Skip to main content

Why Things Will Get Worse First - November 30

Let me say that we are about 75% through the correction phase. Is it too early to go long on equities again, I would think so. There appears to be a few more shoes waiting to drop. We have the auto sector. There could a few more big corporate failures which could dent sentiment, e.g. GE Capital and a few big hedge funds, and some private equity companies as well. AIG is still in ICU and the bloody wound is not clotting properly, its still bleeding and the doctors are very tired.

The biggest shoe among the many shoes to drop will be the hedge funds. Yes, many hedge funds have sold down their positions as early as 2Q 2008. In fact, for Malaysia hedge funds and normal institutional investors have sold down Malaysia earlier than the rest of Asia due to our big political uncertainty, and the flip-flop policies on IPPs and CPO. The entire process of selling has seen its fury over the last two months in particular when funds of all kind had to de-leverage. Good stocks and almost all asset classes were sold down mercilessly. Stocks and bonds as well, even bonds of companies which are in no real danger of going bankrupt are now selling at distressed levels (e.g. 70-75 cents to the dollar).

Naturally there has been an oversold situation, but nobody is willing to come in to bat for these oversold situations yet.
Thats largely because fund redemptions are still high and many are still expecting more redemptions. While up to 15%-20% of all hedge funds might have closed shop or is in the process of winding down, the actual number needing to close down by middle of next year could reach double that figure.

While many hedge funds and mutual funds have been selling down everything, there are still a huge number of hedge funds who have frozen redemptions temporarily. You can only freeze redemptions for so long. Unlike mutual funds which are traded daily, hedge funds clients can only request their money back on certain dates, usually once a month or quarter. Many have suspended the monthly dates, but they are unlikely to be able to hold out on the quarterly dates for redemptions requests.
Guess the FINAL DATE for this year for most hedge funds investors to file to redeem their stakes. Yes, its November 30th.

Many traders are already shorting some stocks that are likely to to be affected. If you are close to Goldman Sachs, they have a list/index that tracks the top stocks held by hedge funds. Request the index stocks there from them.
To get some insight on how hedge funds have been de-leveraging, the 3 weeks ending October 10th saw that GS index falling by a massive 34%, while over the same period S&P 500 fell only 28%. The lock up period is only a temporary haven, it might make for another round of selling. Only, this time it could be a lot worse as volume and bargain hunters may have used up some of their cash already over the last few weeks bargain hunting. 7,600 for the Dow looks more likely than 9,000 for now.

But like I said on the first line, its about 75% over, best to do nothing, best to give up the first 10%-20% in a bottoming rally rather than trading into a volatile market with a strong downside bias. Keep at least 70% cash.

p/s photos: Tracey Ip Chui Chui


David said…
There are no news better than this. Nothing is more pleasing to ears than good quality business having mega sales.
Ivan said…
thank you for the article..
let us wait to enter after Nov 30 :D

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.

My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.

I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.

My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.

Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:

p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far

I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…