Global stock rebounded strongly last week on the back of positive developments in the eurozone and better- than-expected economic data in the US. The closely monitored Dow Jones Industrial Average added almost 400 points in the first four trading days of the week.
Bellwether indices in key Asian markets too closed sharply higher. The Hang Seng Index surged 11.1% while benchmark indices in Singapore and Japan closed 7.1% and 4.3% higher, respectively.
Reflecting the renewed investor confidence in riskier assets, stocks on the local bourse too traded on a stronger footing. The FBM KLCI finished in positive territory for four straight trading days. The benchmark index ended 43 points higher for the week at 1,481.8.
Trading volume also inched slightly higher, picking up strongly in the last two trading days for the week. The daily trading volume on the local bourse rose to nearly 1.49 billion shares, on average, up from the daily average of just under 1.48 billion shares in the immediate preceding week.
Positive momentum from last week may spill over into this week.
The rescue plan agreed by the eurozone members last week may not carry much details but it is widely seen as a step in the right direction — and will provide the framework for officials to work on in the comings weeks and, likely, months.
Representatives of the private bondholders have agreed to a voluntary 50% haircut, much deeper than the earlier proposed 21% reduction. This is projected to cut Greece’s debt to GDP ratio to about 120% by 2020, instead of more than 160% under the July proposal. The lower debt service costs will alleviate some of the country’s financial strain and buy more time for the government to implement the necessary structural reforms.
Investors also cheered plans to leverage on the remaining funds available in the European Financial Stability Facility (EFSF). Officials estimate that the firepower of the EFSF can be boosted up to €1 trillion (RM4.3 trillion) under the two suggested options. The first will see a first-loss guarantee on new bonds issued and under the second option, its resources will be used to seed special purpose vehicles that will attract private and sovereign wealth funds.
Lastly, European banks are required to boost their holdings of safe assets to 9% of total capital, to buffer against debt provisions and losses in the debt crisis fallout. It is estimated that some €106 billion will be needed for the recapitalisation exercise, although details are sketchy as to where the money will come from.
Indeed, leaders of the eurozone have put no additional money on the table. The proposed boost to the EFSF depends on the region’s ability to attract private investors and sovereign wealth funds, of which there is currently no indication of success. It also remains to be seen if the initial loss insurance will be sufficient to bring down borrowing costs for troubled countries like Italy and Spain.
Even if all goes to plan, it will take years to pare debt levels and repair government fiscal positions. Meanwhile, economic activities in the eurozone have slowed considerably in recent months and will likely stay weak for sometime with the ongoing austerity programmes.
In the other key development, US’ GDP grew 2.5% in 3Q11, much better than the anemic 0.4% in 1Q11 and 1.3% in 2Q11. The improved figure allayed concerns that the world’s largest economy will fall back into recession, at the least for now.
The biggest question is whether the growth is sustainable amid high unemployment and stagnate income growth. Market observers remain divided on the issue.
For the moment, stock markets are rallying on the premise that the global situation is not as bad as it could be. Nevertheless, with the outlook still hazy, a healthy dose of caution is warranted. There is a good chance that we may not have seen the last of market volatility.
Portfolio review
Stocks in our model portfolio underperformed the benchmark index last week. Total market value for our basket of 17 stocks was up by 2.11% to RM376,310, compared with the FBM KLCI’s 2.99% gain.
Fifteen stocks in our portfolio closed with gains last week while two ended lower and one traded unchanged. Some of the notable gainers include Media Chinese International (+8%), Genting (+8.7%), Pantech (+4.3%) and Quill Capita Trust (+3.9%). At the other end, DiGi (-0.3%) and BSDREIT (-1.4%) were the only two losers for the week.
Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.2% to RM655,523. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 309.7% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 129.1% over the same period, by some distance.
Our cash holdings remain substantial, accounting for 43% of our total portfolio value. The relatively high percentage is, primarily, for prudence sake. Despite the strong rebound so far this month, we are still cautious on the market outlook.
Our total profits are very substantial at RM495,523, of which RM399,053 has already been realised from previous shares sales. We kept our portfolio unchanged last week.
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.
This article appeared in The Edge Financial Daily, October 31, 2011.
Bellwether indices in key Asian markets too closed sharply higher. The Hang Seng Index surged 11.1% while benchmark indices in Singapore and Japan closed 7.1% and 4.3% higher, respectively.
Reflecting the renewed investor confidence in riskier assets, stocks on the local bourse too traded on a stronger footing. The FBM KLCI finished in positive territory for four straight trading days. The benchmark index ended 43 points higher for the week at 1,481.8.
Trading volume also inched slightly higher, picking up strongly in the last two trading days for the week. The daily trading volume on the local bourse rose to nearly 1.49 billion shares, on average, up from the daily average of just under 1.48 billion shares in the immediate preceding week.
Positive momentum from last week may spill over into this week.
The rescue plan agreed by the eurozone members last week may not carry much details but it is widely seen as a step in the right direction — and will provide the framework for officials to work on in the comings weeks and, likely, months.
Representatives of the private bondholders have agreed to a voluntary 50% haircut, much deeper than the earlier proposed 21% reduction. This is projected to cut Greece’s debt to GDP ratio to about 120% by 2020, instead of more than 160% under the July proposal. The lower debt service costs will alleviate some of the country’s financial strain and buy more time for the government to implement the necessary structural reforms.
Investors also cheered plans to leverage on the remaining funds available in the European Financial Stability Facility (EFSF). Officials estimate that the firepower of the EFSF can be boosted up to €1 trillion (RM4.3 trillion) under the two suggested options. The first will see a first-loss guarantee on new bonds issued and under the second option, its resources will be used to seed special purpose vehicles that will attract private and sovereign wealth funds.
Lastly, European banks are required to boost their holdings of safe assets to 9% of total capital, to buffer against debt provisions and losses in the debt crisis fallout. It is estimated that some €106 billion will be needed for the recapitalisation exercise, although details are sketchy as to where the money will come from.
Indeed, leaders of the eurozone have put no additional money on the table. The proposed boost to the EFSF depends on the region’s ability to attract private investors and sovereign wealth funds, of which there is currently no indication of success. It also remains to be seen if the initial loss insurance will be sufficient to bring down borrowing costs for troubled countries like Italy and Spain.
Even if all goes to plan, it will take years to pare debt levels and repair government fiscal positions. Meanwhile, economic activities in the eurozone have slowed considerably in recent months and will likely stay weak for sometime with the ongoing austerity programmes.
In the other key development, US’ GDP grew 2.5% in 3Q11, much better than the anemic 0.4% in 1Q11 and 1.3% in 2Q11. The improved figure allayed concerns that the world’s largest economy will fall back into recession, at the least for now.
The biggest question is whether the growth is sustainable amid high unemployment and stagnate income growth. Market observers remain divided on the issue.
For the moment, stock markets are rallying on the premise that the global situation is not as bad as it could be. Nevertheless, with the outlook still hazy, a healthy dose of caution is warranted. There is a good chance that we may not have seen the last of market volatility.
Portfolio review
Stocks in our model portfolio underperformed the benchmark index last week. Total market value for our basket of 17 stocks was up by 2.11% to RM376,310, compared with the FBM KLCI’s 2.99% gain.
Fifteen stocks in our portfolio closed with gains last week while two ended lower and one traded unchanged. Some of the notable gainers include Media Chinese International (+8%), Genting (+8.7%), Pantech (+4.3%) and Quill Capita Trust (+3.9%). At the other end, DiGi (-0.3%) and BSDREIT (-1.4%) were the only two losers for the week.
Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.2% to RM655,523. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 309.7% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 129.1% over the same period, by some distance.
Our cash holdings remain substantial, accounting for 43% of our total portfolio value. The relatively high percentage is, primarily, for prudence sake. Despite the strong rebound so far this month, we are still cautious on the market outlook.
Our total profits are very substantial at RM495,523, of which RM399,053 has already been realised from previous shares sales. We kept our portfolio unchanged last week.
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.
This article appeared in The Edge Financial Daily, October 31, 2011.
