Wednesday, May 6, 2020

We are just too optimistic

For much of the COVID-19 period between February to now (May 4), we have been largely tracking the S&P500. This rebound is good for the market given the sharp drop that many stock markets have experienced especially in March 2020.

Comparison between S&P 500 and KLCI (3 months between 5 February to 4 May)

I however think, we are just too optimistic. US is pumping USD3 trillion into their economy with Federal Reserve acting as the biggest bailout machine. EU and Japan will take similar actions. However, here in South East Asia, we can't just print money like what they do. Anything that we need from in terms of booster in the economy is just like picking up the crumbs from whatever is left out from the economic stimulus that are provided by these superpowers. US will come out the fastest as they have the luxury of having its currency as the reserve currency, China will be the dark horse, while the developing economies will be left hungry.

If anything, post COVID-19, let's look at what we can buy from the stock market. Retail will be dominated by Lazada and Shopee, both China's supported companies. Food and goods delivery would be controlled by foreign companies as well.  Anything digital would be largely controlled by foreign companies. What do we have? Perhaps we have a small little company that does e-government services aka MYEG in the digital space. That's all.

We of course have our export industries but they are not as competitive as Vietnam anymore and we are largely dependent on foreign companies whom may not be interested at Malaysia as much as before. We in fact should not be dependent on them as much as we are not able to compete in terms of price. We should not compete in this area. Technically, many of the countries are catching up.

Let's pull out the companies in Malaysia that we think can be one which we can be proud of regionally. Even at one point of time, the government probably felt that Axiata is best being managed by the regional Telenor (Digi).

If anything this COVID-19 will expose our weakness economically - although the Ministry of Health had done a wonderful job. The economic revival is left to a group of people whom had just been in office for 2 months. Do we expect miracle?

They will have the standard statement. Let's go digital - Industry 4.0, go for FDIs. The local retailers whom many of them have yet to reach maturity, would probably fall by the wayside. The poor support that is given to our industries comprising many of small and medium sized is bad so much so many would suffer and may not be around. Those spaces would be filled by the new entrants and in the name of FDIs, we would be happy to open up to these guys to take over the economic spaces.

We can call that free market competition at a time when many countries are looking inward - and globalization is dwindling.

Why is then our KLCI trending similarly to the US. One has to bear in mind, within S&P500, the top 5 companies (Apple, Amazon, Microsoft, Alphabet, Facebook), their future looks good given the current situation. They will be better off now and in the latter part when things are back to normal. We are not.

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