Written by InsiderAsia
Sunday, 18 April 2010 15:30
GLOBAL stock markets stayed on a relatively firm footing, despite some profit taking towards the end of the week.
Investors got a shot in the arm at the start of the week on news that European Union governments have agreed to offer debt-laden Greece loans worth up to €30 billion (RM129.3 billion) at lower than the country's prevailing borrowing cost in the capital market. The International Monetary Fund will chip in an additional €15 billion.
Details of the agreement, compared to the earlier mere pledges of support, calmed growing jitters over a potential Greek debt default. Having said that, yields on the benchmark Greek bonds remained high even as the government sought for a meeting to discuss details and possible disbursement of the aid package.
The Dow Jones Industrial Average's move to close well above the psychologically important 11,000 points level further assured investors that the year-long rally still has legs. The broader-based Standard & Poor 500 index closed above 1,200 points for the first time in over a year and a half.
The upbeat sentiment on Wall Street was supported by stronger-than-expected earnings results and outlook offered by the early batch of reporting companies, including bellwether companies Intel Corp and JPMorgan Chase.
Asian stock markets, on the other hand, traded on a slightly more cautious tone. On the positive note, expectations for growth remained strong. Exports from the region, so far this year, have been growing in very strong double digits.
Last week, Singapore reported sharply higher-than-expected gross domestic product (GDP) growth for 1Q10. The island state's economy soared an annualised 32.1% from the immediate preceding quarter, the fastest pace on record dating back to 1975. Accordingly, the government revised upwards its growth forecast for the year to 7%-9%.
China too recorded its fastest growth since 2007 in the first quarter of the year. The world's third-largest economy grew 11.9% year-on-year
(y-o-y), supporting the notion that Asia is leading this global recovery.
On the other hand, surging growth is raising the threat of inflation. Indeed, although the US Federal Reserve continued to maintain that interest rates would remain low for an extended period of time, governments in the region are already shifting their focus to combating inflationary expectations rather than stimulating growth.
Central banks in Australia, India and Malaysia were among the first in the world to raise interest rates while the People's Bank of China has implemented various tightening measures including raising the reserve requirements for banks twice, so far this year. Singapore's central bank tightened its monetary policy last week in response to the country's strong 1Q10 GDP numbers by revaluing upwards the trading band for the Singapore dollar.
Part of the inflation concern stems from rising commodity prices. Crude oil futures recently rose above US$87 (RM278.40) per barrel, the highest level in about a year and a half. Meanwhile, sharp hikes in prices of iron ore and metallurgical coal is pushing steel prices higher, which will result in higher prices for wide ranging end-consumer goods including automobiles, electrical and electronics as well as the costs for constructing buildings.
On the home front, shares on Bursa Malaysia drifted sideways through the better part of last week. The prevailing sentiment may well persist until there are clearer leads on the global market's next move.
Portfolio review
Having chalked up strong gains over the past few weeks, stocks in our model portfolio succumbed to some profit taking last week amid weaker sentiment in the broader market.
Our basket of 19 stocks fell 2.03%, under-performing the benchmark FBM KLCI's 0.09% decline. Including our large cash reserves (for which no interest is imputed), the total portfolio value declined by 1.73% to RM580,380.
Nevertheless, our model portfolio's total value and returns continue to 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 RM420,380. Of this amount, RM224,946 has already been realised from earlier sales, and the rest are unrealised.
Since its inception, our model portfolio has registered a hefty return of 262.7% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 106.1% 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's sake.
Last week, 12 of our stocks ended lower while four rose and the remaining three were unchanged (Tanjung Offshore, Notion VTec and Dijaya). DiGi (up 4.9%) and Selangor PROPERTIES [] (up 4.7%) were our top gainers for the week while Faber (down 9%) and HELP International (down 5.2%) succumbed to profit taking following recent gains.
We are leaving our portfolio unchanged, for now.
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.