LATEST POINTERS ON CURRENT & NEAR FUTURE MARKET SCENARIO

Like elsewhere, the Malaysian stock market is still in suppressed mood due to continuing economic issues faced by the US and European nations. Almost hitting 1,600 points just less than two months ago (July 11, 2011), the current performance is now hovering below the 1,400 mark.

Cautious sentiments are still enveloping the market scene. The question that intrigues the minds of the “watchers” is, will the bearish trend drop further, to around 1200-plus points before end of October?

Rather than delving in lengthy personal narratives, I instead like to list out some pointers which I elicited from various sources. My objective is for you to reflect and then conclude your own stance in respect of near term to slightly longer term view. The pointers are on both the global scope and the local scene.

1.       On The US

·         On Sep. 15, President Barack Obama proposed the American Jobs Act which would unleash the US$447 billion jobs plan to boost GDP growth by 2 per cent and shave one per cent off the unemployment rate. He said the plan would add as many as 1.9 million jobs.  (Source: NST, Sep. 17, 2011)

·         The number of Americans claiming new unemployment benefits fell to a five-month low in the third week of September, 2011, while the economy grew slightly more than previously reported in the second quarter, the latest suggestion a recession was not in the cards. GDP grew at annual rate of 1.3 per cent in the second quarter, up from the previously estimated 1.0 per cent. The GDP data suggests that the US economy experienced a slightly better footing in the third quarter, compared to the first three months of the year when the economy expanded at 0.4 per cent. (Source: Business Times, Sep. 30, 2011)

·         Many small companies in the US (employing up to 500 workers) are facing difficulty of getting working capital. Small companies account for 99% of all American businesses, two-thirds of private-sector employment and half of the economic output. The divergence in the health of these businesses and larger companies helps to explain why the world’s biggest economy created on balance no new jobs in August. More small companies are cutting jobs than hiring, although the situation is slowly improving. Three-quarters of small companies have adopted the “wait and see” approach. A key concern of small and medium industrial suppliers is that big manufacturers will cut back or go out of business altogether. A second problem is the difficulty of obtaining credit. Would-be entrepreneurs seeking to buy existing small companies are also finding it hard to secure loans. (Source: The Edge Malaysia, Sep. 19, 2011)

2.       On Europe

·         Desperate measures to prevent Greece from going into default and the contagion effect from spreading led the German parliament agreeing to increase the European Financial Stability Facility (EFSF) to €440 billion from €250 billion and giving it more powers to buy bonds of distressed members, recapitalise banks and provide emergency loans to needy governments. This would provide the much needed stability for the European region. The question is whether Greece will be able to continuously meet the strict austerity measures to reduce deficits as outlined by EU, ECB and IMF. Germany declared firm support for the euro. (Source: Business Times, Oct. 3, 2011)

3.       On China & Asia

·         China’s manufacturing improved slightly in September, for a second month of gains, with domestic demand helping to offset weaknesses in exports, according to a survey released. The survey followed a similar one released by HSBC, suggesting still sluggish growth in demand. But both suggest the economy remains stable, with scant signs of a major slowdown that could sap growth in other countries that rely on Chinese industries to drive demand for iron ore, factory machinery and other goods. The latest results “should provide some support to global investor confidence, if only at the margin,” said Alistair Thornton of HIS Global Insight. Most forecasts, however, put growth at a still dynamic rate of between 8 per cent and 9 per cent. (Source: Business Times, Oct. 3, 2011)

   The wealth in Asia will triple by 2015 to US$15.8 trillion, according to findings of the recently published Asia Wealth Report by private Swiss bank Julius Baer. The report, done in collaboration with brokerage and investment group CLSA, also estimates the the current 1.15 million high net worth individuals (HNWI) across Asia will double to 2.82 million by 2015. China alone is estimated to hold 55.4% of this wealth in 2015 and will have 49.6% of the total HNWI.

4.       On Malaysia

·         Of late, we see GLCs  sell-off. The reason is likely due to liquidation in order to meet redemption and margin call by foreign or local players. In times of uncertainty and volatility, investors and fund managers may want to exit quickly. (Source: My friend, who is a market pundit)

·         Also of late, we see proposed acquisition/merger deals by GLCs. Example: MAS-AirAsia, Sime Darby-E&O, latest is PNB-SP Setia. Questions:  Are these pre-election moves? Does it mean the General Elections will be quite soon? (Source: Another friend who is also a market pundit)

·         Based on data provided by Credit Suisse, foreign ownership in Malaysia fell to 21.6% last month versus 22.1% a month earlier as foreigners sold RM3.8 billion worth of stocks in August. The local benchmark index has shed some 17% based on the recent low of 1,310.53 and the index’s all-time high of 1,597.08. This is relatively less against other key markets in Asia which are in bear market territory after shedding more than 20% on the same basis in the recent sell-off. OSK Research’s new bottom for the key FBM KLCI is 1,350 and it is telling clients to “bottom-nibble” but not “aggressively bottom-fish”. Quote by OSK Research head Chris Eng: “In the medium term, we maintain our 2012 FBM KLCI fair value at 1,466, seeing a slow recovery forward unlike in 2009.” (Source: StarBiz, Oct. 1, 2011)

·         Locally, anticipation of a general election next month or by March 2012 is fueling speculation that the 2012 Budget announcement on Friday will be business and consumer friendly. Firstly, it would expedite projects highlighted under the Economic Transformation Programme to buffer downside from slowing external demand. Secondly, it would introduce further liberalisation and incentives to make businesses more competitive as our neighbours like Indonesia emerge as more conducive investment destinations. (Source:  Business Times, Oct. 3, 2011)

5.       On Gold

·         On Sep. 2, gold reached an all-time high of US$1.921. Gold has lost just over 20 per cent of its value to hit US$1,532 only three weeks later. Mirroring the fall in gold is the rise of the dollar, itself a safe-haven currency despite recent downgrade of US government debt. To Ross Norman, chief executive of gold-trading firm Sharps Pixley, a strong dollar makes gold expensive to those not in the US “and consequently gold falls”. The pillars supporting high gold prices have collapsed, said Julian Jessop, chief global economist at think-tank Capital Economic. “First, demand for gold as an inflation hedge has fallen as the global economy has slowed and other commodity prices have tumbled……Second, the more general return of confidence in the dollar has reduced demand for gold as a hedge against a collapse in the US currency,” he said. (Source: NST, Oct. 3, 2011)

My personal view (which may differ with yours)? Well, I have this to say:

If another bottom in October does set in, it may be timely to look for buying opportunities.  Although  some pundits may feel the possibility of the local market coming down further to lower levels, say 1,000-plus points,  by the middle of next year (after the general elections?), the apt perception is to buy good stocks with sound fundamentals and hold them for at least the medium term.

Best Regards.