Friday, April 24, 2009

Sectors & Stocks I Like To Follow As CI Breaches 1,000

This is a follow up to the last posting on the confirmation of the bull run. As in any bull run, it is sometimes quite silly to look for stocks to recommend. The best performing stocks in a bull run are generally the worst type of stocks, no fundamentals, speculative and dodgy management. So, how to get the best returns? I cannot tell you the kind of speculative nonsensical stocks to look for, even though they can make good money, because its baseless and manipulative. Hence for the speculative stocks, you will have to ask your taxi driver or vegetable seller, they have better information on those type of stocks.

Can a simple announcement by Najib turn things so dramatically? We need to be be able to decipher what is blah-blah, and what constitute structural changes. Say that Malaysia is like a farm, the input and output are similar year in year out. Sometimes, through no fault of our own, the yield on the farmland drops sharply, maybe we had an unexpected prolonged dry spell, or the weather patterns shifted unfavourably. You may then do your normal monetary and fiscal stimulus, you can buy some fertiliser or even tweak the tractor's engine to make it stronger, but thats that.

The recent announcement of the removal of the 30% rule is a structural change, not a cosmetic change. To the farmland, that is like getting plenty of tractors to totally remove the topsoil and replace with a much better soil. Its like rethinking on removing some of the plants that yield poorly and have low margins, and replant with ones that give better margins.

We also need to be careful that we do not do too much all at once. There will be those who will clamour for the 30% rule to be taken off FIC as well. One step at a time. While Najib is at it, there is one area that has been neglected for far too long, and too wasteful and results in a huge mis-allocation of resources - properties reserved for bumiputras discounts. I agree that the allotment should stay, but a more sensible rule to be added in that if the properties allotted for such schemes remain unsold for 6 months after the launch, then it is open to be sold as per normal. The rule causes developers to incur unnecessary financing charges, eats into margins, and raises the business model costing. Not being able to sell them after a prolonged period (say more than 1 -2 years) ties up the funds and capital for the developer to manage his business.

Stocks that will run as a group will be the Iskandar project - SP Setia, UEM Land, even the ports and logistics stocks. The second group of stocks should be those in financial services, if Najib can do the 30%, you can expect a similarly effective liberalisation in the financial services. Prefer AMMB, EONCAP.

One sector I particularly like is property, surprise, surprise. Except for the high end condos, the rest of the property market held up very well. However, if you look at property stocks in general, they got whacked by Mike Tyson in a boxing match. Looking at the structural changes, hard assets will do well, i.e. good land banks. I have also said that the world will be in for a strong reflationary period over the next 2-3 years, which again favours hard assets. I like SP Setia, UEM Land, even Talam, Sunway City, even MK Land.

p/s photos: Satomi Ishihara


emacro said...

Hi Salvatori
I look back at my blog post on March 17 and reflect on how wrong those research boffina who called the 'sucker bear market rally only"'s opinion as way off target.

solomon said...

For this mini-bull, I called it "Lembu Kecil DrM". This week alone, almost all the TOP10 stock up by at least 10-20%. Euphoria??

Oui, UEMLand. I thought last month you was saying it is likely that some party unloading the stock??

But, I am like Art Cashin who says there will be significant pullback in US market which could be trigger for our mkt to react too. Anyhow, I will be cashing out next week for those "lucky one" to earn theirs.

Richard said...

Hi Salvatori
I concur with your statement . The KLCI have been flying up with no clear indication.
I like your stock pick . What you think about Public Bank and HL bank ?
It's best to cash in now .

Richard said...

I concur with your comment . The recent bull run is purely speculative with no fundamental.
The ecomomy still have not bottom out yet. What we are seeing is a inventory build up for the manufacturers .The sales figure in US and EU is still low and the inventories are sky high.

As for your stock pick - I like the choices. How about Public Bank and HL Bank?

Jonathan said...

IJM Corp is eyeing in the infrastructure segment such as RM2b low cost carrier terminal (LCCT) at KLIA and RM30b Klang Valley LRT system, RM3b LRT project comprising 15km extension for Kelana Jaya, RM3b 15km extension for Ampang, RM1.2b first phase of the Pahang-Selangor water transfer. Although IJM share price has increase ~ 70% but I believe the room is still huge.

plas said...

I agree to disagree,everytime,at the start of a bull,all call will be right on the money.Therefore,it's time to use yr knowledge or hone yr skill,no fence they say,just blindly throw darts,so why the reservation?? just do it & shoot,make a call is better than nothing.I enjoy the prediction & rotation,which mostly gain 50% by long as you dont push yr counter,I think it's fair comment.

see said...

This could potentially be a long term bull IF and only IF Najib is serious & sincere about liberalisation. If this is the case this is a structural change and not cyclical much like what happened when the export side was libreralised during Dr M's time. But then again this assumes this 1Malaysia is not merely political rhetoric