Lower interest rates boost consumer spending by reducing the cost of mortgages and other loans.  This leads to increased demand for goods and services, supporting businesses and employment.  Cheaper borrowing costs encourage businesses to invest in expansion, technology, and infrastructure.  This leads to job creation and productivity improvements.  Interest rate cuts have a positive impact on financial markets by increasing investor confidence and liquidity.  This leads to higher stock prices and improved access to capital for companies. Eurozone growth was modest at 0.2% in the second quarter of 2024.  The ECB’s interest rate cuts are expected to support a slight improvement in growth rates.  The ECB expects inflation to pick up slightly in the coming months before returning to the target in 2025.  The ECB lowered its key interest rates to 3.25% for the deposit facility, 3.40% for the main refinancing operations, and 3.65% for the marginal lending facility.  These cuts are intended to ease financing conditions and support economic activity. The Eurozone economy faces risks from external factors such as geopolitical tensions and energy price fluctuations.  The ECB will need to monitor these risks and adjust its policies accordingly.  While the ECB does not expect a recession, it acknowledges downside risks to growth, particularly in the manufacturing sector and exports.  Continued monitoring and policy adjustments will be necessary to address these challenges.  Overall, the ECB’s interest rate cuts are designed to support economic growth, control inflation, and boost consumer and business confidence.  However, the effectiveness of these measures will depend on various factors, including external economic conditions and the response of businesses and consumers.  A primary concern is the results of the US presidential election. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

In a nutshell, not even close.  Donald John Trump’s proposed tariffs are based on several key arguments and motivations, all flawed arguments.  Trump believes that imposing tariffs on imported goods will encourage companies to relocate their manufacturing operations to the United States, thereby creating more factory jobs and boosting domestic production.  Trump argues that tariffs will help reduce the trade deficit by making imported goods more expensive, thus encouraging consumers to buy domestically produced goods.  Trump has frequently cited what he perceives as unfair trade practices by other countries, particularly China.  He believes that tariffs will level the playing field and protect American industries from unfair competition. Trump has proposed using the revenue generated from tariffs to fund various government programmes, such as tax cuts and subsidies for childcare.  Trump has also framed tariffs as a matter of national security, arguing that reducing dependence on foreign goods will make the US more self-sufficient and resilient in times of global uncertainty.  Trump often cites the example of Harley-Davidson, which faced high tariffs in India, as a reason for relocating production.  However, this example has been criticised for oversimplifying the complexities of trade policy. The Peterson Institute for International Economics estimated that Trump's proposed tariffs could reduce US GDP by more than a percentage point by 2026 and increase inflation by 2 percentage points.  A report found that a 20% universal tariff could cost a typical American family nearly US$4,000 a year. Tariffs are essentially taxes on imported goods.  When tariffs are imposed, the cost of these goods increases, and this cost is often passed on to consumers in the form of higher prices.  When Trump imposed a 50% tariff on washing machines in 2018, the price of washing machines jumped by around 12%, costing US consumers an additional US$1.5 billion annually. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

There are quite a few factors to consider, which make different countries attractive for varying reasons.  Countries with stable economic conditions are more attractive to foreign investors.  The United States remains a top destination for foreign direct investment (FDI) due to its stable economic environment.  Larger markets with high growth potential attract more FDI.  China, despite its economic slowdown, continues to attract significant FDI due to its large market size and growth potential.  Lower labour costs and availability of skilled labour are crucial.  Countries like Vietnam and India are becoming attractive destinations for FDI due to their relatively lower labour costs and growing pool of skilled workers.  Good infrastructure is essential for business operations.  Countries like Singapore and the UAE have invested heavily in infrastructure, making them attractive for FDI. A favourable regulatory environment encourages FDI.  Countries with ease of doing business, low corruption, and strong property rights, such as New Zealand, Singapore, and Switzerland, are top destinations for FDI.  Tax breaks and incentives offered by host countries can attract foreign investors.  Ireland has attracted significant FDI in the technology sector due to its favourable tax regime, although that has skewed its economic data.  Competitive exchange rates make a country more attractive to foreign investors.  Countries with stable and competitive exchange rates, like Japan, are attractive for FDI.  Proximity to natural resources is a significant factor.  Countries like Australia and Canada attract FDI in mining and energy sectors due to their rich natural resources. FDI is often measured as a percentage of GDP or GNP to understand its impact on the economy.  FDI as a percentage of GDP indicates the level of foreign investment relative to the size of the economy.  In 2023, global FDI inflows were US$1.3 trillion, which is about 1.3% of the world GDP.  FDI as a percentage of GNP considers the income generated by the nation’s residents and businesses, both domestically and abroad.  The United States, which is the largest recipient of FDI, has FDI inflows that significantly contribute to its GNP. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

It seems quite likely that China’s central bank, the People’s Bank of China (PBOC), will cut the reserve requirement ratio (RRR) before the end of 2024.  PBOC Governor, Pan Gong Sheng, indicated that a cut of 0.25 to 0.5 percentage points is being considered, depending on market liquidity conditions.  The central bank has already implemented several measures to support the economy, including previous RRR cuts and interest rate reductions.  This move is part of a broader strategy to support the economy amid slowing growth and challenges in the property and capital markets. China’s economy saw its slowest growth in over a year, with GDP rising by just 4.6% in the third quarter of 2024, below the 4.7% growth recorded in the second quarter.  The PBOC has already implemented several measures to stabilise the economy, including previous RRR cuts and interest rate reductions.  Reducing the RRR frees up funds for commercial banks, allowing them to increase lending to businesses and consumers.  This can stimulate economic activity and support growth.  Small and medium-sized enterprises (SMEs) also benefit significantly from increased access to credit, helping them expand and create jobs. The PBOC aims to bolster the property and capital markets through targeted policies and increased liquidity.  The PBOC’s measures aim to stabilise the property market by supporting housing demand.  This could prevent further declines in property prices and restore confidence among homebuyers and investors, and address some of the prominent contradictions and challenges in these sectors.  The PBOC will continue to monitor inflation and use price-based regulatory tools, such as interest rates, to maintain price stability.  The PBOC's measures are expected to support a reasonable recovery in economic growth, although achieving the around 5% target for 2024 may still be challenging.  The RRR cut and other policy measures are designed to encourage investment and consumption. Increased liquidity in the financial system leads to higher stock prices and improved market sentiment, encouraging investment in the capital markets. By monitoring inflation and using tools such as interest rates, the PBOC aims to maintain price stability.  This is crucial for ensuring that the benefits of increased lending and economic growth are not eroded by rising prices.  Controlled inflation sustains consumer spending, which is a key driver of economic growth.  The PBOC will closely monitor risk accumulation from a macroprudential perspective, ensuring that the financial system remains stable.  This includes assessing the impact of increased lending on bank balance sheets and managing potential credit risks.  The PBOC aims to ensure that the economic recovery is sustainable in the long term, avoiding the pitfalls of excessive borrowing and financial instability. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ