Thursday, June 12, 2008

Equity Strategy Update

If we are looking at KLCI only, foreign funds had been net buyers since beginning of the year right up till the recent general elections.

In fact, the net inflows were on a rising trend right up till the elections. Following the surprising results, foreign funds took out around USD130m over the next couple of weeks. The other surprising fact was that that amount was almost matching the net inflows from beginning of the year right up till the election. Coincidence?

Since the election results, the biggest weekly net withdrawals by foreign funds had been the first two weeks following the results. Foreign funds had since then been continued net sellers in Malaysian stocks. In fact the last 3 weeks saw net outflow increasing again owing to oil price short squeeze.

The last week saw Tenaga lifting and sustaining the Composite index. The last couple of days were more significant in that the CI managed to stay flat while other Asian bourses were tumbling all around on oil price shock and heightened inflationary concerns, prompting many economies to increase reserve ratio requirement or hinting at raising interest rates.
What has changed that caused Malaysian stocks to diverge from the rest? Well, the electricity rate hike and reduction in oil subsidy were viewed positively. The reduction in oil subsidy finally converted some funds to believe that Malaysia is in place to benefit from higher oil prices. Though all knew that Malaysia was a net oil exporter, the removal of subsidy caused a positive rerating on actually benefiting the overall economy with "seemingly better" resource allocation strategy.

Since I am of the opinion that the oil price bubble will come down sooner than later, and that being highly positive to equity markets in general. I have revised my buying level from 1,150 to 1,210-1,220.
My view is that oil could very well drop back to US$105-110, in which case the KLCI should be pegged at 1,400 then.

p/s photos: Annie Wu & Janet Li


AQW said...

what abt the perception of the political instability?

KC said...

Happy to see you bullish again!