Wednesday, February 21, 2007


Super Bull - Dejavu 1993?

While I have maintained my bullishness on global equities in general, the bullishness of the Malaysian markets have caught many by surprise, including myself. Having been through the 87 October crash (although to me I remembered it as the yen rally as I was working in Tokyo at that time) and the quite silly 93-94 super bull run in Malaysia/Asia, it makes for good comparison.

The 93 run was brought on by easy money from foreign investors seeking better returns. Call them hedge funds or cowboy funds or even astute international funds, but the 93-94 run was brought on by liquidity. Let's take the Malaysian example then. When you have good liquidity and the currency is looking strong, nothing seems to be able to go wrong. But the market was very maverick-driven, character-driven ... stocks associated with people will go very far and high. Plus it was very much retail driven. there were many days when we used to boast that our volume exceeded even the US markets. Looking back, thats when everyone should know its a false bull, and it will only take a prick to burst the bubble (pun intended).

The current run has its similarities, strong currency and deluge of foreign funds. However there are some remarkable differences - no more false volume, back then anyone could be buying or holding RM200,000 to RM500,000 of stock on contra with almost zilch in asset backing. The very shoddy risk management of the majority of broking houses allowed that to happen. I had 8 analysts under me then and every one of them was earning less than RM4,000 per month but were holding stocks on contra that had a market value of RM200,000 or more. That kind of scene was repeated at almost every level of society, magnified. So those days, markets were much more volatile owing to the 7-day itch and forced-selling and contango trades going wrong. You don't have that today, which adds quality to the rally, and also less volatility on the downside.

The 93 market went on a rampage sometime in March/April 93 and basically did not stop till January 94. Even then, the market was just waiting for a prick to come along to get itself out of its over-inflated misery. So, actually, not entirely right to blame the pricker but rather the timing was more than ripe, any kind of prick will do the job.

Were there some fundamentals back in 93, well yes kinda. Much like the present day. There is still a feeling of detachment from what is played out on our stock screens and what we can see and feel in daily biz life. Most will feel the real economy is actually not that hot, is it? But we have to remember also that the detachment is there because the stock market is a forward discounting tool and not an anal thermometer. Technically, we are supposed to get better days ahead.

The current rally is not character/maverick driven (thank god)... those old enough will remember the names of Teh Soon Seng (Shanghai calling), Sam (Africa did not like me), Repco Lau (still around), Tajuddin (retired hurt), Halim S (not all there but not out of it yet), etc... just the mention of a counter linked to them will send it limit up. There were many days when there were at least 3-4 counters going limit up, and the players take it all nonchalantly. Syndicate play has never been so easy. There are still syndicate plays in the current run but it is not as severe or arrogant. The other good thing is its driven more by fundamentals and research, rather than rumours and whispers. Glad to see many stocks recommended by research houses performing much better than generally expected. Its a good sign to have research higher up the ladder of priority and recognition. If not, we will stay in cowboy land for a much longer time.

Hence, if there were 4 stages to a super bull run, we are probably entering the early second stage only. Beware of corrections as there will be corrections in super bulls. Surprisingly, it is much better to stick close to technicals and study the support lines in correction phases of a super bull as many will be looking at the same thing, thus it generally will come true.

The biggest blessing I think about this time around is that players will find it very hard to be over-leveraged, at least most will be able to keep the bulk of their profits this time around. Used to be, it was easy to get 5x to 10x your net worth to play the stock markets. Now, you'd be lucky to get 1x, maybe some aggressive places you can get 2x. When you start to hear of places which will offer you 4x or 5x, you know its time to reduce your positions.

2 comments:

swifz said...

Thanks for the story, I was too ignorant then to know what has happened.

Salvatore_Dali said...

swifz,

even when you are in it, much of the brilliance came about via hindsight ... too young then as well..