THE local stock market traded on a mixed note last week, although the FBM KLCI continued its positive run for the fifth consecutive week. Most regional markets were also mixed as investors locked in gains from the recent rally.
The FBM KLCI index hit fresh new-year highs last week. For the week, the index gained 3.7 points, ending at 1,186.6 points. In all, it has gained a total of 121 points in just the last five weeks.
While the headline index stagnated, there was continued investor increase — for the second week — in smaller, undervalued stocks and laggards. This is a positive sign of broadening investor interest as much of the recent rally had been very narrowly focused on big blue chips.
However, daily trading volume remained fairly stable, averaging around a billion shares. Trading did not rise substantially unlike the earlier March-May rally, which saw daily volume rise to as high as 3.9 billion shares. This suggests that a large number of investors are still generally cautious.
With such sizeable gains for the headline index, one can expect intermittent profit-taking activities, with much depending on Wall Street and other external factors. Much will continue to depend on US economic data.
Investors will now be looking for evidence of a sustainable recovery. This will be the key towards sustaining momentum for global stock markets, as stock prices have generally priced in a strong recovery in the economy and earnings momentum.
At the conclusion of its two-day policy meeting in the middle of last week, the Federal Reserve said that the US economy appears to be "levelling out" instead of its previous assessment of shrinking at a slower pace, bolstering expectations of an imminent recovery. The central bank also held interest rates steady at near zero.
The US economy does appear to be bottoming out, but the recovery is patchy.
US unemployment dropped marginally — and unexpectedly — to 9.4% in July 2009. However, data released last week showed the recovery was still tepid and a consumer spending-led recovery remains some way off. Weekly filings for unemployment benefits came in unexpectedly higher, suggesting the labour market remains weak — despite the drop in July's unemployment rate.
US retail sales for July were also much weaker than forecast. Retail sales fell 0.1% as the government's auto subsidy programme drove car sales. But sales excluding cars and gasoline fell by 0.4% and marked the fifth consecutive monthly decline.
With US consumers opting to spend less to build up their savings, repair battered balance sheets, buffer negative home equity and prepare for uncertainties in a weak labour market, chances are high that the recovery process could look quite slow.
Meanwhile, an unexpected rise in second-quarter gross domestic product (GDP) in Germany and France boosted hopes for a recovery in the euro zone economy. GDP in the euro zone fell in the second quarter, albeit by a marginal 0.1%, but Germany and France emerged from recession with GDP rising 0.3% quarter-on-quarter (q-o-q).
Elsewhere, China also released a slew of economic data for July. Inflation was in line with expectations but industrial output and urban fixed-asset investment growth were weaker than expected. China's industrial output grew 10.8% year-on-year (y-o-y) in July 2009, slightly below expectations of 11.5%, but still a strong growth figure. The bigger worry there is probably how the government will soak up excess liquidity generated by aggressive bank lending and stimulus packages.
Back home, most companies will be releasing their results for the second quarter by the end of this month. The earnings results as well as management outlook for the second half would give investors better clues as to the strength of the recovery and, in turn, the outlook for stocks. So far, most earnings, especially of smaller companies, have recovered strongly from the first quarter.
Portfolio review
Our model portfolio fared very well again last week — for several weeks running now, as a number of our smaller stocks chalked up very large gains.
Our basket of 15 stocks rose 1.3% last week, more than the FBM KLCI's 0.3% increase. Including our large cash reserves (for which no interest is imputed), the total portfolio value rose by a smaller margin of 0.8% to RM498,202.
Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.
Our total profits are very substantial at RM338,202. Of this amount, RM221,386 has already been realised from earlier sales and the rest unrealised.
This represents a hefty return of 211.4% compared with our capital of RM160,000. We continue to outperform the FBM KLCI significantly, which is up by 83.8% in the same period, even though the benchmark index is less representative of the broader market.
Last week, 10 of our stocks rose and five fell. We had three stocks which chalked up large double-digit weekly gains — 3A Resources (up a hefty 26.1%), and hard-disk drive component producers Notion VTec (up 16.7%) and Dufu (up 15%). 3A's shares are now yielding us a large return of 84% within eight months — we bought them in December 2008.
Other gainers include Pantech Group (up 7.2%) and Dijaya Corp (up 5%). Losers for the week include Muhibbah (down 4%) and Genting Malaysia (down 2.1%).
We are leaving our portfolio unchanged. Our equity weighting currently stands at 63%, which we are comfortable with.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
The FBM KLCI index hit fresh new-year highs last week. For the week, the index gained 3.7 points, ending at 1,186.6 points. In all, it has gained a total of 121 points in just the last five weeks.
While the headline index stagnated, there was continued investor increase — for the second week — in smaller, undervalued stocks and laggards. This is a positive sign of broadening investor interest as much of the recent rally had been very narrowly focused on big blue chips.
However, daily trading volume remained fairly stable, averaging around a billion shares. Trading did not rise substantially unlike the earlier March-May rally, which saw daily volume rise to as high as 3.9 billion shares. This suggests that a large number of investors are still generally cautious.
With such sizeable gains for the headline index, one can expect intermittent profit-taking activities, with much depending on Wall Street and other external factors. Much will continue to depend on US economic data.
Investors will now be looking for evidence of a sustainable recovery. This will be the key towards sustaining momentum for global stock markets, as stock prices have generally priced in a strong recovery in the economy and earnings momentum.
At the conclusion of its two-day policy meeting in the middle of last week, the Federal Reserve said that the US economy appears to be "levelling out" instead of its previous assessment of shrinking at a slower pace, bolstering expectations of an imminent recovery. The central bank also held interest rates steady at near zero.
The US economy does appear to be bottoming out, but the recovery is patchy.
US unemployment dropped marginally — and unexpectedly — to 9.4% in July 2009. However, data released last week showed the recovery was still tepid and a consumer spending-led recovery remains some way off. Weekly filings for unemployment benefits came in unexpectedly higher, suggesting the labour market remains weak — despite the drop in July's unemployment rate.
US retail sales for July were also much weaker than forecast. Retail sales fell 0.1% as the government's auto subsidy programme drove car sales. But sales excluding cars and gasoline fell by 0.4% and marked the fifth consecutive monthly decline.
With US consumers opting to spend less to build up their savings, repair battered balance sheets, buffer negative home equity and prepare for uncertainties in a weak labour market, chances are high that the recovery process could look quite slow.
Meanwhile, an unexpected rise in second-quarter gross domestic product (GDP) in Germany and France boosted hopes for a recovery in the euro zone economy. GDP in the euro zone fell in the second quarter, albeit by a marginal 0.1%, but Germany and France emerged from recession with GDP rising 0.3% quarter-on-quarter (q-o-q).
Elsewhere, China also released a slew of economic data for July. Inflation was in line with expectations but industrial output and urban fixed-asset investment growth were weaker than expected. China's industrial output grew 10.8% year-on-year (y-o-y) in July 2009, slightly below expectations of 11.5%, but still a strong growth figure. The bigger worry there is probably how the government will soak up excess liquidity generated by aggressive bank lending and stimulus packages.
Back home, most companies will be releasing their results for the second quarter by the end of this month. The earnings results as well as management outlook for the second half would give investors better clues as to the strength of the recovery and, in turn, the outlook for stocks. So far, most earnings, especially of smaller companies, have recovered strongly from the first quarter.
Portfolio review
Our model portfolio fared very well again last week — for several weeks running now, as a number of our smaller stocks chalked up very large gains.
Our basket of 15 stocks rose 1.3% last week, more than the FBM KLCI's 0.3% increase. Including our large cash reserves (for which no interest is imputed), the total portfolio value rose by a smaller margin of 0.8% to RM498,202.
Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.
Our total profits are very substantial at RM338,202. Of this amount, RM221,386 has already been realised from earlier sales and the rest unrealised.
This represents a hefty return of 211.4% compared with our capital of RM160,000. We continue to outperform the FBM KLCI significantly, which is up by 83.8% in the same period, even though the benchmark index is less representative of the broader market.
Last week, 10 of our stocks rose and five fell. We had three stocks which chalked up large double-digit weekly gains — 3A Resources (up a hefty 26.1%), and hard-disk drive component producers Notion VTec (up 16.7%) and Dufu (up 15%). 3A's shares are now yielding us a large return of 84% within eight months — we bought them in December 2008.
Other gainers include Pantech Group (up 7.2%) and Dijaya Corp (up 5%). Losers for the week include Muhibbah (down 4%) and Genting Malaysia (down 2.1%).
We are leaving our portfolio unchanged. Our equity weighting currently stands at 63%, which we are comfortable with.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.