Global stocks rallied last week on a wave of optimism, driven primarily by the coordinated action taken by major central banks to tackle the emerging credit crunch and better-than-expected economic data from the US.
It remains to be seen, however, if the uptrend will last. By the end of the week, investors were pulling back a little pending November’s employment data from the US Labour Department, which was released after the close of Asian market trading hours.
The mid-week move by the US Federal Reserve, together with the central banks of Japan, England, Switzerland, Canada and the European Central Bank (ECB), to lower the interest cost on emergency US dollar loans tempered fears of a wider fallout from the emerging credit crunch, especially among European banks. With the sovereign debt crisis continuing to drag on, traditional sources of US dollar funding are beginning to dry up as investors shifted to safer assets.
The provision of liquidity, however, is not a solution to the crisis, which has, until today, remained elusive. European leaders remain at odds on the next step forward. Of late, Germany and France have been pushing for deeper fiscal integration among members of the single currency, including central oversight of national budgets, tougher enforcement and harsh automatic sanctions if rules are breached.
Obtaining approval for such a move from all member countries is unlikely to be an easy task. If successful though, the ECB has hinted that it could expand its bond-buying role, which is increasingly being advocated as the solution to bring stability back to the markets. So far, its limited buying programme has not stopped yields for troubled countries such as Italy and Spain from rising to record levels. Rising investor nervousness was evident when even a German bond auction received tepid response.
Until a comprehensive solution is found, financial markets will continue to be driven by headline news out of Europe.
Positively, the US economy appears to have picked up some momentum after a disappointing 1H11. 3Q11 GDP growth was stronger at 2%, compared with 0.4% and 1.3% in 1Q11 and 2Q11 respectively. Retail sales got off to a robust start for the year-end holiday shopping season while the job market is also showing some signs of improvement. Even the moribund housing market is showing signs of bottoming out, though there are still downside risks to prices as a result of foreclosures. With Europe expected to go into mild recession next year, growth in the US will be vital to keep the global economy afloat.
Underpinning global economic concerns, China lowered the reserve requirement for banks last week, for the first time since the financial crisis. Prior to this, the country has been raising both the reserve requirement and interest rate to tamp rising inflation. The most recent November manufacturing data showed activities contracting in the world’s second-largest economy.
Portfolio review
Note that this review is for a two-week period. Stocks in our model portfolio outperformed the benchmark index over the past two-week period. Total market value for our basket of 17 stocks was up by 2.79% to RM388,085, compared with the FBM KLCI’s 2.38% gain.
Ten stocks in our portfolio closed with gains while six ended lower and one other traded unchanged. Some of the notable gainers include DiGi (+6.7%), Masteel (+6.6%), MyEG Services (+6.4%), CIMB (+4.8%) and Maybank (+4.7%). At the other end, Pantech (-2.1%) and Al-Aqar KPJ REIT (-3.4%) were among the notable losers.
We added dividends from Pantech (one sen per share) and Maybank (32 sen per share) to our cash holdings. Also, note that DiGi has completed its one-to-10 share split exercise. As such, we now own 20,000 shares in the mobile operator. Our average cost is effectively zero after adjusting for previous dividend payments.
Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.6% to RM670,338. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 319% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 130.2% over the same period, by some distance.
Our cash holdings remain substantial, accounting for 42% of our total portfolio value. The relatively high percentage is primarily for prudence’s sake. Despite the recent rebound, we remain cautious on the market outlook.
Our total profits are very substantial at RM510,338, of which RM399,793 has already been realised from previous shares’ sales.
We kept our portfolio unchanged.
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, December 5, 2011.
It remains to be seen, however, if the uptrend will last. By the end of the week, investors were pulling back a little pending November’s employment data from the US Labour Department, which was released after the close of Asian market trading hours.
The mid-week move by the US Federal Reserve, together with the central banks of Japan, England, Switzerland, Canada and the European Central Bank (ECB), to lower the interest cost on emergency US dollar loans tempered fears of a wider fallout from the emerging credit crunch, especially among European banks. With the sovereign debt crisis continuing to drag on, traditional sources of US dollar funding are beginning to dry up as investors shifted to safer assets.
The provision of liquidity, however, is not a solution to the crisis, which has, until today, remained elusive. European leaders remain at odds on the next step forward. Of late, Germany and France have been pushing for deeper fiscal integration among members of the single currency, including central oversight of national budgets, tougher enforcement and harsh automatic sanctions if rules are breached.
Obtaining approval for such a move from all member countries is unlikely to be an easy task. If successful though, the ECB has hinted that it could expand its bond-buying role, which is increasingly being advocated as the solution to bring stability back to the markets. So far, its limited buying programme has not stopped yields for troubled countries such as Italy and Spain from rising to record levels. Rising investor nervousness was evident when even a German bond auction received tepid response.
Until a comprehensive solution is found, financial markets will continue to be driven by headline news out of Europe.
Positively, the US economy appears to have picked up some momentum after a disappointing 1H11. 3Q11 GDP growth was stronger at 2%, compared with 0.4% and 1.3% in 1Q11 and 2Q11 respectively. Retail sales got off to a robust start for the year-end holiday shopping season while the job market is also showing some signs of improvement. Even the moribund housing market is showing signs of bottoming out, though there are still downside risks to prices as a result of foreclosures. With Europe expected to go into mild recession next year, growth in the US will be vital to keep the global economy afloat.
Underpinning global economic concerns, China lowered the reserve requirement for banks last week, for the first time since the financial crisis. Prior to this, the country has been raising both the reserve requirement and interest rate to tamp rising inflation. The most recent November manufacturing data showed activities contracting in the world’s second-largest economy.
Portfolio review
Note that this review is for a two-week period. Stocks in our model portfolio outperformed the benchmark index over the past two-week period. Total market value for our basket of 17 stocks was up by 2.79% to RM388,085, compared with the FBM KLCI’s 2.38% gain.
Ten stocks in our portfolio closed with gains while six ended lower and one other traded unchanged. Some of the notable gainers include DiGi (+6.7%), Masteel (+6.6%), MyEG Services (+6.4%), CIMB (+4.8%) and Maybank (+4.7%). At the other end, Pantech (-2.1%) and Al-Aqar KPJ REIT (-3.4%) were among the notable losers.
We added dividends from Pantech (one sen per share) and Maybank (32 sen per share) to our cash holdings. Also, note that DiGi has completed its one-to-10 share split exercise. As such, we now own 20,000 shares in the mobile operator. Our average cost is effectively zero after adjusting for previous dividend payments.
Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.6% to RM670,338. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 319% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 130.2% over the same period, by some distance.
Our cash holdings remain substantial, accounting for 42% of our total portfolio value. The relatively high percentage is primarily for prudence’s sake. Despite the recent rebound, we remain cautious on the market outlook.
Our total profits are very substantial at RM510,338, of which RM399,793 has already been realised from previous shares’ sales.
We kept our portfolio unchanged.
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, December 5, 2011.
