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Go for World Indices CFD to tap global markets

Phillip Securities, Singapore’s most established securities firm, has a wide range of World Indices CFDs (Contracts for Difference) for the savvy investor to choose from for his investment decisions and for diversifying his portfolio. In this article, Phillip Securities Research’s Macro Analyst, Ng Weiwen, shares his views on the importance of tracking world indices for tapping new global opportunities.

For the benefit of new retail investors, please explain what is World Indices CFD and how does it operate as an investment instrument?

World Indices CFD allows investors to track and trade the underlying index. Clients can consider CFDs which allow them to trade – and potentially profit – regardless whether the market goes up or down.

A key merit of trading World Indices CFD is that it allows for leverage of up to 20 times, allowing one to be fully exposed to the market with a minimal capital outlay. Phillip CFD offers both Cash-Derived World Indices CFDs and Cash-Correlating World Indices CFDs.

By looking at the charts of world indices, investors can either trade the Cash-Derived CFDs which are derived directly from the underlying cash index, or gather some sense of the price fluctuation of the Cash-Correlating CFDs.

How do World Indices CFDs provide a cost-effective way of diversify one’s portfolio?

In our view, the investor has got to be strategic and broad market indices like the S&P and the Dow Jones have both upside and downside risks tugging at them. We lean more towards the view that US indices will finish the year poorly as earnings has been mixed plus there is the fiscal cliff.

We are short on the Nasdaq (US Tech 100 Index USD5 CFD) as Apple looks to have peaked, plus the uncertainty surrounding the fiscal cliff has certainly crimped earnings in general for the tech sector. We are long on homebuilders (XHB) as housing is coming off a bottom.

What, in your view, are the key challenges for the US financial markets?

With World Indices CFD, investors are able to trade the global macro outlook and construct a diversified portfolio across regions.

Specifically, investors are able to trade long or short major stock market indices such as the S&P 500, Nikkei 225 and the Hang Sang Index. Investors are also able to gain access to niche markets with CFDs tracking the FTSE China A50 Index as well as the S&P CNX Nifty Index.

Why should Singapore investors consider the US market? What are the key benefits and opportunities?

The sheer size of the US markets offers vast opportunities for the savvy investor to take a view and stand to profit from it. As we said earlier, any view can be traded on the US markets with a possible good outcome for the investor.

Why do World Indices based CFDs provide an investment avenue for benefitting from top market capitalized companies?

Stock picking might be challenging in view of the large number of stocks in the universe as well as lack of familiarity in a new market. Thus, trading stock market indices via CFDs offers the attractive proposition of trading on the price fluctuation of the stock index and gaining exposure to individual top market capitalised companies which make up the respective world indices.

Furthermore, index-tracking CFDs don’t require the buying and selling of individual shares. World Indices CFDs allow clients to enter either a long or short position on an index without actually having to buy and sell the component shares themselves.

How can the new FBM KLCI MYR10 CFD launched last year be used to trade in Malaysian shares?

The FBM KLCI MYR10 CFD tracks the Bursa Malaysia Kuala Lumpur Composite Index which is the benchmark for the Malaysia market and comprises of 30 component stocks.

We are Marketweight Malaysian equities in view of the benign inflation and resilient domestic demand, buoyed by the ongoing Economic Transformation Programme.

Similarly, how does the FTSE China A50 Index USD1 CFD provide an investment opportunity for tapping the booming Chinese stock markets?

With the FTSE China A50 Index USD1 CFD clients are able to access China’s obscure A-share market. Specifically, the CFD tracks the FTSE China A50 Index which comprises of the largest 50 A Share companies by market capitalisation and includes stocks listed on the Shanghai and Shenzhen Stocks Exchanges.

We are Overweight China equities due to compelling valuations and possible positive economic reforms under the new Chinese leadership.

What are the key risks of trading CFD, especially for those new to it?

Investors have the potential to maximise their returns and lower risk with CFDs. Phillip CFD clients are able to leverage 5 to 20 times the capital outlay to enter positions. Losses – which could be potentially as large – can nonetheless be mitigated via hedging as well as short selling,

We caution that as with all leveraged trading, one should keep one’s stops tight especially for those new to CFDs, to avoid losing more than your initial investment.

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