I shared the market look ahead back in Jan'19 (the article is in Jan folder) and I extracted KLCI index projections back then as shown in Image 1. As I have initiated short positions for FKLI Mar'19 contracts in Dec'18, there is a need for me to estimate where the index is heading. The KLCI index behaved nicely per the projections with all the local and global headwinds as shown in Image 4. You will notice how the price actions following the projections downwards.
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| Image 1: KLCI Index projections back in Jan'19 |
I have closed my sell FKLI Mar'19 contracts and looking to initiate positions again. Here we are now in Apr'19; 3 months later since I shared the market look ahead back in Jan.
Summary back in Jan'19
- World Bank's forecast for Malaysia GDP showing GDP is flat in 2019 at 4.7% against 2018 and drop to 4.6% in 2020. This will bring back to the valuations in our stock markets whereby a risk in corporate earnings and high P/E ratio.
Summary as in Apr'19
- Bank Negara Annual Report 2018 indicated sustained growth momentum in 2019 and the economy is projected to expand by 4.3% to 4.8% in 2019. This is supported by firm private sector activity and recovery in commodity sectors as shown in Image 2 and Image 3. In the same report, it is mentioned that public investment is projected to contract by 7.1% due mainly to lower investment by public corporations following the completion of large-scale projects. Capital spending by the General Government is expected to be mainly channeled towards upgrading and improving public infrastructure and amenities.
- Possibility of OPR reduction rates by Bank Negara surfaced in local media that resulted in financial sectors sell down recently. A lower OPR would translate to cheaper borrowing cost s, benefiting domestic households and businesses. However, it will also impact the net interest margin (NIM) for banks.
- There is much buzz in local media as well on the revival of ECRL projects which led to positive sentiments for the construction sectors. However, as the focus is on national debt, it is logical that the government will be more prudent in spending. This will lead to margins achieved in the past via direct negotiations will be eroded. In fact, there are already news that the government is working on renegotiating the deals leading to substantial savings.
- Combining the lower GDP forecast, lower margins, possibility of lower OPR, there is a possibility that corporate earnings will be lackluster impacting the valuations of our stock market near term.
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| Image 2: Extracted from Bank Negara Annual Report 2018 |
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| Image 3: Real GDP Expenditure Extracted from Bank Negara Annual Report 2018 |
Considering the local happenings, I will be on the lookout for KLCI to test the support at 1611. If it is supported well, there is a possibility of sideway consolidations due to the positive sentiments on capital spending by the government towards upgrading and improving public infrastructure and amenities until further clarity of OPR rates. Failure to support at 1611 will lead it to next support level at 1511. At the point of writing, there is much pessimism and optimism considering the local and external headwind (US-China trade war, possible of new US-Europe trade war, Brexit, weak global outlook and upcoming corporate earnings for S&P500 companies which is pointing to lower earnings). In my opinion, it is rather important to focus on valuations and fundamentals of companies as we trade/invest in 2019.
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| Image 4: Updated chart from Jan'19 and possible KLCI Index projections |
Good luck and all the best!!!
Disclosure: The information above is for sharing purposes. References to the fundamental data and price movements is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing. The opinion expressed here is not a recommendation to buy/sell.
A few articles surfaced in the media yesterday on the weak global outlook and also within Malaysia of the prospect of slower growth - the debate on public spending versus private sector and the GDP forecast. Interesting enough. Nevertheless, as long as the shares that you are holding has attractive valuations and fundamentals, the recovery is faster compared to those on the high side of its valuations and weak valuations.
ReplyDeleteKLCI index spike down on 11-Apr spooked by Tenaga sell down. KLCI is now at oversold region, lowest at 1622.45 versus support level at 1611; there is high chances that market will rebound in coming days. Additionally, the earnings week is starting for US as well and MYR weakening to 4.11. Hence, its a good timing to initiate attractive trading/investing counters and possible fishing from bottom.
ReplyDeleteGood luck and all the best!!!
Overall KLSE market is still cautious and possible awaiting economic data from China which will be released today - the industrial production activity and GDP. Locally, the next market mover will come from Monetary Policy Committee meeting by Bank Negara (aka the "Fed" of Malaysia) which will meet on 7th May, 9th July, 12th Sep and 5th Nov. Key decision to watch will be the OPR rates and dovish/hawkish overview on the local economy.
ReplyDeleteThe market is speculating that the decision of lower OPR rates will come from the May meeting but I am in the opinion that the earliest would be Jul. If there are signs that overall global economy is picking up / stabilized, there is really no rush to make the call.
KLCI index triggered the first support at 1611 today. As it is also near oversold region with higher low technicals, I have initiated FKLI buy/long contracts.
ReplyDeleteToday's low was at 1609.83 before the index staged a late rebound to close at 1619.73. It's promising to see the rebound though it is still early to say that its the start of technical rebound.
ReplyDeleteKLCI index closed at 1622 last Friday. Globally, China is showing signs of recovery with the CHI50 going beyond 14000 and Dow Jones will continue its earnings season. As we speak, US30 (~26600) is hovering near its previous high seen last year Oct'18 at 26828.
ReplyDeleteKLCI index closed at 1638 and what is more promising is the overall market breadth showing signs of improvement. The last few days saw overall value traded close to RM3 billion; a level which has not been seen for since end of last year. On top of that we are starting to see close to about 600 and more gainers recently which means it is in harmony with the general market. This is definitely a good time to trade as you have the power of overall market supporting us.
ReplyDeleteGlobal market were spooked by Trump's tariffs threat. Closer to home, Monetary Policy Committeee (MPC) meeting by Bank Negara will meet as scheduled on 7th of May. Do follow its outcome from the Bank Negara's website on the overall economy and decision on OPR.
ReplyDeleteMPC decided to reduce the OPR by 25 basis points which means bank's earnings will be at risk particularly on the net interest income. While previous selldown on banking stocks may have priced in the change, the news on Donald Trump's tariffs on China products and Beijing preparing for retaliation kept the KLSE index in check from progressing towards 1650 and higher.
ReplyDeleteOverall market breadth is weak again with the new development on trade wars between US and China. Additionally, EU is also preparing in the event US were to initiate tariffs on its automotive industry. Yesterday rebound in KLCI/FKLI seems to be a short covering whereby short positions are being closed. Big institutions/fund managers have started exiting from risky assets and may park the money in assets that generates good cash flow and dividend.
ReplyDeleteOverall KLCI rebounded to 1650 level due to selective index counters buying by local institutions and funds. Overall market breadth is still weak in my opinion without participation of foreign funds. Bank Negara relaxed the forex rules as part of the effort to prevent removal from WGBI by FTSE Russells. Additionally, 10 years yield curve for government bond is trending below 3.8% versus the 5 years yield curve below 3.5%. At this point, my advise is to hold on to some cash in anticipation of market volatility. Alternatively, one should rebalance your own portfolio to focus on defensive stocks with consistent dividend yield.
ReplyDelete