The Budget 2014

The recent announcement of the Budget 2014 was unexcited as predicted. Compared to the last Budget this budget is more realistic as we need to look into our deficit problem seriously as Fitch has already downgraded the Malaysian credit outook from "stable" to "negative" in July this year.

Currently, Federal Government debt at 54% of GDP while Household debt at 83% of GDP; Our budget deficit was 4.5% of GDP this year (for budget deficit > 5% is consider unhealthy). Hence a contractionary budget for next year is expected as people need to wake up from the over-indulgence of 'goodies' during the pre-election period. There is a price to pay for all the big spending!

However, the GST is further delayed to 2015 which also mean that the budget in fact is not that contractionary and our credit rating of 'negative' may remained for quite a while.

Moving forward, as far as KLCI is concerned there are winners and losers sectors for this budget. The winners are: telecommunication (increase of internet coverage in the rural areas), Oil and Gas, and Construction (West Coast Expressway, Doble-tracking rail project).

Biggest loser is the property sector especially the properties that rely on foreign buyers like the Iskandar region in Johor. As for the sin tax, the price hike in tobacco was implemented one month before the budget announcement day with a tobacco excise tax of 14%.  

The new RPGT of 30% for the first 3 years with no DIBS will definitely dampen the property market. However, I don't think there will be a major crash in the property market, but more like a mild correction kind of consolidation will take place as many of the projects will only be ready beyond 2015. 

For example, if you are holding 3 or more condos with price below RM1 million, you'll most likely have the difficulty to look for local buyers as most Malaysian middle income earners can't afford to buy a property in the sub sales market. The difference between buying from the developers and from the sub-sales market is that, if you buy from the developers, very often you do not need to pay high down payment, low (or non) legal fees, DIBS (now no more), easy to obtain the loan approval from banks. But if you are buying in the secondary market you need to pay tens of thousands of ringgit for the legal fees, stamp duties, down payment and etc. Hence, this new ruling in fact is a nightmare for speculators with no holding power but a good news for genuine buyers because it's everyone's dream to own a house for old age retirement and for the next generation.

Now you may be thinking what is my advice for the general equity investor. My advice is keep investing in the equity market. Buy only when the KLCI has a minimum correction of 80 points - 120 points. Sell when you see your stocks rise by 20% - 30%.  Once you've sold your position do not buy immediately but to wait patiently for the next opportunity to strike. If you recall my previous articles, there were 2 strategies that I mentioned before: 

1. Buy at the cycle low that usually happens in the month of February, May, August and November.

2. Buy when the KLCI is in a correction mode. A correction happens when the KLCI violated the trendline and the 20 day MA. When the index is in the correction mode, individual counters usually reacted more.

For sell signals it is up to the individual investor, it could be a 3-to-1 reward to risk ratio, below 20 day MA, or any other technical indicators that you are familiar with.

For questions and enquiries you are most welcomed to emailed me at info@stocktips123.com

KLCI 4th Quarter Price Trend

People who are new to the stock market may think that the stock market is a chaos market operating in a random manner. As you do more and more research into the historical stock prices you will see the picture clearer that the stock market is in fact rather predictable . Below are some KLCI historical charts for your viewing.

As you can see interestingly, November is always "down" and December is always "up"; September is mixed, while October has been up for the last 3 years, but for this year I would say it might be a mixed month due to the strong rally in September with rather steep slope of rising. 

How well history repeats itself depends on the actual outcome 3 months later.

Happy Investing!

2010 Sept - Dec

2011 Sept - Dec

2012 Sept - Dec

2013 Sept - Dec

Runaway Bull Market - The Dow Jones

In the beginning of 2013 hardly anybody will predict that the US market will experience the so called "Runaway bull market"! Runaway bull market means that the market is rising without a 20% correction. If we look back at the history, the last >20% correction was in 2011 August - the debt ceiling crisis. Prior to that was the 2008-2009 prolonged bear market that the DJIA was wiped out by more than 50% from its peak of 14,000. 

Nobody can predict accurately when is the next major market correction but there are a few factors that will determine the direction of the market: the Fed, the interest rates and the slowdown of the Chinese economy. To a lesser extend, some may even think that there could be a commodity crash but I think the possibility is low, but I would not rule out completely as 120 years ago in 1893 there was a stock market crash sparked by the Sherman Silver Purchase Act that caused massive bank failures during that time.

Malaysia market so far has been quite resilient without much affected by the recent Asian market sell down by the foreign funds. If you have been following my articles, you will know that I recommend the timing for entry into the market is February, May, August and November as these are the cycle low months of the year statistically. However,  I would advice investors to be cautious from August till November as these months are more volatile historically with many stock crashes happened before.

Moving forward to the second half of 2013, my stance still holds that generally this year will be a bullish year with some minor corrections of not more than 10% each. Support is 1600, resistance is 1840. And my favourite sectors are properties, construction, oil and gas.

Good luck to your investment, remember to take profits, lock in your gains first as there'll be plenty of opportunity to buy low sell high. 

Happy investing,

Pauline Yong 

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Correction Phase Continues

The US DJIA and S&P 500 had a critical move last night that finished both below their trendlines. This will be the first major correction since last year November if the DJIA and S&P 500 couldn't go back to their support within 3 days starting today. Below are the charts for the possible downside targets for the US markets:

Historical speaking, these kinds of major corrections happen once or twice a year in the US markets for the past 3 years. In 2011 had a 18-20% correction from top as the correction was overdued. The DJIA broke the 1 yr trendline in August due to debt ceiling crisis in the US, and it lasted for about 8 wks.

In 2012, there were twice, once in the mid-year May, the other end of the year November. Each correction is 9% from top and the duration was shorter than 2011.

Hence if 2013 experience like what 2012 did, most likely we shall see 2 corrections for the year with one in June, the next in November as well. The downside target for DJIA is 14,100 which is calculated from subtracting 9% from the recent peak in May. I see strong Gann support at 13,800 for the DJIA.

Similarly, for the S&P 500, downside target is 1530 (9% from recent peak) with a strong support at 1500.

For KLCI, most likely we will be supported by the long term trendline that started since March 2009 which is 1680.

As for STI, today we shall see the index testing the recent low at 3094, the immediate support is 3075, if this level is broken, the next support level will be 3000.

In short, it is very important we can identify whether this is a crisis where the stock markets undergo a major bear trend with multiple months or a healthy correction with 2-6wks of downtrends. For a crisis like the recent ones, we had the 1997 Asian Financial crisis, 2008 US Subprime Morgage crisis where wee saw rising interest rates, massive corporate failures and bank failures, and currency depreciations.

On the other hand, for a correction to take place, it will be preceded by news that erode investors confidence such as: possible Greek exit the eurozone, US debt ceiling limit, but not like the above crisis scenarios. This round, its the withdrawal of QE should the US economy improves further. Frankly speaking, I think what the US Fed is doing is on the right path as we do not want to see excessive money printing, which will give rise to a lot more problems in the future.

Finally, the above analysis is my own opinion, it is not for recommendation or advice. I'm just sharing my knowledge as I want to help people to see things in a more objective way, the more information you have, less uncertainty it is.

KLCI Correction Phase

Here are some charts looking at how KLCI perform during the correction phase.
Usually I consider a valid correction phase as price violates both trendline and the 20 day MA. Hence from the chart below we see once these 2 lines are violated, the correction phase will last  9 - 47 trading days or 2 - 9 wks depending on how bearish it was.

From the findings:
2009 - no major correction as just emerged from major bear trend in 2008
2010 - 2 times
2011 - 2 times
2012 - 3 times
2013 - so far 1 time

KLCI Historical Price Chart 1981 - 2012

Legendary investment guru, W.D. Gann once said: "Each decade or 10-year cycle, which is 1/10th of 100 years, marks an important campaign. The digits from 1-9 are important. All you have learn is to count the digit on your fingers in order to ascertain what kind of a year the market is in."

So I did a research on our KLCI prices for the past 32 years to see if there are any repetitive chart patterns and I discovered that:

1.      the years ending with 3, 6, 9 are usually bull years.
2.      among these 3 years, year ending with 9 has the biggest gain in history with 30% -175% gain, followed by 3 with 30% - 100% gain, and 6 with 18% - 22% gain. 
3.       years ending with 1 and 5 are the worst performing years with year end closing price below or equal to the beginning price. 

          4. years ending with 7 and 8 tend to have stock crashes with the exception of 1988.     

     Although the charts are only applicable to the KLCI component stocks, but these findings are amazing! Most people think that market is random, you can't predict the market, however, the research shows that history does repeats itself and market is made up of crowd psychology, human behaves repetitively to certain external stimuli. In addition, in cycle analysis, it is believed that the "Nature's Law" or the "Secrets of the Universe" are affecting human emotion which in turns affect the financial markets. At least this is what Elliott and Gann had proposed in their books. Gann seldom revealed his secrets in trading as he thought that "people are not ready yet!" Gann had his unconventional ways to forecast the financial markets that I will not elaborate further (but I may in the future if people are more ready). 

       Since It is always good to use both fundamental and technical analysis in stock analysis,  let's look at this findings objectively. For example, if 2013 is a bull year, then it must be supported by the fundamentals. The EU economy is weak with austerity measures, the US is recovering but unemployment remain high, international fund managers most likely will consider emerging markets to invest, especially the South East Asia nations like Indonesia, Thailand, Phillipines and Malaysia due to their vibrant economies that are undergoing  structural change. As standard of living is rising for these emerging markets, these economies have rising domestic consumption, improving infrastructures such as the construction of Mass Rapid Transit in Kuala Lumpur and Jakarta, and moreover, all of these emerging countries have pro-business / pro-investment governments to attract FDI into their countries. 

     On the other hand, we must not forget history shows that with the influx of FDI, or foreigners purchasing our properties and shares, these emerging economies are subjected to the risk of hot money being pulling out if there is any negative news. 

      I do see some similarity between now and the 90's. Knowing what had happened before, it is important not to let the history repeats itself. These economies must do some precautionary measures such as cutting budget deficits, curbing asset bubble, and of course, let's build a more efficient government together!  

  

      Below are the historical charts: