Market's Prognosis

It is surprising to see the markets going up but accompanied by lukewarm volume. To technical analysts, that is never a good sign. To momentum players, that is a sign to get out. However, that is what has been symptomatic of almost every market over the last 6 months. The general investing community keep looking for reasons to go down, reasons to reduce their holdings, fund managers keep looking for justifications to lock up profits and go away in May - but they all can't do so in a convincing manner.

Even the US markets are showing similar signs, up but not excessive volumes. Rather than seeing this as a technical weakness, I would see it as a sign of uncertainty and investors being not entirely convinced of the bull run going further with conviction. Even in the US, a similar scenario is unfolding. Shorts will pile up but then they themselves get nervous as the market does not slip up much, then they have to cover pushing prices higher.

Like it or not, the same factors driving this bull run are still around:

a) money supply growth over the last 4 years resulting in the present liquidity in the markets

b) benign inflation and interest rates (though US inflation has somewhat perk up of late but not dangerously so yet)

c) emerging markets responding well to stronger currency and trade surpluses, and corporate reforms of the past

d) private equity money keep taking big companies off the table, and at the same time raising valuations of same industry stocks (e.g. you try to take Dow Jones private, somebody tries to take Reuters, then otehr related same industry stocks get revalued upwards as well)

e) listed corporates are still awash in cash, the highest levels ever, hence the consistent buybacks and canceling of shares to boost eps - now in the US about 5% of shares are being taken off the table annually

f) corporate earnings are still good vis-a-vis interest rates, no competing alternative for good investments

g) the danger is whether markets overshoot on the high side like China

h) dangers of yen carry trade and US housing slowdown have been exaggerated as argued before

Still, when you can so no danger, the danger is external usually. Some external event is the more likely source for scaring the markets. Other than that, its hard not to stay bullish. Have to stop commenting on the China markets, it seems the only ones thinking it is excessive are all foreigners. It will correct, let it take its own route.

Local stocks looking good:

YTL Corp - Still like the upside (not the owner) for the stock. Trading pattern excellent still.

CSA - Independent directors calling for higher bid from parent, that's a very crucial call and chances are 75-25 that the parent will at least have to up the bid. May not get RM4.20 but at least 10% higher than the RM3.50. The fact that its the independent directors making these statements is highly significant and rare in Malaysia.

HLFG and Hume Industries - Things are brewing there as well but am still digging for the time being.

AMMB & AIGB - Almost as attractive as the above twins.