Monday, October 24, 2016

Budget 2017: Increase visibility on mid cap stocks. Why?

As I said in my earlier article, I am not able to find value from the KLCI Composite. The market obviously find this as a problem as larger funds may not get interested with our markets as while there are enough value in some of the smaller cap stocks, the large ones are not attractive at all. In the latest Budget 2017, we see a rather weird mention and plan as below:

Although the above seem as rather vague but it is to allow increased visibility on small to mid-cap stocks. Why? Fund managers mostly are "herds". They would not dare to invest if other "funds" are not investing. They are afraid to make mistakes and be blamed.

It is OK to make mistakes when others make the same mistakes, but it is not OK for you being the only one who make the mistake. I find this very true in our exam mentality country especially.

If you notice, smaller cap stocks are not covered and hence understood. As an example, Ekovest a stock with RM1.7 billion market cap is not largely covered. Maybe one analyst? So is DRB-Hicom although it is a conglomerate in some sense. DKSH is definitely not followed at all. This means that if I am employed as a young analyst, my superior does not allow me to cover those stocks although they may be exciting. I am asked to cover what the others are covering i.e. Sime Darby, Genting, BAT, Nestle, Airasia etc. In a lot of cases, gems are found in the most obscured of places than in the cities. In the cities, they are anyway found in the shops and fully valued.

Now, by introducing RM3 billion fund, the government is hoping to invigorate investment or at least encourage coverage on the smaller cap stocks. Let's just hope for them NOT to make the same mistakes together on the smaller cap stocks.

Frankly, I would rather not have the above plan by the government as I like to look for gems myself and in the right places than others looking together with me.

In the investment terminology, value stocks are those unpolished gems that are yet to be found by many while the momentum stocks are those that are already found by many and may be sought after although they are expensive.

1 comment:

Zakaria Abd Rahman said...

Totally agreed with you!