Friday, July 31, 2009

Bursa Outlook Remains Bullish

Bursa near-term outlook remains bullish: Analysts
CIMB Research maintains an 'overweight' call on Malaysian equities with a year-end
index target of 1,220.

ANALYSTS remain bullish on the near-term outlook of the local stock market but said it is in overbought territory now, which is why the benchmark index snapped five straight days of gains yesterday.

The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) fell by 7.9 points, or 0.7 per cent, to 1,164.48 points on profit-taking activities after hitting a fresh one-year high on Tuesday.

"It is, once again, a test of buyers' conviction and optimism on the market. Meanwhile, we maintain our bullish view towards the near-term market," technical analyst Shin Kao Jack said in a report yesterday.

CIMB Research yesterday maintained an "overweight" call on Malaysian equities with a year-end index target of 1,220.It kept an "outperform" rating on top picks AMMB, AirAsia, Gamuda and WCT.

CIMB noted, in a report, that foreign funds stayed net buyers in Malaysia for a third straight month in June, but the amount of net inflows (US$25.6 million) was smaller than that in April and May.

It also noted that Malaysia was the most heavily sold down market in the region.

Monday, July 27, 2009

Dow 15,000, Here We Come

Dow 15,000, Here We Come: Stocks Going to New Highs, Lemonides Says.
Quarterly earnings reports have reignited the dormant rally that began in early March and ran into June. The Nasdaq is on an eleven-day winning streak. The Dow dipped fractionally Wednesday but is just about break even for the year and the benchmark Standard & Poor's 500 is at its highest point since November.

Skeptics warn the rally may fade as expectations get ahead of reality. But Charles Lemonides, chief investment officer with ValueWorks, says there's plenty of upside left, thanks to improving fundamentals. "When you have better economic conditions and really, really compelling valuations; and you're bumping up against the top end of a range it’s sort of a good recipe for breaking through that range and going significantly higher," he says.

Brian Wesbury, chief economist at First Trust Advisors, got the 'Tech Ticker' crowd going on Wednesday, when he made a similar call, saying stocks are 50% undervalued and the Dow could hit 10,000 by year end. Lemonides' call is even more bold: "I don't think it would be surprising to see a 12,000 number [on the Dow] six months to a year out," he says.

But he's not done there: "You'll see the market retrace its old high which means I think that over a couple of years you'll see 15,000 on the Dow."

I told you it was bold.

According to Lemonides, the same thing that drove the tech and housing bubbles will also drive this next rally: low interest rates. In his view, "interest rates modulate economic activity.“ And, with rates essentially as low as they can go, he expects asset inflation, "not really fast but over time."

It's a simple formula "capitalism comes with boom and bust" and after going bust last year we're in the beginning stages of a boom.

In the meantime, he’s buying stocks he thinks are undervalued, including Legg Mason, 3M and Boeing. With each company, "you’re getting these names at valuations that are just off the charts… and in an economic environment that’s likely to be improving," Lemonides says.

Thursday, July 23, 2009

Economy Set For V-Shaped Recovery

i Capital has, unlike many others, been expecting a V-shaped economic recovery and that the global equity markets are on the verge of a major bullish reversal.

i Capital is not saying these optimistic views for the sake of being a contrarian or for cheap publicity. i Capital is doing so because the objective research and analysis points that way. i Capital is convinced that many are confused by the cause-effect relationship and missed the role played by the Lehman Panic.

Many have compared the present US-led financial crisis with the 1929 Great Depression and worry that the world economy is heading that way. There are, of course, some similarities between now and the 1929 Great Depression. But there are even more substantial differences.

A major difference that the current situation presents is the presence of a strong China, whilst there was no strong major economy in the 1929 Great Depression.

Nevertheless, comparing the two periods in such a superficial manner is futile. What is important is to establish the cause-effect relationship. What caused the 1929 Great Depression? What is causing the current steep economic contraction?

The causative factors for the two periods are very different and many economists, professors, analysts, investors, etc have mixed all of them up. In the case of the 1929 Great Depression, the plunge in the New York Stock Exchange in 1929 was not the cause.

It was essentially a series of major policy mistakes that caused a normal recession to become the Great Depression. The major policy mistakes created a downward spiral, as one policy mistake reinforced the mistake of another.

Often the responses from the various governments throughout the world were slow in coming and when they finally came, they created more harm than good.

The situation now is very different. The governments and authorities are panicking and responding in the right manner. The one vital policy mistake in the current situation was caused by not rescuing Lehman Brothers. The United States has since then been trying to undo the rapid damage caused by the Lehman Panic.

In fact, there are increasing signs that the world economy is quickly stabilising and that the global equity markets would soon be anticipating a global economic recovery. Too good to be true?

US retail sales are recovering. Even the US housing industry, which no one expects to ever recover is now on the mend. New and existing home sales have risen. Affordability has reached record levels. Even the US durable goods orders, the mother of all sensitive economic data, are recovering.

In addition, many major global banks have reported that business since early 2009 has been good. More importantly, China’s economy is already humming along fine, so fine that a second stimulus package is not needed. The mass media keeps harping on the fact that China’s economy has slowed from a growth rate of 13%.

What is left out in the reporting is that the 13% growth rate is the abnormal rate and not the normal state of affairs. At 13%, China’s economy was overheating and needed to be cooled down. The more normal growth rate for China is 7%-9%, which 2009 will most likely produce.

Instead of worrying and fearing Great Depression 2, investors should mull over the chances of a synchronised global economic recovery, leading to a V-shaped recovery. As i Capital has been asking, are you ready for a rally?

The i Capital Long Boom is alive and kicking, courtesy of China’s sustained economic development. In this Long Boom, which by the way does not preclude panics, recessions, bear markets, etc happening along the way, the world economy is driven substantially by the transformation of China’s economy. This is the main catalyst.

At the same time, enabling the i Capital Long Boom are two other important developments. One is globalisation, which every country now knows is extremely vital to keep intact. Two is the computer/Internet revolution, a revolution that throws up open-ended possibilities and is still in the early stages.

Magnifying the impact of China’s economic transformation on the global economy is the iterative benefits from CLEB, aka the China-led Economic Bloc. China’s economic development pulls up the economies of the rest of the world. Through higher commodity prices, economies from all corners of the world enjoy better standards of living. Lower prices for many manufactured products benefit consumers from all over the world too.

China’s economic transformation has both inflationary and deflationary impacts. Which prevails at a particular point in time depends on a wide range of factors.

Friday, July 17, 2009

Malaysia Economy May Need Extra RM8b Boost

The additional requirement may push Malaysia's fiscal deficit to more then 8 per cent of the gross domestic product, says a think tank.

Malaysia may need another RM8 billion stimulus package to boost spending next year if the economic recovery is slow, said an influential think tank.

Malaysian Institute of Economic Research (MIER) executive director Professor Datuk Mohamed Ariff Abdul Kareem said the additional requirement may push Malaysia's fiscal deficit to more then 8 per cent of the gross domestic product (GDP) and even to between 9 per cent and 10 per cent in 2010.

He said from the RM67 billion in two stimulus packages rolled out by the government in November last year and March this year, a total of RM7 billion was expended last year, RM10 billion for this year, and another RM5 billion planned for next year.

The rest of the amount, which come in various forms such as guarantee schemes, are paper-based.

"But we may need another RM8 billion of fiscal spending to see some impact to the Malaysian economy," Mohamed Ariff said at the economic think tank's Malaysian economic outlook briefing in Kuala Lumpur yesterday.

The government has forecast the fiscal deficit to expand to 7.6 per cent this year from 4.8 per cent last year.

MIER expects revenue to be lower and "hard-pressed" next year, following this year's economic performance.

The impact from the two stimulus packages that were introduced by the government will only be felt at the end of the year, he added.

With low foreign debt, he said the government would not face any difficulty in borrowing from the liquidity-flush domestic market even if it may have to borrow operating expenditure needs for 2010.

He said Malaysia's fundamentally strong economy is marred by the budget deficit which stood out as an ugly speck.

Although the eight per cent deficit is nothing to be unduly alarmed about under the current global economic crisis, Mohamed Ariff was concerned with the timing to balance the books. He said Malaysia's fiscal discipline record has been lacking.

Since independence, Malaysia has enjoyed fiscal surplus for a six-year span only, with the highest deficit of 17 per cent to the GDP in 1982. On the liberalisation measures announced to make Malaysia more attractive to investors and possibly bring Malaysia's equity market closer to regional benchmarks, he said the impact remains to be seen.

"If they had been announced in good times you would have seen immediate results."But these are good measures taking us in the right direction and will help remodel the economy when the crisis is over," he said.

Tuesday, July 07, 2009

Key Habits of Successful Investors

Four key habits an investor might want to adopt are: Preserve capital and minimise risk taking; do homework before investing; have an investment philosophy and system; and, be patient.

IT IS a fact that the local market condition is very hard to predict since it is affected by both global and local factors. As an investor, it may not be possible to predict what is going to happen next, but there are certainly ways to learn from people who have succeeded in riding the waves of good and bad times throughout the years.

In the book "The Winning Investment Habits of Warren Buffett & George Soros", Mark Tier listed out 23 winning habits based on the habits of these two of the world's richest and most successful investors. Summarised below, are four main key habits that you might want to adopt as the fundamentals to successful investing.

Successful investor habit 1: Preserve your capital and minimise risk taking
All successful investors preserve their capital as a foundation and they do this through risk minimisation. Most investors have the perception that in order to make profits in the market, there is a need to take high risks and it is right to say that risk and return come hand in hand.

However, in order to ensure a long-term success, you should not just simply take any risks, but only calculated risks. This requires you to analyse the situation thoroughly as to be confident that the chances of having a good result on your side is high.

With that in mind, you would only end up investing in what Warren Buffett calls "high probability events", where the risk of loss is at the lowest and you are almost certain to make money. Always remember Warren Buffett's 'Investing Rules: "Rule No. 1: Never Lose Money! Rule No. 2: Never Forget Rule No. 1"

Successful investor habit 2: Do your homework before you invest
There are nearly one thousand companies listed in our stock market. Which one should you invest in? Having Habit No.1 as the foundation, you will know that the safest companies to invest in should be companies or industries that you are most familiar with, as you can only make good judgments if you have in-depth knowledge and understanding.

This means that you will have to do your own homework and research through all available sources, such as company annual reports, industry reports or public announcements, in order to obtain the facts on the industry, the company of your interest and its competitors.

This is necessary to ensure that you can draw good conclusions on the company's performance and future prospects. Therefore, time and hard work are the two essential elements in turning yourself into an informed and knowledgeable investor. In practicing this, you will also need to be selective and focused on certain industries in which you the have most interest and experience.

Successful investor habit 3: Have your own investment philosophy and system
What is an investment philosophy? An investment philosophy is a set of beliefs that you use as the foundation in developing your personal investment system for buying and selling investments. This will make sure you are fully aware of the reasons behind every investment decision you make. As a beginner in the investing world, you could probably start by following the investment philosophies and systems of some of the great investors that come closest to your heart.

However, along the way, you should tailor your investment system to suit your personality, goals and unique circumstances so that you can practice this entire system without stress and worries.

If you have the discipline to practice the right system religiously, you will not be easily influenced by the voices or rumours in the market and will not be tempted to simply follow the crowd. Hence, the chances of your making the wrong decisions will be minimised.

Successful investor habit 4: Be patient!
There is a Spanish proverb that says "The secret of patience is doing something else in the meantime". If you somehow managed to inculcate the above 3 habits, you will know exactly what you are looking for and as such, will be well equipped with the patience to wait for the right moment to buy or sell your stocks. Both Buffett and Soros stressed the fact that the secret of their success is having the patience to wait. Use your free time to explore and strategise other new opportunities as there are so many companies listed in the market. Always remember that identifying the right candidates does require time and patience.

On a last note, try to adopt the above habits now! Remember, good strategies will only be successful when executed with the right mindset!