Wednesday, December 23, 2009

Analysts: It'll Be A Good Run In The First Half

The Malaysian stock market, which had a strong run this year, will likely to continue performing well in the first half of next year before faltering in the second half as investment risks heighten, analysts said.
OSK Investment Research is optimistic that the key stock index, the FTSE Bursa Malaysia KLCI, will hit a high of 1,345 points in either April or May. It closed at 1,255.66 on December 21.

"We think the market still has more room to grow for the next five months or so, thereafter there could be a retracement in the second half due to rising interest rates in the US and risk that 2010 corporate earnings could be disappointing," Chris Eng, its head of research told Business Times.

His advice to investors is to make money before interest rates in the US start to rise. "We think profit-taking will take place six months before the interest rates rise in the US," he remarked.

JPMorgan Securities (Malaysia) Sdn Bhd too believes the market will be better in the first half of 2010.

"We expect Malaysia equities to sustain their strong performance in the first half," said Chris Oh, its head of research.

He said the key drivers for this are an expected rebound in economic growth of 5 per cent, the implementation of large-scale infrastructure projects and reform policy that are likely to exceed investors' low expectations, a stronger ringgit and a generally positive view on emerging market equities.

His top three stock picks for next year are Public Bank Bhd, Genting Bhd and Sime Darby Bhd.

RHB Research Institute Sdn Bhd, meanwhile, upped its end-2010 index target to 1,400 from 1,370 before.

This suggests a modest upside of about 11 per cent for next year compared to this year's strong rise of 43.2 per cent (as at December 21).

"This was a strong year because it was the first year of economic recovery. Moving forward, valuations are no longer cheap but neither are they stretched. In situations like this, the market's performance will hinge on the strength of the economic and corporate earnings recovery," its head of research Lim Chee Sing noted.

He expects the 25 index stocks that RHB tracks to post average earnings growth of 15 per cent next year after a 15.7 per cent contraction this year. He said the market was likely to be more volatile next year and urged investors to stay focused on valuations.

"Stock picking is key, shy away from speculative stocks. Always be grounded by valuations - look to companies with good growth and strong business models and managements," he said.

The sectors he thinks will be "interesting" next year are telcos, power and banks. His top three stock picks are Tenaga Nasional Bhd, Unisem Bhd and Faber Group Bhd.

Meanwhile, stock market regulator Bursa Malaysia Bhd voiced hope that local and global economic recovery would be on the cards for next year but noted that investors still seemed to be cautious. It nevertheless pledged to continue with its liberalisation efforts to attract more interest.

"Sentiment is still cautious and investors continue to stay on the sidelines, waiting for more concrete signals from the bigger economies. Despite the economic scenario, we have remained firm in our direction to liberalise and make the capital market more efficient, with changes such as the Foreign Investment Commitee deregulation and the revamp of the fund raising framework, among others.

"Overall, it is our belief that in reforming to become a high performing market, this will bring in bigger investment opportunities that will contribute towards a dynamic Malaysian capital market," its chief executive officer Datuk Yusli Mohamed Yusoff told Business Times via email.

He said Bursa Malaysia would also continue efforts to attract quality listings. In a normal year where there are no adverse market conditions, one can expect to see between 30 and 40 new listings, he said.

On ongoing efforts to improve liquidity and free float, he said he was hopeful of more robust divestment activities by government holdings following a directive made by Prime Minister Datuk Seri Najib Razak.

Yusli said Bursa Malaysia's initiatives next year will revolve around ensuring diversity of products, greater liquidity, enhanced quality and better efficiency.

He hopes there will be more retail participation, which is currently low, in the mid-30s percentile.

"Education and awareness are the key and we'll continue with efforts in that direction. We've also not seen a return of foreign funds to the levels seen before the 2008 election results. I hope that foreign investors will take note of the capital market and the government's efforts to make Malaysia friendly to business and investing, and that we will see foreign funds come back to our shores," he said.

Monday, December 21, 2009

The 9 Characteristics of Great Traders

What separates the 10% that make money from the 90% that don't?

1. 10,000 hours
For some reason most people that 'try their hand' at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn't see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

2. Education, education, education.
The old cliche touted by politicians when they can't think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

3. Think for yourself.
"NO! NO! NO!"... "Bear Stearns is not in trouble"..."Don't move your money from Bear! That's just silly! Don't be silly!"

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, too many cooks spoil the broth; it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

4. Adapt or Die.
Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

5. Fail to plan, you plan to fail.
The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

6. "Be like Machine"
As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

7. Know your tools
Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a trader's bread and butter; they are the most vital part of a trader's arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

8. Know Thyself
Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

9. Profit & Loss
The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion
The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Thursday, December 10, 2009

Malaysia Should Learn From Past Economic Lessons

TEN years ago, as the Asian financial crisis was wreaking havoc and countries in the region were engaged in some serious economic firefighting, I had a heated discussion with my fellow journalists discussing the once-in-a-generation turmoil before us.

There was considerable pride in how we tackled the crisis compared with other countries which were in worse financial shape and badly hit by the ensuing trail of economic problems. The conversation eventually reached the all-too-familiar “at least we are better than them” comment.

But here’s the thing. It is pointless to compare Malaysia with countries that are worse off. Progress should be measured against what we hope to become. In other words, we ought to compare Malaysia with countries that are better off than us.

Fast forward 10 years (today) and the self-glorifying comment above seems far less realistic.

Thailand and Indonesia, the two countries that the journos were comparing Malaysia with then, paid a tremendous social cost from the International Monetary Fund aid package which was accompanied by a market liberalisation agenda; but they have rebounded strongly.

For Malaysia, failure to vigorously improve the economy through market and economic liberalisation initiatives in the aftermath of the Asian crisis is rearing its cost today.

The Government has signalled it will act but what is likely forcing its hand in this matter could be the decline of the private sector’s role in the economy today.

Prior to the Asian crisis, the country’s ratio of gross domestic capital formation as a percentage of GDP was over 40%, hitting 43% in 1997 compared with 34% for Thailand and 32% for Indonesia. Right after the crisis in 1998, the ratios for all three countries plunged with Thailand and Indonesia falling much more than Malaysia.

But over the years, gross domestic capital formation as a percentage of GDP for those two countries started to rise but in Malaysia, that ratio has steadily fallen; in 2008, it was just below 20% whereas in Thailand it was 29% from a low of 20.5% in 1999 and 28% for Indonesia from a low of 11% in 1999.

Over that time, the Government has repeatedly declared that the private sector will resume its role as the engine of growth, much like it was prior to the crisis, but that has not materialised.
With falling private sector investment in Malaysia, the Government has had to shoulder much of the burden of generating economic growth.

There were times, both politically and economically, Malaysia could have instituted change that would have addressed that decline much sooner as the cost of supporting growth has become too large solely for the Government to be burdened with.

Being the engine of growth is a task the Government cannot continue indefinitely, given the already huge strain it has put on the national accounts by virtue of the repeated budget deficits since the Asian crisis.

Knowing this, there is seemingly a rush by the current administration to eradicate the malaise afflicting the economy and to get private sector to take over the reins of the economy.

It intends to lift the lid on the economy by revamping the NEP to bring about much needed entrepreneurship into the economy. The administration is also trying to figure out how best to reverse the perception or reality that the private sector is being crowded out of the economy in favour of government-linked companies. Subsidies are also in the crosshairs of the Government.

To tackle this, the Government is preparing a new economic model to get the services industry to invest more in the economy with the intention of moving the country’s per capita income up to the range of that of a high income economy.

All of that can only be accomplished if it manages to convince businesses to invest more in the economy. Companies today have more choices as to where to invest their money today than they did in the early to mid-1990s.

There is a lot of competition for investment money not only from our neighbours but also from the larger BRIC (Brazil, Russia, India and China) nations and emerging markets in Europe.

The Government has to position Malaysia, more so for local companies, as the destination of choice for businesses and come up with policies that will reverse the worrisome decline in private investment in the country.

Such a task is monumental and whether Malaysia will succeed is unknown as history has taught us that getting an economy out of the middle income range is extremely difficult to accomplish.
But try they must. There’s no time to waste.

Tuesday, December 08, 2009

Make M'sians Become High Income Growth Model

Financial institutions say employment of highly-skilled labour a key ingredient
PETALING JAYA: Banks can innovate and support the high income growth model for which a basic ingredient is the setting up of industries that employ highly-skilled labour.

“All over the world, countries with high income would have industries and activities involving highly skilled workers who would be paid high wages,” said Sanjeev Nanavati, CEO of Citibank Malaysia.

The starting point is the availability of such a pool and in Malaysia’s case, there is an urgent need to iron out some serious human capital issues relating to education, innovation and the rate of emigration.

“There is enough financing in the country,” said Sanjeev.

“What it needs is more private investments in highly skilled areas to take place. Malaysia has to make itself a compelling, not just attractive, destination for foreign investments,” he added.

“It needs to increase the momentum towards achieving the high income growth model by repositioning itself as a hub for higher education.”

It should consider inviting the top universities in the world to set up an international campus here, setting up more international schools which should be more accessible to Malaysians and making a concerted effort to change the quality of human capital.

CIMB group chief financial officer Kenny Kim sees the banking sector’s role as providing financing schemes to grow new sectors of the economy, particularly in the knowledge intensive areas.

“This may involve taking a different approach in assessing credit risk as these industries do not have traditional collateral,” said Kim.

Banks and the Government should also collaborate to support businesses seeking capital to grow in new areas such as clean energy.

According to Alliance Bank CEO Datuk Bridget Lai, processes and services that help generate cost and time saving for businesses will become more prominent.

Cash management, e-commerce, payroll and other automated services will free up more resources that can be directed towards higher income generating activities.

“A high income economy driven by the services sector will increase the population of educated, high networth individuals who will demand more sophisticated offerings,” she said.

This is apart from the bread-and-butter products such as credit cards, personal loans and mortgages. (In 2008, mortgages represented 54% of total consumer loans, vehicle financing 31%, personal loans 9% and credit cards 7%).

“Variety and flexibility in savings and/or investments, transportability of resources and assets as well as reputable fiduciary and estate planning will feature heavily in this economy,” she added.

As customers require higher value added from banks, a “one-size-fits-all” approach will not work.

A bigger shift is expected towards more financial planning services versus the traditional selling of financial products.

“CIMB group is making investments in this area to enable its frontliners to better understand its clients’ unique needs before recommending solutions,” Kim said.

There will be more emphasis on insurance, unit trust and structured products to complement traditional deposit products as a means of income growth and preservation.

Banking services should become more accessible through the growing usage of Internet and mobile banking as well as call centres.

A bigger role lies ahead for banks and other financial intermediaries in providing sufficient education and understanding of complex investment options.

“Banks will need to meet these new benchmark levels of expectations,” said Lai. Besides financial planning skills, further education is required in portfolio management, risk and diversification techniques as well as international offerings of financial investment options.

Wednesday, December 02, 2009

How To Diversify Investments During Time Of Crisis

AS a result of the financial crisis, even though most commodities have not been performing well, gold has outperformed the conventional asset classes like equity and bond.

This has prompted some investors to consider commodities as one of their investment asset classes. In this article, we will look into how to invest in commodities.

Bruno H. Solnik and Dennis W. McLeavey in their book titled “International Investments” classified commodities in three major categories – agricultural products, energy and metals.

Examples of agricultural products are fibres (wood, cotton), grains (wheat, corn, soybean), food (coffee, cocoa, orange juice) and livestock (cattle, hogs, pork bellies). Energy products can be crude oil, heating oil and natural gas whereas examples of metal products are copper, aluminum, gold, silver and platinum.

The main reason behind investing in commodities is that they have negative correlation with stock and bond returns. This will provide a good way to diversify portfolio risks. Besides, given that commodities are positively co-related to inflation, they can help investors hedge against inflation.

Investors can consider investing directly in commodities or indirectly by buying into futures contracts, bonds indexed on some commodity price as well as stocks of commodity related companies.

Some companies will invest in commodities that are extensively used as raw materials in their production processes. High commodity prices or raw material prices will affect those companies’ performance. However, if they have invested in their raw materials, even though their profitability might be affected by high raw material prices, the gains from their investment in those commodities will offset the losses in their operations.

Some investors will consider buying into commodity futures, such as crude palm oil (CPO) futures as this is one of the easiest and cheapest ways to get exposure to commodities.

However, investors need to understand that futures trading requires a high level of trading skills as most commodity players are well-equipped with the required market information, like total world supply and demand of CPO as well as the weather conditions in those producing countries.

Some financial institutions may offer unit trust funds that invest directly in those commodities or indirectly through buying into commodity futures. In the United States, investors can buy into commodities via exchange traded funds (ETF) that are invested in commodities futures.

An ETF is a special type of fund that tracks some market indices and it is traded on a stock market like any common share. Given that the world economy may recover further and oil prices may go beyond US$100 per barrel again, buying into oil or other commodity related ETFs may provide retail investors an alternative to get exposure into commodities.

Since commodity cycles and the general business and stock market cycles are usually different, investing in commodities provides a good way of portfolio diversification.

Besides, investors can consider buying into collateralised futures funds (sometimes they are referred as structured products). A collateralised futures fund is a portfolio that takes a small long position in commodity futures and invests the rest of the money in government securities. Normally, it is capital guaranteed as the yield generated by government securities will be used to cover for the cost incurred for the futures contracts.

Lastly, investors can consider buying into listed companies that are commodity related. In Malaysia, if investors wish to gain from higher CPO prices, they can consider buying into plantation companies.

Given the current gold prices of more than US$1,150 per ounce, some investors are eager to know whether there are any further upsides to the gold prices. Some analysts and fund managers have predicted that the gold prices may go beyond US$1,200 to US$1,300 per ounce.

Investors will rush into gold during a financial crisis, like the current financial crunch and the Great Depression in 1929-32, because gold can keep its value during those periods.

We believe that gold is a cyclical product. Even though nobody knows how high the gold prices can go, given that the world economy is showing signs of recovery, the upside potential for gold investing may be limited.