Friday, December 9, 2016

Is this downturn the same as Sep 2015?

On daily basis I receive reports of whether local funds, retail or foreign institutionals are net buyers or sellers for Bursa. Over the past 2 - 3 weeks, foreign funds have been net sellers by a large quantum. It is not rocket science that these money are flowing back to US after the Trump's election win. Many stocks have dropped to a level which to me are considered very attractive. This drop however, is not as bad as the one last year i.e. September 2015.

That September 2015 was different. We were fresh from the 1MDB debacle which was exposed 2 months earlier in July. That time as well, most markets were dumped, mainly due to there were fears over the overheating Chinese economy. I guess they were news driven largely from the Western news agencies.

This time around, I believe it is because of the funds which comprise of many US funds are pulling out of developing countries (or emerging markets) and putting more money into US. They have a genuine belief that Trump is going to pump prime the US economy. There seems to be a huge shake up by Trump, when he becomes the President as he seems to be able to do them as Republican has the Senate and House as well. Also the US economy is in much better shape than when Obama had them.

One of the earliest country which the funds pulled out from is definitely Malaysia. Sigh! We are becoming a weak market, but I would presume we are not that weak an economy. It is just that we are seen to be weak because of many factors which I do not need to discuss here. There are some obvious stuffs. Our economy is largely dependent on our trade with US with many long term investments from US firms. I do not know how that will play out with the Trump administration. The current Malaysian administration is seeking China as one of partner but whether that will replace US is yet to be seen.

On whether how bad the global economy is going to be, (I am not an economist, but anyway economist also get it wrong many times) I do not see anything that will cause mass depression. Usually crashes occur out of situation where there were over-exuberance. This market all over the world (except for US recent weeks) have been rather cautious over the last 3 - 4 years. This makes investments as a stock investor rather permissible. I can see stocks that are trading at single digit PEs while cost of funds are below 5%. To me, there is no better place to put money than the stock market. Properties, bonds, banks are not giving good returns.

What hence am I doing? I am buying. I am usually a contrarian. I am looking at companies that the foreign funds are buying and selling because they are repositioning their portfolios. We usually think that these are smart guys. Yes, they are smart but they have to move as a herd except for a few. When funds move back to US, they move back to US. I am thinking one of my favourite stock last 1-1/2 year - Airasia, has that notion. It was largely sold by funds second half of last year, then they bought back first half of this year. Now they are relinquishing the same stock. The funds are mainly trading. I do not have the same strategy. Also, have anyone notice, or is it me alone that has witnessed how much movement people have been doing travelling by air either it is business or leisure? It is not just Airasia that is benefiting but also MAS, I presume. Hence, I am buying more.

What others?

Usually, I am too slow to catch the first wave i.e. when Ringgit drops, export counters will be the ones that are excited first. This round, it does not however as they have yet to enjoy that exuberance that they enjoyed last year. For those companies, it has to be a sector where Malaysian companies benefit because we compete against other countries (think semiconductor, furniture) as compared to a sector which we compete against ourselves (rubber gloves).

Also, look for companies that are able to withstand shocks - i.e. companies that are more defensive in nature. Companies where with either 2% or 5% economic growth, it matters little or less. Banks, properties, automotive and retail do not come under this category. Infrastructure, insurance to some extent have that tendency to sustain better in this situation.

2 comments:

九剑 said...

Tune Protect is worth to take a look too! proxy of airasia~~~~
Im also observing GENM closely~ the GITP theme may come...

Btw Felicity, what do u think of YEELEE edible oil business in this new business environment after the government remove the cooking oil subsidy.

felicity said...

I have yet to look in detail on Yee Lee. I thought the takeaway of subsidy would be bad fr Yee Lee. Wouldn't it as now I may buy other types of oil since the price is getting closer. Or I would reduce consumption.