Dude, Where's My 50 Points Gone To???

You go for an extended holiday, thinking that nothing much will happen to the markets with the plethora of holidays in the first half of September ... and wallah .. Dude, where's my 50 points gone to? In the blink of an eye, the index climbed as if indexed stocks were limited editions of Jessica Alba's photo shoots.



We all can be cynical to think that it can be so easy to move the main board index as they are mainly tightly held by the usual suspects. To be fair, I do think there was a pick up in the inflow of foreign funds into Malaysian equities despite the many negative "big picture articles", "asset allocation articles" against Malaysian stocks. A collusion somewhere?

It is easier to be a bear than a bull this year. The worst of the bears think there will be a double dip recession and possibly deflation as well. Production, shipping and growth indices have been benign. My bullishness on equities have not been predicated on the reverse opinion of the above factors (although I do think the reverse is correct).

My bullishness is based on options available on asset classes in light of prevailing economic conditions. When risk aversion was high, no asset classes were favoured except for cash, bonds and gold. Risk aversion will result in over selling. The bulk of the recovery in 2009 had been due to filling up that gap.

In recent months, the equity markets, especially emerging ones, have been doing well because risk aversion had receded. We have side stepped the Euro-crisis. Next we have too much liquidity in the system which have propelled US Treasuries and gold into mini bubbles of their own.

Emerging markets are kind of flavour of the year thanks to the stagnating major developed markets.

Equities are good not so much because their growth is going to be spectacular. They are good because the alternatives are getting ridiculous. In particular, those from emerging markets with a strong currency outlook (Malaysia, Brazil, China). In particular, those emerging markets with their own sustainable domestic demand (Thailand, Indonesia). While the run up will push valuations into demanding levels, they are sustainable for a while.

I see the KLCI hovering below 1500 for some weeks at least. The 1500 level will need to be tested a few times. While the main board index has been zooming up, most of the retail participation has been naught. Don't worry, second liners will soon have their day in the sun again as the KLCI starts to hover around 1450-1470 in the coming days.



I can see some interesting volume build up in the following stocks, which are not entirely speculative but with some fundamentals / corporate developments in the works. They could be decent trades in the coming days and weeks:

SP Setia

IJM

EAH

TWS

TOMYPAK

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Country Market Cap As A Measure

It is popularly known that emerging markets as a percentage of total listed market cap in the world was a dismal figure. I don't have the exact number but I believe it was under 30% 10 years ago. That figure has been rising steadily as emerging markets got bigger, and more companies get listed in emerging markets.

Just think, as emerging markets companies grow bigger, and thanks to the last couple of financial crisis, emerging markets have made more inroads into that equation. The other factor is the recycling of petrodollar and massive trade surpluses - much of that went into buying big banks and mining firms.

It is foreseeable within the next 10 years that the BRICs plus another 10 emerging markets should overtake the old guard (US, Europe) in terms of percentage of market cap. It is almost inevitable, they keep spending beyond their means, and the trade surpluses keep going the other way. The main way to pay down their debts is actually via these emerging markets to buy out large stakes of their companies, as that would recycle back the funds.



Bespoke Investment Group:

One of the main headlines on The Drudge Report this morning is that China has overtaken Japan as the world's second biggest economy. Looking at Bloomberg numbers of equity market caps for countries, China is getting very close to second biggest as well.

As shown below, Japan's stock market capitalization is currently 7.97% of world market cap. China ranks second at 6.89%. Five years ago, Japan accounted for 10.34% of world market cap, while China accounted for just 1.10%. Back in 2005, China ranked just 17th in terms of market cap, behind countries like Saudi Arabia, Spain, Switzerland, South Korea, Taiwan, India, and the Netherlands. Now with the world's second biggest economy and third biggest stock market, it's hard to classify China as an emerging market, but it is indeed still emerging in terms of growth.

In the bottom chart we highlight the change in percent of world market cap over the last five years. As shown, China has had the biggest growth in percentage points, while the US has had the biggest fall. Hong Kong, India, and Brazil have seen pretty big increases in share, while the UK, France, and Japan have all lost the most ground after the US. It will be interesting to see how things look in another five years.

It is heartening to see Malaysia's percentage jumping from 0.49% five years ago to 0.77%. That was quite a jump in terms of absolute percentage. Somehow I think that was more because of the calamities the developed markets went through rather than through "actual initiatives" undertaken by ourselves. Singapore rose from 0.63% to 1.11%, also remarkable. If we strategise better, take better care of how we allocate our resources, we should be hitting 2% by now, seriously.