Insider Asia Model Portfolio

Written by InsiderAsia

Sunday, 10 January 2010 15:25

THE new year got off to a good start. After relatively quiet trading in the last two holiday-shortened weeks of December 2009, trading volume surged in the first week of January 2010. Investors returned to the market after the year-end holidays and there was also likely some traditional early-year asset reallocation exercises by institutional investors.

For the week, FBM KLCI gained a total of 20.2 points or 1.6%, ending at 1,293 points. This was a commendable showing for the new year given that the index had already gained a hefty 45.2% in 2009, when it closed at 1,272.8 points.

Local stock prices gained for the first three days of the week, before easing slightly on Thursday and Friday. Most of the interest was on lower liners and retail stocks, as well as glove makers and selected blue chips like Tanjong plc and CIMB.

Sentiment was earlier also boosted by Wall Street's triple-digit gains on its first trading day, although sentiment turned more cautious later as economic signals turned mixed and China's tightening measures affected confidence. Investors were also more cautious ahead of the key December US unemployment report, which will set the tone for trading in the coming week.

Among the positive economic data released last week was in the manufacturing sector, with the US manufacturing sector expanding at the fastest pace in four years in December. The ISM factory index rose to 55.9, the highest level since April 2006. The rebound in manufacturing activities was also mirrored in other countries including China, the euro zone and UK.

US factory orders also rose 1.1% in November, more than double market expectations. The upbeat data supported prevailing expectations of a global economic rebound and fuelled prices for commodities, especially as the US dollar weakened again. Investors were also comforted by upbeat December retail sales reports from major retailers during the holiday season.

On the negative side, US pending home sales plunged 16% in November — the first drop after nine months of gains and indicating weaker sales in the months ahead. This was partly due to the expiry of tax credits, which has been delayed from November 2009 to April 2010. But it underscores the reliance on stimulus programmes to boost growth.

Another major dampener was the Chinese central bank's unexpected decision last Thursday to raise interest rates on its short-term bills, signalling further monetary tightening measures ahead.

The Chinese government has voiced concerns that strong bank lending growth, which has cushioned the fallout from the global downturn, is also pumping money into sectors already facing over capacity such as steel and cement as well as the property and stock markets, raising the risks of asset price bubbles.

Portfolio review

Our basket of 18 stocks fared extremely well again last week.

After surging 3.2% in the preceding week, our basket of stocks rose another 3.4% last week, much better than the FBM KLCI's 1.6% rise. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by 2.6% to RM538,240.

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 RM378,240. Of this amount, RM223,866 has already been realised from earlier sales and the rest are unrealised.

Since its inception, our model portfolio has registered a hefty return of 236.4% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 99.9% over the same period, even though it has been less representative of the broader market's performance. Plus, our portfolio holds a significant amount of non-interest yielding cash at all times for prudence sake.

We currently have surplus cash of RM127,815 for future investments, and the portfolio's equity weighting currently stands at 76%, which we are comfortable with.

Last week, we had 14 gaining stocks and four losing ones.

Our portfolio's strong performance was helped by large double-digit weekly gains in five stocks, notably Tanjung Offshore (up 20.8%), Dufu TECHNOLOGY [] (up 18.6%), Muhibbah (up 12%), 3A Resources (up 11.9%) and Notion VTec (up 10.7%). The week's losers were led by Dijaya (down 5.1%) and HELP International (down 3.6% after rising 11.6% the previous week).

We are keeping our portfolio unchanged.

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.

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