Friday, May 21, 2010

Can Malaysia Achieve 7.7% Growth?

KUALA LUMPUR: High growth forecasts made by foreign economists have not prompted their local counterparts to change their tune, as they feel that the current data and expectations do not warrant such bullishness.

Economists contacted by StarBiz said that uncertainty over the latter part of this year and a higher base effect achieved in the second half of 2009 would make it difficult for the economy to hit a growth rate in excess of 7% for the year as predicted by a few foreign brokers.

“Such high growth rates can be achieved if there is stronger-than-expected recovery in exports and private investment,” said Affin Investment Bank economist Alan Tan, who has forecast the economy to grow by 4.3% this year.

The official growth forecast for 2010 is for gross domestic product (GDP) to expand between 4.5% and 5.5%.

Recent forecasts of growth rates that are well above the official forecast and that of many economists was first made by JPMorgan which projected Malaysia's economy will grow by 7.7% this year.

The foreign broker, which initially had a forecast of 6.8%, said the upward revision was made in view of strong regional production data in the first quarter and the positive outlook for the manufacturing sector.

HSBC Holdings plc senior Asian economist Robert Prior-Wandesforde last week said he expected Malaysia's GDP to expand 7.3% this year on an aggressive V-shaped recovery in exports and to be lifted by higher commodities prices and domestic demand.

Maybank Investment Bank economist Suhaimi Illias said the change in the expectations of the foreign brokers was down more to a situational rather than fundamental shift.

Suhaimi, who has forecast a 5.3% economic growth this year, feels that the bullish outlook for Asia would have influenced the foreign brokers' decision.

He said for growth to spike upwards, exports and investments would have to improve substantially. He, however, pointed out that leading indicators for Malaysia's economy in December and January had slowed and that growth rates could moderate in the next six months.

Helping drive economic growth higher could be the reforms that could take place under the New Economic Model but economists said implementation of that had to first take place.

“Growth can exceed the Government's forecast if all those reforms work,” said AmInvestment Bank Bhd senior economist Manokaran Mottain.

Manokaran, who has a growth forecast of 5% for this year, said the performance of external economies was also critical if Malaysia's economy were to grow faster than the official prediction.

“If external demand remains as strong as in the first half then there are grounds to revise economic assumptions,” he said.

How that unfolds is still unclear given Europe's problems in dealing with Greece's debt and also how the governments of developed countries handle their exit from pump-priming initiatives undertaken to deal with the recent global financial crisis.

CIMB Research head of economics Lee Heng Guie said uncertainty still clouded the global outlook, particularly in the second half of this year.

“The global recovery will be gradual and uneven. In our view, though the global economic recovery is well under way, risks remain in the outlook and there could be bumps along the road,” he said.

“The advanced economies are expected to record moderate growth in 2010 given the prevailing high unemployment, ongoing deleveraging process and the still-impaired financial system that continues to restrain lending.''

Lee, who has forecast Malaysia's GDP to grow by 4.8% this year, said Asian economies would continue to lead the global recovery due to the gaining traction of both domestic and external demand.

“China and India are expected to grow strongly this year, but they are already facing an asset price bubble and the potential threat of inflation risk,” he said.

“Policymakers have tightened credit by hiking the reserve requirement ratio and interest rate and will continue to move towards less accommodative monetary stance to prevent the build-up of financial imbalances.”

Tuesday, May 18, 2010

Cut-Loss And Affordability (Mentality)

Before you proceed to study Technical Analysis and become a trader, please be reminded to get your mentalities right. To me, the first thing that you need do before you even think of becoming a trader is to calculate how much money you can afford to loose. Pathetic don’t you think? People go into stocks to earn money, but this stupid guy tells me to think about how much I can loose first?

First of all, technical analysis (TA) is not a miracle method that can give you 100% accuracy. No matter how much you have read, how many charts you have studied, how great indicators are, technical analysis is just not correct all the time…. Especially when you are just starting to try this technique. You may hear your friends or some super guru on TA tell you about this miracle setting or indicator that will help you pick out winners… But once you try things out… You may find that it is just not that simple… So many things can go wrong… Misinterpretations, misleading and contradicting indicators, unexpected change in crowd behaviour… etc… So, how can you make sure that you are correct 100%? Whether you like it or not, TA is actually using the chart to predict the behavior of the crowd based on history… But whipsaws do happen… a simple bad news may cause mass panic which leads to panic selling…

The key to be a successful trader is to survive all this mistakes long enough in order to find the correct way to get it right… Which is why the rule of thumb for trading is to “keep loss small and let profit run”.

But how small is small? When to cut loss? This will be discussed further in future postings… But to make it simple, when you enter a trade, there has to be a buy signal that you use. It doesn’t matter if it is trend, MACD, Moving average, breakout… etc. But you must know why you entered in the first place… So, you must be prepared to cut loss once you find that the reason is no longer there… For example, if you entered because of uptrend, you must be prepared to cut loss once you realized you made a mistake when the price violates the trend.

However, another important point to remember about cutting loss is affordability. As we know, the financial status of everyone is different and this can affect the cut loss level to a certain extent. Some people like to say that your cut loss level should not be more than 2% of your capital. I would like to say that your cut loss level should be kept to the amount that you can afford if you were to make 5 consecutive losses, or 2 % of your capital, whichever lower.

With this affordability in mind, you will use them when choosing counters. I think we should not enter a trade when the cut loss level is above your affordability. It is safer to pass those trades. So, please remember this two points, Cut Loss & Affordability when you choose to trade.

I picked this interesting test done by Dr. Shapiro in the book “Trading For A Living” written by Dr. Alexander Elder. Do try this out for it is very important concept to grasp in stocks, so please be honest. First, try not to think too much and use your instinct or feeling to answer, then try again after thinking properly and carefully… See if your answers are the same before proceeding to the explanations, hehe… this can be quite fun:

Part 1:
If I give you two choices: 1) A 75% chance to win RM1000 with a 25% chance of getting nothing. Or 2) A 100% chance to get RM700. Which would you go for?

Part 2:
If you are given two choices: 1) A sure 100% loss of RM700 Or 2) 75% chance of losing RM1000 but a 25% chance of loosing nothing and keep all your RM1000?

For part 1, four out of five subjects will take the second choice. The majority makes the emotional decision and settles for a smaller gain.

For part 2, three out of four will take the second choice, condemning themselves to lose more in their effort to avoid risk, they actually maximize their losses… Emotional traders want certain gains and turn down profitable risks that involve uncertainty. However, they will go into risky gambles to avoid taking certain losses. It is our human nature to take profits quickly and postpone taking losses. Irrational behavior increases when people feel under pressure.

If you were to look into your account, you will realize that the major burns that you have is a few large losses that was there because of your inability to cut loss. Or it might be the continuous small loss made because you were under pressure to cover back the loss you made. All these only proves once again how important money management and cutting loss is in trading.

Friday, May 14, 2010

Malaysia's Highest Q1 Growth Since 2000

PUTRAJAYA: The Malaysian economy recorded a robust growth of 10.1% in the first quarter of 2010, the highest first quarter growth since the 11.7% recorded in 2000.

Prime Minister Datuk Seri Najib Tun Razak said that given the robust performance this year and the government-introduced economic transformation initiatives, he was confident Malaysia would achieve its target of 6% growth this year.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz also announced a slight increase in the interest rate to counter any spike in inflation following the high growth. The Overnight Policy Rate was increased by 25 basis points to 2.5%.

She said the new level of the OPR would continue to be “accommodative and supportive of the economic growth.”

Najib, who announced the first quarter GDP at a press conference at his office here, said the growth in the first three months of this year was much higher than the 4.4% growth registered in the fourth quarter of last year.

Najib said the growth was spurred by strong domestic demand and global economic recovery.

He said this was also in step with the positive growth seen in other regional and emerging economies like China (11.9%), South Korea (7.8%) and Indonesia (5.7%).

“On the supply side, all major sectors recorded robust growth, particularly the manufacturing sector which grew by 16.9% compared to the 5.0% in the last quarter of 2009.

“Growth in this sector was driven by the electric and electronics (25.9%), transport equipment (25.3%) as well as wood products and furniture (18.7%) sub-sectors,” he said.

Najib said the services sector also registered a strong performance at 8.5%, compared to 5.2% in the previous quarter.

He said this was because of strong growth in the utilities (16.6%), real estate and business services (14.2%), wholesale and retail (9.6%) and the transport and storage (9.2%) sub-sectors.

He said the construction sector continued to expand with a 8.5% growth while the mining sector also seemed to have turned around to record a 5.2% growth.

He said the agriculture sector too expanded by 6.8%, mainly due to higher production of rubber, livestock and timber.

“On the demand side, growth during the first quarter of this year was underpinned by strong domestic expenditure stemming from sustained expansion in private and public consumption of 5.1% and 6.3% respectively.

“Investments too grew strongly at 5.4%, reflecting a recovery in investor confidence,” he said.

Najib said the external sector registered a sterling performance with a 19.3% increase in total exports, amidst recovery in the global economy and trade.

Similarly, he said, total imports expanded by 27.5% on account of higher imports of intermediate (37.9%), consumption (18.5%) and capital goods (9.6%), pointing to a more robust domestic economic activities.

Asked on Government’s plans to roll back subsidies, Najib said the government commitment to reduce subsidies would be implemented on a gradual basis.

He said the Government would take care of the vulnerable groups and make any transition as painless as possible.

On whether more subsidies would be rolled back, Najib said: “What is important is ensuring a strong, robust recovery and that any savings are used for productive investments.”

Later, Najib tweeted that the GDP growth meant more and better jobs for Malaysians.

“Government is committed to ensuring economic recovery and transformation is on the right track,” he added.

Friday, May 07, 2010

OSK Top Small Cap

NINETEEN new companies have made it to OSK Investment Bank's Top 50 Malaysian small cap list called "Jewel 50", OSK Research deputy head of research, Jeffrey Tan said today.

A cross-section of industries and sectors form the list, he said.

OSK also included two new categories to its OSK Top Malaysian Small Cap 2010 publication namely, financial service providers and conglomerates.

Tan said the 50 companies have an upside potential of 5-15 per cent.

In the sixth edition, OSK continued to feature 50 of Bursa Malaysia's top small cap companies but unlike the previous edition, the market capitalisation threshold has been increased to RM1.5 billion from RM1 billion.

"This is to maintain coverage depth and breadth and to ensure that the better small cap companies are represented," Tan said in a press conference in Kuala Lumpur.

The 19 new stocks in no particular order are CI Holdings, Delloyd Ventures, Signature International, Axis REIT, EP Manufacturing, Notion Vtec, Glomac, Sunway Group, Mamee-Double Decker, Multi Sports, Salcon, Faber, AEON Credit, Protasco, Zhulian, Handal, Engtek, Southern Steel and Evergreen Fibreboard.

The companies were picked for their positive share price catalyst going forward, undemanding valuation and strong fundamentals.

"Three stocks making their debut in the 2010 edition, namely Faber, C.I Holdings and Glomac are in our Top 10 list, with C.I Holdings sitting among the Top five. Some household names previously featured in our Top 10 companies - Hai-O and QL Resources - have again earned their place in our 2010 edition," Tan said.

The OSK Top Malaysia Small Cap publication has evolved into a leading small cap investment compendium in Malaysia referred to by the local and foreign investors alike to make informed investment decisions, he said.

The companies featured in the 2009 edition have performed commendably, with 32 of the 50 companies having posted absolute returns of 50-375 per cent and outperforming the benchmark FBM KLCI and FBM Emas Index, said Tan.

OSK's top 10 picks recorded absolute share price returns of 52-347 per cent in 2009, with notable winners being Mudajaya -- the top contruction pick, which rallied 347 per cent, while oil and gas player Alam Maritim surged 201 per cent.

Half of the Top 10 picks in 2009 posted an average return of 10 per cent.

The runaway winners were the glove makers, followed by the steel sector.