Friday, September 17, 2010

Dude, Where's My 50 Points Gone To???

You go for an extended holiday, thinking that nothing much will happen to the markets with the plethora of holidays in the first half of September ... and wallah .. Dude, where's my 50 points gone to? In the blink of an eye, the index climbed as if indexed stocks were limited editions of Jessica Alba's photo shoots.



We all can be cynical to think that it can be so easy to move the main board index as they are mainly tightly held by the usual suspects. To be fair, I do think there was a pick up in the inflow of foreign funds into Malaysian equities despite the many negative "big picture articles", "asset allocation articles" against Malaysian stocks. A collusion somewhere?

It is easier to be a bear than a bull this year. The worst of the bears think there will be a double dip recession and possibly deflation as well. Production, shipping and growth indices have been benign. My bullishness on equities have not been predicated on the reverse opinion of the above factors (although I do think the reverse is correct).

My bullishness is based on options available on asset classes in light of prevailing economic conditions. When risk aversion was high, no asset classes were favoured except for cash, bonds and gold. Risk aversion will result in over selling. The bulk of the recovery in 2009 had been due to filling up that gap.

In recent months, the equity markets, especially emerging ones, have been doing well because risk aversion had receded. We have side stepped the Euro-crisis. Next we have too much liquidity in the system which have propelled US Treasuries and gold into mini bubbles of their own.

Emerging markets are kind of flavour of the year thanks to the stagnating major developed markets.

Equities are good not so much because their growth is going to be spectacular. They are good because the alternatives are getting ridiculous. In particular, those from emerging markets with a strong currency outlook (Malaysia, Brazil, China). In particular, those emerging markets with their own sustainable domestic demand (Thailand, Indonesia). While the run up will push valuations into demanding levels, they are sustainable for a while.

I see the KLCI hovering below 1500 for some weeks at least. The 1500 level will need to be tested a few times. While the main board index has been zooming up, most of the retail participation has been naught. Don't worry, second liners will soon have their day in the sun again as the KLCI starts to hover around 1450-1470 in the coming days.



I can see some interesting volume build up in the following stocks, which are not entirely speculative but with some fundamentals / corporate developments in the works. They could be decent trades in the coming days and weeks:

SP Setia

IJM

EAH

TWS

TOMYPAK

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.





3 comments:

CK said...

hi dali, could you make a follow up write up on jerneh asia after the disposal of her 80% stake JIB to ACE ?thanks

kl said...

I certainly hope you are right about 2nd and 3rd liners coming into their own next few weeks. The KLCI 50 point run up the last week was almost surreal, almost like only one team competing in Amazing Race Asia with the rest of the competitors still slumbering in their beds.

ronnie said...

Dali. A friend informs me that Australian minister born in Kota Kinabalu is a lesbian. Same friend tells me that 1 in 5 Australians are homo or lesbian. What do you think ? Not that there is anything wrong with being gay.