2008 Stock New Clips

Friday, 31 Aug 2007

Volatility seen ahead of Budget 2008

PETALING JAYA: Volatility will return to the local bourse next week ahead of the announcement of Budget 2008 as the KL Composite Index (KLCI) is seen taking the cue again from the performance of the US stock market. 

Analysts in general said although Budget 2008, to be announced next Friday, was expected to be a “good one”, offering goodies to the rakyat, sentiment among local investors remained fragile due to uncertainties in the US market and lingering credit problems. 

As such, the consensus is that the market is not expected to be robust, although “irrational and panic selling has reduced substantially”, according to SBB Securities senior analyst Ng Jun Sheng. 

“Investors have braced themselves for volatility in the market and digested news that the crisis is likely to be resolved within the next three to four months,” he said.  

Ng said investors would get a clearer picture on the extent of the US’ credit problems by mid-October when most of the country’s financial institutions would have announced their third quarter results for financial year 2007. 

He sees the market in the week ahead trading in the range of 1,240 to 1,300 points. 

Traders work on the floor of the S&P 500 pit at the Chicago Mercantile Exchange.Analysts say although Budget 2008, to be announced next Friday, is expected to be a“good one”, sentiment among local investors remain fragile due to uncertainties in the USmarket and lingering credit problems – Bloomberg

SJ Securities research head Cheah King Yoong concurred that market sentiment next week would remain cautious. 

However, a possible play on the property sector and the real estate investment trust (REIT) sub-sector in anticipation of incentives in the upcoming Budget could materialise, he said.  

Cheah sees the local bourse facing resistance at 1,245 points, with support at the 1,300-level next week. 

Meanwhile, trading sentiment in the US is expected to be cautious as well for the remaining two days this week, ahead of the release of key economic data and Federal Reserve (Fed) chairman Ben Bernanke’s speech on Friday.  

The KLCI finished 10.23 points, or 0.81% higher, at 1,273.93 points yesterday on a technical rebound after shedding more than 15 points a day earlier following the plunge in US stocks on Tuesday. 

Gainers led losers 573 to 254 while 267 counters were unchanged. Overall volume declined to 952.148 million shares worth RM1.6bil compared with 976.88 million shares worth RM1.8bil on Wednesday. 

Markets in Japan, China, Hong Kong, Taiwan and South Korea also ended higher yesterday.  

The Dow Jones Industrial Average rebounded 247 points, or 1.9%, Wednesday on bargain hunting amid growing optimism that there could be an interest rate cut.

17 Dec 2007 12:00 AM MYT

Challenges loom on the external front

IT will take more than luck and hearsay to make a quick buck from the local bourse next year. 

Gone are the days in 2006 and to a certain extent 2007, when investors can buy just about any stock and make some money. 

Issues such as the US subprime debacle, high commodity prices and rising inflation have many in the investment fraternity expecting a more volatile year for the local bourse next year. 

“I think the subprime problem is definitely getting worse,” he pointed out. 

Inflation is also going to be a big concern for Malaysia next year, according to Kurnia Insurans (M) Bhd chief investment officer Pankaj C. Kumar.  

“Second, will be the external factor – a slowdown in the US or even China for that matter, will have an impact on our economy.  

“Last but not least is the consumers, they must have the confidence either to spend or invest,” he said.  

Nevertheless, the Malaysian economy has some trump cards to ensure that its growth momentum is sustained next year. 

“I think the Malaysian economy has more resilience in a sense that moving forward, we have higher infrastructure spending, quite good commodity prices and we are a net exporter of crude oil,” Chee Sing said. 

In addition, the economy has also become more domestic-oriented and less of an export-based one. 

Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose says: “We now have a domestic economy that is doing a lot better than when many observers looked at us a couple of years ago.” 

So what are the prospects for the stock market next year? 

It all boils down to the fundamentals of the market as well as valuations.  

“Even at the 1,400 level, the market still looks pretty attractive.  

“As we move into 2008 and once earnings come on stream, depending on the numbers and ratios, revisions would be made by the market. 

“We see the market hit 1,650 in 12 months based on current market estimates of the index-linked stocks' fair value,” Pankaj said. 

Chee Sing believes there may besharper corrections in the first half of the year due to volatility caused by uncertainty, before the market makes a comeback.  

“Based on a soft landing for the US, there should still be quite good earnings growth next year.  

“There is potential for the market to trend up after a phase of consolidation.  

“If you build that number in terms of new values created for earnings growth, we are talking about a target of 1,600 for 2008 in 12 months,” he said.  

However, in view of the many uncertainties, they are now turning towards a more defensive investment strategy at least in the short term.  

Make no mistake, opportunities are still aplenty in the local bourse but the experts are advising investors to be more careful in their selection in terms of the sectors and stocks to invest in. 

“You have to be very vigilant going into 2008 in terms of how you position yourself in the market and when you make profits. Be mindful of events because they are going to dictate your total returns for next year,” Pankaj said. 

UOB-OSK Asset Management Sdn Bhd executive director and chief executive officer Lim Suet Ling concurs. 

“There will be opportunities but it will not be across the board, it has to be very stock-specific at this stage,” she said. 

Buy low, buy low, buy at the bottom!

Saturday, 20 Dec 2008 12:00 AM MYT

“Equities on SALE!!!” – screamed most stock markets earlier this year. “Equities – Further Reduction!!!”, the announcements continued into mid and late 2008, yet, investors watched from the sidelines. In retrospect, waiting was wiser than jumping in. What about now? After all, many stock markets have already lost more than half their values!

You, the rational investor, are thinking it’s crazy to buy now when stock markets are in a pool of red.

Alternatively, you, the ultimate bargain hunter, are waiting for the sign that says, “Equity on Final Sales, last 3 days only!”

It is exactly what millions of other investors are thinking as well. So when is the best time to buy so that you are buying at the low?

But then, when can we expect equities to be at their cheapest?

They are cheapest when the market is at its “worst” or the outlook is at the “bleakest” – where it is impossible for things to get any worse.

Let’s cast our minds back and think of the world economy after the technology crash in 2000, Sept 11, 2001, Enron and Worldcom crisis in 2002 and the Asian SARS episode in 2003.

Each crisis seemed to signal the end of the world as we know it. This crisis is no different! SARS caused the Asian markets to plunge but shortly afterward, they shot pass their previous highs.

If you had waited because you thought that SARS would plague Asia for a long time, you would have missed out on some of the most spectacular growth. Does it mean one should just take an early plunge during a crisis?

Then looking back further at 2001 after the technology crash – one could have easily believed it was the “final sale” and entered the market then.

Unfortunately, the markets continued to be shocked by acts of terrorism (Sept 11) and then betrayed by corporate giants like Enron and Worldcom.

Even the most rational investor who bought at these perceived low points may call it quits.

When the situation could not get any worse, it just did! Does it mean one should just wait and see? After all, I did describe the current crisis as the “First world financial tsunami” – have the waves stopped or is it an interlude before the next big one?

The equity market is like a roller-coaster ride, as it plunges headlong into a great fall, investors will lament and throw their hands up in despair.

A friend of mine jokingly said that her long-term investments may now be so long term that they would only benefit her grandchildren.

Are you prepared to buy when the situation is bad, so bad that it cannot get worse? That, by definition, is to buy at a low and maybe even the absolute lowest point.

Unless you are still on the roller coaster, you will not be able to enjoy the upswing when it passes the bottom of the great fall. And if you choose not to be on the roller coaster, then don’t complain that you are always unable to buy at a low.

In fact, the stock markets have always recovered months before the real economies hit the bottom.

A sensible approach is needed, coupled with great mental and emotional strength to overcome the fear of loss in such instances.

While it is silly to buy simply because markets are falling, sticking to fundamentals does work. Buy in anticipation of future re-growth at reasonable prices and persevere through possible set-backs – this is likely to succeed over the longer term.

If you have what it takes, I would suggest a regular drip into the market.

For example, if you have RM100,000, divide it into 10 lots of RM10,000 and then invest each lot into the market monthly. As you ride the market down, you can be assured that you are buying cheaper.

Of course, the best outcome is that, in the course of such regular investing, you manage to “catch” the bottom.

As I always believe, if you get value for your money, then you don’t have to worry about whether it’s cheap or expensive.

Tay Han Chong is senior vice-president and senior head of division, Personal Financial Services Division, UOB

Thursday, 1 Jan 2009 12:00 AM MYT

Disappointing 2008 with KLCI losing nearly 39% amid global crisis

PETALING JAYA: For investors, 2008 is a year which they wished to forget as soon as possible after the KL Composite Index (KLCI) fell 38.9%.

The KLCI rose to its historic high of 1,516.22 on Jan 11 but the euphoria proved unsustainable in the later part of last year, as investors’ sentiment was battered mainly by the US financial crisis, which saw the exit of foreign funds.

Yesterday, it ended the year 4.88 points lower at 876.75, down from 1,435.68 on Jan 2. For the year, it had fallen 558.93 points.

This was the worst annual performance since the 1997/98 Asian financial crisis when the KLCI fell 51.7%. In 1997, the KLCI tumbled from 1,231.45 on Jan 3 to end the year at 594.44.

More than 10 years on, it was a reality check for retail investors, financial institutions and analysts following the fallout from the global financial crisis, the worst since the Great Depression.

For 2008, market capitalisation, including companies that were either delisted or taken private, shrank from RM1.057 trillion to RM663.80bil.

“Many were caught unprepared as they did not think how severe the impact of the US financial crisis would have,” said the chief investment officer of a local fund management company.

Analysts had earlier predicted that the KLCI would sustain above the 1,500-level in the first quarter of 2008, due to domestic and external catalysts which would buffer the stock market.

They had pinned their hopes on expectations of the general election in the first half, fiscal stimulus following the implementation of mega infrastructure projects and rising foreign direct investments and portfolio inflows.

The fiscal stimulus included the several mega Ninth Malaysia Plan projects in 2008. These comprised the RM12.5bil double-tracking rail project (Ipoh-Padang Besar stretch), the RM9bil Pahang-Selangor water transfer project, the RM9bil Bakun undersea cable project and the RM3bil Second Penang Bridge.

The market took a hammering in March after Barisan Nasional’s failure to garner a two-thirds majority in Parliament in the March 8 polls and also growing fears of a recession in the US.

When the market resumed trading on March 10, the KLCI fell 123.11 points, or 9.49%, to close at 1,173.22. Local sentiment was also affected after the Dow Jones Industrial Average fell to 11,740, its lowest level since October 2006, dropping more than 20% from its peak just five months ago.

On July 11, Indymac Bank, a subsidiary of Independent National Mortgage Corp, was placed under receivership, making it the fourth-largest bank failure in the US.

The KLCI hit a year-low of 829.41 on Oct 29 on heavy selling pressure, especially from foreign funds, which were repatriating their funds.

In the US, Treasury Secretary Henry Paulson had on Nov 12 abandoned plans to buy toxic assets under the US$700bil troubled asset relief programme. He believed the remaining US$410bil in the fund would be better spent on recapitalising financial companies.

Asian markets fell, with the KLCI skidding 15.19 points, or 1.71%, to 875.15 at the midday break on Nov 13.

For the year, stock exchange operator Bursa Malaysia Bhd  fell the most in terms of prices, sliding RM9.15, or 64%, to end 2008 at RM5.15, reflecting the depressed equities market.

Kuala Lumpur Kepong Bhd  fell RM8, or 49%, to RM8.90 while Sime Darby Bhd posted a decline of RM6.70, or 56%, to RM5.20.

Aseambankers Equity Research head Vincent Khoo described 2008 as a “highly disappointing year for investors”.

He was surprised about the extent of the destruction of the credit derivatives market, which led to the financial crisis, and bailout of major banks.

In Malaysia, sentiment was affected by the surprising results from the general election, the windfall tax on independent power producers and also the levy on plantations.

Saturday, 10 Jan 2009 12:00 AM MYT

How Madoff madeoff with 2008

The year 2008 will be remembered as a rat of a year. Seemingly unending prosperity to August, and then the Lehman heart attack in September, as if someone pulled the plug, and half of our stock market wealth was flushed down the drain.

But the highlight must be the news that a paragon of New York society, a former chairman of Nasdaq no less, Bernard Madoff confessed to a Ponzi scheme of up to US$50bil. Madoff’s niece was his compliance officer and married a former SEC attorney. Members of the Madoff family served on various regulatory advisory bodies. Didn’t someone accuse us Asians of crony capitalism in 1997?

I got an SMS the other day that said: “One year ago, RBS paid US$100bil for ABN AMRO. Today, that same amount would buy: Citibank US$22.5bil, Morgan Stanley US$10.5bil, Goldman Sachs US$21bil, Merrill Lynch US$12.3bil, Deutsche Bank US$13bil, Barclays US$12.7bil, and still have US$8bil change ... with which you would be able to pick up GM, Ford, Chrysler and the Honda F1 Team.”

Well, if Mr Madoff had waited, with US$50bil, he could have picked up Citibank, Deutsche and Barclays and then control over US$2 trillion in assets. Just think what a Ponzi scheme that could be.

Relaxing in Bali over Christmas and reading Nial Ferguson’s The Ascent of Money and Mandelbrot’s The (Mis)behaviour of Markets, I noted how Darwinian everyone has become. It’s all about the survival of the fittest, as if losing US$50 trillion in wealth in a year (US$30 trillion in global stock market capitalisation and roughly US$20 trillion in real estate value), equivalent to one year of global GDP, is part of nature’s punishment for human excesses.

Of course, Eric Beinhocker was the first to say in his book The Origin of Wealth that money was as Darwinian as “The Origin of Species”, pointing out that we all want wealth because of the reproductive urge: SMS – Sex, Money and Status. Power, as Henry Kissinger said, is the ultimate aphrodisiac.

If we believe that financial crisis is built into the human genome, then this crisis is clearing the system – selective evolution for those who can survive and who should be extinct.

For example, investment banks have become extinct as a separate legal entity in the US, having become bank holding companies regulated by the Fed. Crisis levels the playing field. In 2007, the buzzword in the West was how opaque and bad Sovereign Wealth Funds were. By 2008, the West owned one quarter of the capital of their banking system and has also become the world’s largest Sovereign Wealth Funds. Free market fundamentalism is dead and we are all now interventionists.

The fascinating thing about the current financial crisis is the way the US dealt with the crisis in lightning speed. Just think, in less than a year, the Fed has brought interest rates down to zero, whereas it took the Bank of Japan more than 10 years.

There are two implications of a zero interest rate policy. First, since the price of money is no longer a policy tool, expect more quantitative intervention. Look how quickly the balance sheet of the Fed has expanded and how the US fiscal balance sheet is changing.

During the 17-year deflation after the Bubble of 1989, the Japanese fiscal situation deteriorated to over 180% of GDP. The good news is that it is mostly owed to Japanese nationals, the bad news is that future generations have to pay for that debt.

Second, if interest rates cannot be used to influence the market, expect pressure on other asset prices, especially exchange rates. Note how volatile the Yen became after interest rates could not be used to influence the exchange rate. And if exchange rates become too high or too low, expect more government intervention, either verbally or directly.

Looking at markets from a perspective of comparative history is always useful. Nial Ferguson pointed out that in Europe, at the beginning of the 20th century, bank capital was more like 25% of total assets, in the days before off-balance sheet accounting, whereas modern banking has a regulatory minimum of 8%.

However, if we count off-balance liabilities, the true capital against risks is more like 4%, meaning that if markets move more than 4%, the banking system is bust if we mark all assets to market.

Clearly, 2009 will be a year of deleveraging, as consumers and banks reduce their debt levels, whilst central banks and governments prime pump the deflating global balloon. 2009 is also the Year of the Ox, exactly as in 1997, the Year of the Asian financial crisis. Is it going to be a year of bull? Watch this space.

l Datuk Seri Panglima Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served as adviser and chief economist to Bank Negara, deputy chief executive of the Hong Kong Monetary Authority and chairman of the Hong Kong Securities and Futures Commission. His column will appear monthly.