Tuesday, May 4, 2010

Part 2 - Why I Wanted To Sell Before May.

My article " Why I Wanted To Sell Before May " get a respond from one of the readers. Here I would like to post his comment on my blog and we can share with most of the readers from his thoughts and his observation.

May I append my thoughts on your observation.

1. Stock markets comprise of many sectors - plantation, export semiconductors, properties, banking, health, construction and many more. My view is that not all these sectors move together in 2009. Sure prices of some say, construction or banking stocks have moved.

But what is their potential in the next few quarters. Are they overvalued? Maybe sentiment now is negative in view of so many headwinds. I will always look at value buys, taking into account of the economic cycle of each sector, stock valuation and its potential in relation to the ever changing world and local economies.

2. True SELL IN MAY AND GO AWAY. I have made analysis of this phenomena for three periods 1998, 2002 and 2006 - all these years coincided with the World Cup. In the first two, the markets went up in the earlier part of the year culminating in Mar/April and the market trend went down until the end of the World Cup in early July.

Subsequently, it went further down. However, 2006 was a bit different. Market trend, I believe went up until May before it gave up some gains, about 50/60 points but towards the end of the World Cup it picked up and with minor corrections in July and August and went all the way up leading to the 2007 bull run. I managed to catch it from Nov and Dec 2006. The bottom line I would like to share is still the economic fundamentals of the local and world economies.

Are they favourable for firms to make monies and are prices reflective of such potentialities. That I believe is what that counts. Economic data do not lie but the presentation of which is another story. Sometimes a lot of investors get carried away with newspapers reports of how bad a situation is that they forgot the trees for the forests.

3. The year 2010 will be marked by news of potential sovereign defaults. There is ample of these in the news. If we were to borrow from the bank, the bankers would want us to repay and the moment economic conditions do not look good, they will recall the loan. But this time, it is countries that are involved.

These PIGS (Portugal, Ireland, Grecce, Spain) countries borrowed heavily during the last financial crisis and certainly creditors will want their monies back. Have we forgotten? So, this crisis is not something that is not known.

Those who are in the know and followed the economics of Europe would have known and have profited much from the ups and downs. Between the initial stage to the final resolution of this Euro crisis, there is going to be many perception along the way.

Will it be a contagion like the last financial crisis or will be limited to Europe and US? How are the currencies affected? All these create different perception of risks and consequently the fear factor that moves markets up and down.

These are also profit opportunities for some. For example, Mark Mobuis of Templeton Fund read the Dubai crisis correctly and waited till it broke out before buying property stocks at rock bottom prices. For me, I am still at the learning curve or rather still way behind.

4. Lastly, the World Bank, our Government and a few banks have revised our GDP upwards. Does this mean that our exports in the next few quarters will be up, up and away. Will they peak at the end of the 1st quarter or the 2nd quarter. All said what is the bottom line for our companies in the next few quarters.

Are values now reflective of such potential. Is the market overvalued, therefore a correction is in store. How large will this correction be in the face of this improving economic fundamentals? How much of this forecast can be taken at this point of time?

Like I said at the start, I'm sharing my thoughts. The world of investment is truly a fantastic educational arena. Learn it well and make less mistakes. The ultimate outcome will be something worth all the effort.

Regards
James Lau Chea Yong

1 comment:

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