Tuesday, January 08, 2008
Assessing Bursa's Run Up
Out of the blue, the Bursa woke up like a giant disturbed from its sleep. Investors were gleefully shouting that this is the general election run up or the Chinese New Year routine run up, or both.
Well, lets look at the candidates shoring up the index. Please re-read my posting Macro Predictions For 2008 on Wednesday 2 January. Following the US jobs data report, which was dismal, it looked like equity strategists and asset allocating team globally came to the same conclusion - forget about USD assets, commodities and agriculture products are the way to go for 2008. The rush for taking up new positions in palm oil by investment pros was largely due to that conclusion.
Fresh statements by OPEC (not upping production) and problems at a couple of the biggest wells sent oil prices skywards. Taking into account inflation and a weaker USD for 2008 (as the Fed would be pressed to reduce rates by a bigger quantum), traders piled into oil futures. There were significant big bets for oil to hit US$200 in 2008 options as well. Oil & gas plays followed naturally as a second tier play from the outlook for oil prices.
There is some truth in that a general election driven rally has started as well judging from the jumps in IDR plays, MRCB and even Maybank (which has been dormant for more than a year).
So how do you play the markets in Malaysia? Trade with the trend, I guess. As I have said before, the only things worth holding are palm oil and O&G stocks in 2008. Anything else you should cut once there is any wobble. Thats because other than the two sectors, anything else being pushed higher looks to be driven by pure liquidity, thus pushing them to over valued territory. Take note. Ride the trend but be prepared to cut if things start to look iffy.