Tuesday, April 07, 2020

My Selection of Stocks for Medium to Long-term Investment

I shared the following:

1) A list of sectors which are rated “overweight” by Kenanga, along with the top picks or preferred stocks in these sectors

2) A list of my preferred stocks covered by Kenanga, based on potential 1-year total return.

The 2 lists are aimed at investors with slightly different investment criteria. The first list would cater for investors who like to buy solid stocks in outperforming sectors. The second list would cater for investors who are looking to buy stocks with the highest return regardless of the sector the stocks are in.

You will see that some target prices are in red, which means that the stock target prices have been revised downward.

Good luck, and happy investing!

Monday, April 06, 2020

Market Outlook as at April 6, 2020 (Updated)

This afternoon, the Malaysian government announced support amounting to RM10 billion for the small & medium-sized enterprises, which would be badly hit by the Covid-19 outbreak. This is the second good news for the day.

The first good news was a smaller increase in total cases and total death for April 5- which could mark a temporary peak for Covid-19 cases & death. 

Chart 1: Daily increase in total cases and death from Covid-19

With the positive developments, our market may continue to recover. If the index can surpass the 1350-1353 level, we might attempt to climb back above the long-term uptrend line at 1400-1405. At this point, I doubt the index can climb above this resistance as the Covid-19 outbreak and its economic impact are just beginning to be felt. Based on these concerns, I think we should remain cautious in our investment plan.

Chart 2: FBMKLCI's daily chart as at April 6, 2020 (Source: Malaysiastock.biz)

Chart 3: FBMKLCI's monthly chart as at April 6, 2020 (Source: Malaysiastock.biz)

(UPDATE) Overnight, US markets rallied with DJIA rising 1628 points (or, 7.7%) to 22680 and Nasdaq rising 540 points (or, 7.3%) to 7913. The good point to note is that yesterday's market highs & closes for DJIA and Nasdaq were both higher than what were recorded on March 26. This is a sign of a tentative short-term uptrend move, where you have a higher "low" (or, trough) earlier and now you have a higher "high" (or, peak). The higher "low" was on April 1-3 as compared to previous low on March 18-23, while the higher "high" was made yesterday as compared to previous high on March 26. While this means that the rally may have legs room to go, the immediate resistance is just overhead at the high recorded on March 13. So, tonight will be an interesting night for US markets.

Chart 4: DJIA's daily chart as at April 6, 2020 (Source: Stockcharts.com)

Chart 5: Nasdaq's daily chart as at April 6, 2020 (Source: Stockcharts.com)

Thursday, March 26, 2020

Using Broker's Stock Rating Summary to Compile Your Stock Buy List

In the past few days, our market has rebounded substantially. Many investors are asking the perennial question: What can I buy?

Today, I like to share with you one of the ways that you can make full use of your broker's substantial resources to compile your own stock buy list. If you are not too savvy, you can work with your remisier to come up with this listing. I do this on a fortnightly basis for my clients when the market is relatively quiet but during the past few weeks, I have been updating my listing on a weekly basis. Go here for an example of Kenanga's Rating Summary dated 6 December 2019.

These are my steps to produce a listing of selected good stocks that have dropped substantially.
  1. Select all the stocks which meet your valuation parameters, be it PER or PB or DY.
  2. Compute the potential 1-year return for the stock by adding dividend yield (%) to Upside potential (%).
  3. Compare the closing price as per the Rating Summary (Mar 19) with prices 3-4 weeks ago (I chose Feb 27).
  4. For each sector, choose the top 1-2 losers.
  5. Remove those stocks that you don't like for whatever reason.

These are my 2-page listing (in 2 pages for easy referral) which I sent to my clients last weekend.

Table 1: My Selection of Kenanga's Rating Summary, page 1

Table 2: My Selection of Kenanga's Rating Summary, page 2

I have highlighted 4 columns to guide good stock selection- upside potential (blue), dividend yield (green), potential total return (pink) and percentage decline (yellow).

Stock ratings in Kenanga Research can be:

  • OP (Outperform)           Return of more than 10%
  • MP (Market-perform)    Return of between 5% and 10%
  • UP (Under-perform)       Return of less than 5%

As a remisier, I like to stay engaged with my clients during this challenging period. I'm always a cautiously optimistic person. I believe that a bear market is a good time to buy stocks. The problem is how to buy stocks at good prices when everyone around you is looking to sell off their stocks. In times like this, we have to remind ourselves that the exact opposite always happens in a bull market, when we would have a very difficult time selling because everyone else is so busy buying. So, my advice is to stay calm, stay engaged with the market and of course, stay at home when the Movement Control Order is enforced.

Good luck!

Wednesday, March 25, 2020

Market Outlook as at March 25, 2020

DJIA soared  2113 points or 11.4% to close at 19722 yesterday. The huge rebound happened after Fed's aggressive monetary easing as well as buying of bonds plus progress made in drafting a huge spending bill of USD 2 trillion to support American consumers and businesses from the fallout from Covid-19. 

Chart 1: DJIA's daily chart as at March 24, 2020 (Source: Stockcharts.com)

DJIA tested the horizontal line at 18000 before rebounding. Its immediate resistance will be the psychological resistance at 20000.

Chart 2: DJIA's weekly chart as at March 24, 2020 (Source: Stockcharts.com)

This morning, our FBMKLCI broke above the resistance from the narrow gap at 1320. As at 9:30 a.m., FBMKLCI was up 44 points to 1335. After this, the next resistance will be at the psychological level of 1400 and the gap at 1415.

Chart 3: FBMKLCI's daily chart as at March 24, 2020 (Source: Malaysiastock.biz)

Like the rallies in the US markets, our rally is extremely sharp due to the very steep fall which witnessed happened over the last 1-2 weeks. Nevertheless, we must be mindful that the worst of the Covid-19 pandemic has yet to pass. The next 2 weeks may see more cases reported in Europe and America. If this scenario were to pan out, the market rally will falter. You should consider taking profit for some investment as well as selling off some weak stocks in your portfolio. Good luck!

Tuesday, March 24, 2020

Malaysian Past Market Downturns Compared

I have studied our current market meltdown along with the market meltdowns in 1998 & 2008. My objectives were:
1) to identify the set-up for the start of the market uptrend in 1999 and 2009; and
2) to assess the extend of the current decline & the potential for a decent rebound.

I have compiled a composite chart showing the 3 bear markets - 1998, 2008 & today - side by side. These charts are weekly charts plotted on a semi-log scale, overlaid with 3 moving average lines (10, 20 & 40-week SMA lines) and 3 indicators (MACD, Stochastic RSI and DMI).

Chart: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020

The set-up for both market uptrends in November 1998 (the numbers are in blue) and March 2009 (see the numbers in green) are:
    1. Index rose above both 10 & 20-week SMA lines
    2. MACD crossed above the MACD signal line
    3. Stochastic RSI was above 80 (or, in oversold territory)
    4. +DMI crossed above -DMI and continued to diverge
The failed market uptrend in June 1998 fell short in one area, namely after +DMI had crossed above -DMI, they did not diverge but instead became entangled and eventually reversed. This could be due to the failure of the index to go above the 40-week SMA line, which eventually reversed downward.

In this round of market meltdown, FBMKLCI has dropped too sharply that we are a long way from achieving a set-up that we saw in November 1998 or March 2009. However, it is possible that we may have a decent rebound, akin to what we saw in June 1998 when the index rallied to test the 40-week SMA line. I consider this to be the optimistic scenario for the market for next few days or weeks.

While we live day-to-day with negative news relating to Covid-19, we should take comfort that Asian societies seem to be more discipline and our stock markets and currencies are much lower to begin with. Thus, when situation improves, fund managers would find Asian equity to be a better investment proposition than the equity of other markets.

For now, let's adopt a cautious approach. If you choose to buy in the market, let's choose the blue chip stocks and accumulate slowly. Good luck!!

Friday, March 20, 2020

Market Outlook as at March 20, 2020

Finally, FBMKLCI has a decent rally. As at 2:55 p.m., FBMKLCI was up 66 points to 1284. At this moment, we should just regard this as a technical rebound! Nonetheless, it is still very good as it has surpassed the reaction high of 1278 recorded on March 17. It might continue to climb higher and test the low of 1325 recorded on March 13.

Table: Leading movers as at March 20, 2020_2:55 pm

Chart: FBMKLCI's 60-min intraday chart as at March 20, 22020_2.55 pm (Source: Malaysiastock.biz)

A market with occasional strong technical rebound will draw in investors who like to buy good blue chip stocks for long-term investment. This will help to cushion the sharp decline which we had seen for the past few days. Having said that, we may not have seen the bottom in this market. Be careful and buy slowly.

Tuesday, March 17, 2020

Market Outlook as at 17 March 2020

If you look at the weekly chart below, you will see the extreme drop in the market last few days. In my 26 years in the market, I have not seen anything quite like this. Don't be surprised that we might have a good & maybe even strong rebound once the market has confidence that we are doing something to fight Covid-19 pandemic.

Note: At the time of writing (9.25 am), the market is recovering a bit. Hopefully this can be at least a temporary bottom after a horrendous few days we had.

Chart: FBMKLCI's weekly chart as at Mar 16, 2020

Monday, March 16, 2020

Market Outlook as at Mar 15, 2020

Despite the sharp rally in US stocks markets last Friday, global stock market will remain very choppy due to fear and uncertainty surrounding Covid-19 pandemic.

Last week, our FBMKLCI broke below the long-term uptrend line at 1420, and closed at 1345. This means that our long-term uptrend may have ended, and the market may enter into a bear market unless there is a quick recovery. See the monthly chart below.

Chart 1: FBMKLCI's monthly chart as at Mar 13, 2020 (Source: Malaysiastock.biz)

Looking at the daily chart, we can see bullish divergence in Stochastic RSI as compared to the index. However, this divergence will take a back seat as the market is driven by fear and forced selling.

Chart 2: FBMKLCI's daily chart as at Mar 13, 2020 (Source: Malaysiastock.biz)

For long-term investors, this is the market that you should take advantage of to invest. However, I will caution that the breakdown of the long-term uptrend line has just happened last week and it may be a long track downward until the bottom. Nonetheless, no one knows where the bottom is. You should calibrate your buying accordingly. As for traders, this will be a very volatile market and you should avoid trading unless you have the necessarily skill and temperament to weather the oncoming storm. Good luck.

Tuesday, March 10, 2020

Market Outlook as at March 10, 2020

Covid-19 has induced a market meltdown throughout the world. To add to the state of confusion & fear, the Saudi decided to bring on the collapse of crude oil prices over the weekend. The net result was a free fall in equity market worldwide. I have appended below a small samples of some of the important markets to watch, namely DJIA, Nikkei and Hang Seng. You can see that these indices are approaching important support zones, and if sanity were to prevail - and the fear & confusion subside - over the next few days, then we may have a baseline to work with. I don't expect a quick recovery from this base because we have to deal with the secondary impact from Covid-19 which may take a few months to show result. If you want to see the road ahead, look to China; They were the first to be hit and they are only now beginning to stage a tepid recovery from that epidemic.

Chart 1: DJIA's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)

Chart 2: Nikk 225's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)

Chart 3: HSi's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)

Meanwhile in Malaysia, we have an additional problem of political uncertainty. The good news is the cabinet announced yesterday was sensible and uncontroversial. Hopefully, this will be the recovery beginning of the return to the new normal for us.

The monthly chart for FBMKLCI below shows that we are very close to the long-term uptrend line, SS support at 1400-1425. If this uptrend line can hold, then this will be the base for our recovery from the carnage of the past few months. Good luck!

Chart 4: FBMKLCI's monthly chart as at Mar 9, 2020 (Source: Malaysiastock.biz)

Monday, March 02, 2020

Malaysian Politic: Crisis Ended with the Worst Possible Outcome

Politic is the art of the possible and the impossible. In May 2018, we achieved the impossible by bringing down a kleptocracy, led by Najib in a peaceful election - a rare feat among Third World nations.

Last Saturday, we jettisoned that government of the people, by the people and for the people for something completely opposite. The new government is led by Muhyiddin - one of the leaders that was sacked by Najib as his corrupted practices under 1MDB began to breakout. This time around, Muhyiddin upended the PH coalition government by forming a pact with numerous parties and individual MPs, including Najib's party, UMNO in order to secure a majority support in the Parliament. Muhyiddin's action proved that the politic of convenience still thumbs politic of principles in Malaysia.

Like many, I feel totally betrayed by the PH politicians, who have squandered the opportunity to give the nation and the people a reset after years of neglect and bad government. When all hopes are lost, and pessimism replaces optimism, the market sentiment will take a turn for the worse.

I expect the market to slide for the next few weeks or even months. Malaysian stock market will be in the wilderness in the medium-term until we have clarity that we are still a nation of law, and we will not return to the same old bad practices & policies of the past. If the GLC funds were to push up the market in the first few hours of trading - to give the market the resemblance of a vote of confidence - you should use that opportunity to reduce your position.

To my fellow Malaysians, do not be despair. The struggle for a better tomorrow for all Malaysians is not an easy feat. For our children's sake, we must continue on with this struggle until victory is ours.

Friday, February 28, 2020

Mahathir Threatened

Yesterday, Mahathir had made clear that if PH does not join his unity government, his party Bersatu would nominate Muhyiddin Yassin for prime minister.

He emphasized that Muhyiddin has no qualm to accept UMNO MPs en bloc in his government. This implies that even UMNO MPs who are currently facing criminal charges, such as Zahid and Najib, will be back in power.

On the other hand, if PH were to choose to join his unity government, he would still be admitting UMNO MPs in his unity government but on a more discretionary manner. For more, go here.

This is a desperate move by Mahathir, which simply means that he is not only losing his plot but also losing in the Game of Thrones. A Mahathir on the verge of defeat is a very dangerous man. He is now on the verge of bringing on a constitutional crisis. For more, go here.

Our market will likely come under tremendous selling pressure due to the uncertainties from slowing economic growth, Covid-19 and now a potential political crisis of epic proportion. It is advisable to stay at the sideline until the strong headwind has blown over.

Monday, February 24, 2020

Malaysian Politics- The Art of the Possible and the Impossible

Despite what I professed earlier - to stay away from Malaysian politics - I must admit that I have failed. This thing keep roiling and turning in my head, and I'm here to share my 2-sen take on the current upheaval. 

As I see it, the problems within the current Pakatan Harapan (“PH”) coalition are two-fold, namely the succession issue and the reformation agenda of the original component parties. Anwar is using both issues to try to pin down a date for transition, which Dr M rejects.

On the surface, Dr M seems to be able to work along with DAP and Amanah, and most of the PKR team. In my opinion, Dr M’s current grand move is to completely isolate Anwar within PKR and PH coalition. If Anwar is fully marginalized - thru defection from within PKR and rejection by DAP and Amanah - then Dr M may not want to go thru with a new ruling coalition known as the Pakatan Nasional (“PN”). He can continue to rule with the current coalition, without Anwar and his decimated number of supporters, and with or without the addition of new parties in the PH coalition. I see the addition of the Sarawakian parties to be a net positive development in the current turmoil as it would help to dose off the fire of those who are clamoring for greater regional autonomy.  

As such, I believe the demise of the PH coalition and the formation of the new ruling PN coalition, including PAS and UMNO, are a bit premature. I feel that way because it is a very bitter medicine to swallow, not only just by the people but also by Dr M on two ground. Firstly, it would involve Dr M’s turning his back to the mandate that brought him back to power. That mandate was a rejection of UMNO and what it represented- corruption and abuse of power. Thus, to form a government with UMNO now would be unacceptable to many. Dr M the maverick may not care much for such niceties in his early days of climbing to the top but the 94 years old Dr M might not want to do so today unless his hand is forced.

The second reason I feel that a ruling PN coalition is still not a done deal, is simply because it is too extreme. It involves the rejection of DAP, and by extension, the Chinese community since DAP has the solid support of the entire Chinese community. This is the same community that has heeded Dr M’s call in 1999 and again in 2018. The rejection of the Chinese community will lead to the formation of an essentially Malay government which will put the nation down the road of even more racial politics. That's not something which Dr M would like to leave as his legacy.

In my opinion, the next few days will be crucial in determining the outcome of the current political imbroglio. If my view holds true, the political situation would return to normal (what’s normal these days?!) once the succession issue has been resolved. Those stocks that were sold down sharply this round, will rebound back.

By now, we know better what has happened over the weekend. In a political maneuver known as the Sheraton Move, Azmin tried to replace the PH coalition government with a new PN coalition government. The attempt failed spectacularly (here). To learn more, go here and here

While the situation is very fluid, it appears that Dr M is given a chance to continue to rule provided he can get additional MPs to join the PH coalition. If he succeeds, then he has the second chance to make a lasting change to the Malaysian political landscape. The last 22 months of neglect has reduced the flame of political reformation to the point that the people has lost all hope for the future of this nation. Can Dr M in his twilight years find the strength to reignite that fire from the amber that was once a roaring inferno? Can his comrades support him and work with him to move the nation forward? Only time will tell. (Updated on Feb 25)

Market Outlook as at Feb 24, 2020

The news is everywhere this morning; The PH government, which we chose to put an end to Najib's corruption and shenanigans, is now on deathwatch. It was a government, which came to power with so much hope and hype, has since failed to live up to our lowest expectation. We asked for reformation, and received next to nothing. Actually, that's not being fair; we got black school shoes. By all accounts, we got more of the same old fertilizer. I'm not a gardener, and I don't know what to do with it.

As for the stock market, this is the monthly chart of FBMKLCI. We are likely to test the psychological 1500 level this week. A downside break of the 1500 mark would likely bring us to the long term uptrend line, SS. The support for that uptrend line is around 1450.

Chart: FBMKLCI's monthly chart as at Feb 21, 2020 (Source: Malaysiastock.biz)

For those investors who braved the hot sun one fine day in May 2018, let's not be disheartened. If you want something to console you, try listening to Everybody's Free (To Wear Sunscreen)  The lyrics are here.

Forget about politics. Spend more time with your friends and family. Try to have a nice day.

Friday, February 21, 2020

BAT: What Are They Smoking?

As at 9:15 a.m., BAT made a high of RM14.10. This strong rally could be due to its results announcement for QE31/12/2019, which is the 4Q2019. 

From the table below, we can see that the quarterly revenue, profits and dividend dropped when compared to those of 4Q2018 (see point 1). In addition, its full-year revenue, profits and dividend also dropped when compared to FY2018 (see point 2).

Table: BAT's last 8 quarterly results

Technically speaking, BAT has surpassed its downtrend line at RM13.00. This may signal the end of its downtrend but it may not neccesarily lead to an uptrend rally anytime soon.

Chart: BAT's daily chart as at Feb 20, 2020 (Source: Malaysiastock.biz)

Based on the above, I think the current sharp rally may not sustain.

Monday, February 17, 2020

ICON: Designated Securities Status Uplifted [WARNING!]

Icon rose 18 sen to 42 sen as at 9:15 am. This is probably prompted by the seemingly positive news of the upliftment of designated securities status imposed on Icon by the exchange (here). Note: Icon went limit-up at 53.5 sen as at 9:31 am. 

Before you take the plunge, you should take note that 2.374 billion Rights issue shares costing only RM0.10 each will be listed on 20 February. For those who are in the know, they may even start to sell on 18 February as the delivery date for their sales will be on 20 February. That would tie up in with the announced date for the listing & trading of the new shares (which is normally the date the new shares would appear in the CDS account).

I am not advising you to join the selling on 18 February because the exchange or the company may delay the crediting of the new Rights issue shares into shareholders' CDS account; in which case the seller would then end up in an oversold position which would necessitate a Market Buy-in by the exchange. I'm however advising you to avoid the current play in Icon.

My question to BURSA MALAYSIA:

Why are you facilitating the play on the stock by uplifting the designated securities status ahead of the listing and trading of the Rights issue of 2.374 billion new shares? 

Note: The Rights issue shares and free warrants have been approved for listing and trading on 18 February, instead of 20 February. This announcement, which was made at 3:14 pm today, precipitated the collapse of the play. As at 4:12 pm. Icon was trading at 20 sen only. (here).

Thursday, February 13, 2020

Market Outlook: Are We Heading into a Recession?

Let's look at the terrible and horrible news of our slow GDP growth which was announced yesterday (here). To wit:
"Malaysia’s annual gross domestic product (GDP) growth moderated to 4.3% in 2019 — the lowest level since the Global Financial Crisis in 2009. The country’s fourth quarter of 2019 (4Q19) GDP growth slowed  to 3.6%, which is the lowest in 41 quarters since 3Q09,  according to Bank Negara Malaysia (BNM) statistics released."
In economic, there is a concept called the stall speed of growth. When an economy's growth rate starts to lose speed, economists begin to worry about how slow it will grow and whether it will begin to crash into a recession. As economic activity slowdown, the growth burden is shouldered more and more by consumers. The consumers' ability to spend depends on their income creation, which will always decline in a sputtering economy. In the US, economists believe the stall speed of growth is around 1.4-1.5%. If it goes below this level, the economy is likely to go into a tailspin and crash into a recession. For more, check out this article and the chart below.

Chart 1: U.S.'s GDP Growth (Source: Bloomberg)

What's Malaysia's stall speed of growth? Based on the chart below, we can plot a line which demarcates the point below which the economy can crash into a recession. In the past 5 instances when the economy's GDP growth on a full year basis crashed below 4%, we had 3 recessions (1985, 1998 & 2009) and we narrowly escaped recession in 1975 and 2001.

Chart 2: Malaysia's GDP Growth (Source: World Bank)

Now we can see the significance of the drop in GDP growth below 4% mark. As the Chinese saying goes, one swallow does not make a spring, the same goes for one slow quarterly growth does make a recession. Unfortunately, many Malaysians are convinced that we will be heading into a recession for the simple fact that none of our Government leaders is concerned about the state of the economy. They are only concerned about their ability to attain & retain power. I sincerely hope that Dr. M would remember the Roman expression, Nero fiddled while Rome burned, and focus his attention on the economy and the rakyat.

Covid-19: Why the Surge in Daily New Cases & Daily Deaths?

This morning, the numbers reported in worldometers.info jumped sharply due to a new diagnosis classification adopted. The daily new cases soared to 15110, which pushed up the total cases from 45170 on Feb 11 to 60280. The daily deaths also jumped to 252, which caused the total deaths to rise from 1114 on Feb 11 to 1367.

However, the sudden surge was due to a new diagnosis classification adopted by the Chinese authority. In Hubei province, this re-classification contributed 15110 cases to the daily new cases and 242 deaths to daily deaths on Feb 12 for today. Below you will see the charts for daily new cases and deaths as reported as well as adjusted to exclude the impact of the new classification.

Chart: Covid-19's Daily New Cases & Death and adjusted for new classification

For those who like to see numbers, here's the table.

Table: Covid-19's Daily New Cases & Death and adjusted for new classification

From the above table, we can see daily new cases has plunged from around 2000 to 270 while daily deaths has dropped from about 100 to 9.

Based on the above, it is safe to say that the situation continues to improve.

Tuesday, February 11, 2020

Novel Coronavirus Outbreak: Signs of Improvement

The novel coronavirus outbreak has brought fear and panic all over the world, especially in East Asia. Last weekend, we saw the panic-stricken citizens of our normally calm & steady Southern neighbor, Singapore rushing to buy up household goods & groceries in their supermarkets. The fear & panic warranted  an address to the nation by the Prime Minister of Singapore to calm their flared nerve.

This panic is fed by a sudden jump in new cases reported in the republic as well as various alarming reports that this new strain of flu virus will soon turn into a pandemic. Reports from government leaders and health authorities were over-shadowed by numerous reports or videos circulating in the social media that the condition is far worse than reported. 

In times like this, we must also seek out less extreme reports to get at the real situation. There are a few positive news which got pushed aside, such as the steady drop in new cases reported (here and here) or the promising recovery rates (here) or comments from experts who are satisfied with the drastic measures taken by the Chinese authority to tackle the outbreak. Finally, I did my own study on the virus based on data from worldometer.info (here). See the charts for yourself.

1. The uptrend in daily new cases reported has peaked by Feb 6.

2. While the number of deaths has increased steadily, the mortality rate has eased off from the initial phase of the outbreak to a low of about 0.23-0.26% over the past 5-6 days. While this is quite encouraging, I take this data with a pinch of salt because the base (Total Cases reported) gets bigger over time. 

3. What is hardly mentioned is the total recovery cases (in the green box), which has jumped from 1541 to 3996 from Feb 6 to Feb 10! Don't just look at the total deaths (in the red box)!

One of the more level-headed articles that I have read is from Dr. Elisabeth Rosenthal, who reported on the 2003 SARS outbreak. As someone who had lived thru that outbreak - as her family was staying with her in China at that time - she can write with first-hand knowledge of how to survive a new flu virus. Her recommendation to readers was simply not to panic. Check out her article (here).

While I am a layman in the field of disease or health matters, my knowledge of the market and investment history tells me that the share prices have been hammered sufficiently over the past 2-3 weeks that the risk reward proposition is now in your favor to slowly buy into the market. You need to be patient in this market as I still expect it to trade sideways for the next few months- awaiting more positive news from the containment of this virus as well as from the recovery in the economy.

Thursday, February 06, 2020

IMPIANA: Share Consolidation of 10-to -1

Impiana has gone ex for a share consolidation of 10-to-1 today. If you are a shareholder of Impiana, your shareholding should be lowered by 90%. However, this is not reflected in your CDS account yet. The balance in your CDS account will only be adjusted on Feb 10. 

Kenanga has warned its online clients and remisiers about this danger and hopefully we will not see any unfortunate mistake happening today.

Be careful when you are selling IMPIANA shares today. 

Tuesday, February 04, 2020

Market Outlook as at February 4, 2020

Two weeks ago, our market players were cautiously positioned for a mild CNY rally. FBMKLCI was pushing against the intermediate downtrend line, RR at 1615. 

Chart 1: FBMKLCI's daily chart as at Feb 3, 2020 (Source: Malaysiastock.biz)

Then, in late December, reports surfaced of a new respiratory syndrome associated with a novel coronavirus appeared in Wuhan, China (here). Stock markets thru out the world went in a tailspin. Our Bursa inevitably joined in. FBMKLCI fell back and broke below the horizontal line of 1550 last Friday.

Chart 2: FBMKLCI's weekly chart as at Feb 3, 2020 (Source: Malaysiastock.biz)

Will FBMKLCI continue to drop to test the long-term uptrend line, SS at 1450?

Chart 3: FBMKLCI's monthly chart as at Feb 3, 2020 (Source: Malaysiastock.biz)

When everyone is running around like headless chickens, it is a good practice to stay calm and look to history for a guide. I refer to the market performance during the SARS outbreak in 2002-2003 (or, to be precise from November 2002 to July 2003). Below is the composite charts of FBMKLCI during the period of SARS outbreak and today. You will see that after the initial decline, FBMKLCI traded sideways for the next 5-6 months.

Chart 4: FBMKLCI's weekly chart in 2002-2003 & Feb 3, 2020 (Source: Malaysiastock.biz)

If FBMKLCI is not convincing, you can refer to S&P500 for that period and today.

Chart 5: S&P500's weekly chart in 2002-2003 & Feb 3, 2020 

Interestingly, the charts of the 3 glove producers listed then (Topglov, Supermx and Kossan) did not react in a sharp rally like they did in the past few days. In fact, the rally for these stocks only picked up after the SARS outbreak appeared to have been contained in July 2003.

Chart 6: Topglov, Supermx & Kossan's weekly chart in 2002-2003 (Source: Shareinvestor.com)

From the above, I can draw these conclusions:
1) Stock markets are likely to have limited downside from here.
2) The current novel coronavirus outbreak may last about 6 months
3) Glove stocks may have run ahead of fundamentals, and may correct for a while.
4) Glove stocks may begin their next upleg after the novel coronavirus appears to have been contained.
5) Broad market selldown may be a buying opportunity.

Monday, January 27, 2020

ICON & ICON-OR: Designated Securities

Bursa has finally declared ICON & ICON-OR as designated securities (here). This means that you need to have sufficient cash balance in your trading account before you can buy any one of the securities, or conversely, you need to have sufficient free balance of the securities in your CDS account before you can sell any one of the securities.

Bursa took this drastic action in order to reduce excessive speculation, and to ensure a fair and orderly market. I can only say that this belated action should have been taken after the market close on Jan 22. In fact, a more pro-active course of action would have been to suspend the counter on Jan 22 for 30 minutes to caution market players about the effect of a 50-to-1 share consolidation on their shareholding.

By failing to take timely action, Bursa has allowed market players to carry on trading in a highly risky manner for another 2 more trading days. To add to this risky situation, Bursa allowed ICON-OR to be traded on Jan 24 at a ridiculously high reference price of RM0.69!! This gave market players the wrong impression that the value of the stock could be as high as RM0.795, which is arrived at by adding the reference price of ICON-OR to the subscription price of ICON Rights share of RM0.105.

Who are the losers in this unnecessarily debacle? 

They can be divided into 2 groups. The first group are the unfortunate shareholders of the company, which have seen their investment declined in value by almost 100% from its opening price of about RM6.50 in 2014 to its recent low of around 3.5 sen. They are victims of the 2-day delay in the implementation of the 50-to-1 share consolidation. As a result of the delay, they oversold their shares in their CDS account on either Jan 22 or Jan 23.

Unless you are well-informed about your stock's upcoming corporate exercises, you might not know that the correct share balance should be only 2% of the balance stated in your CDS account until Jan 24.

On Jan 22, these hapless shareholders would jump at the opportunity to sell ICON at 20-40 sen as compared to only 3.5 sen the day before. Alas, they would live to regret their quick action. Their losses can be computed the difference between the last done price on Jan 23, plus 5 sen (being additional 10 bid on top of the last done price on Jan 23) and their selling price on Jan 22.

Those who oversold on Jan 23 will be subject to market buy-in on Tuesday (Jan 28), which is the difference between the last done price on Jan 24, plus 5 sen (being additional 10 bid on top of the last done price on Jan 24) and their selling price on Jan 23.

The second group of losers are your typical market players who would be drawn to any speculative play in order to make trading profit. Just because they are speculators, that doesn't mean that they are any less a victim who deserves our support. They could have been misled by the potential fair value for ICON based on the high reference price set for ICON-OR.

What will likely happen to ICON & ICON-OR next week?

If you had read my first posting on Jan 22 (here), you may recall that the theoretical ex-right price of ICON is about 12 sen. Since you need to pay 10.5 sen to subscribe to subscribe for the Rights share, then ICON-OR should be about 1.5 sen. When you compare these values against the closing prices of ICON and ICON-OR of RM0.815 & RM0.39 respectively last Friday, you can see the potential losses if you have bought into these securities.

What lesson can BURSA take away from this sad debacle?

It is high time to cut off the 2-day delay in the implementation of non-cash share exercises, such as share consolidation, bonus issue, etc. There may be good reasons for a short delay in the past in implementing a cashless share exercise but those reasons must now be weighed against the risk that some market players may take advantage of the situation- resulting in untold damages to innocent investors. The alternative would be to suspend a stock during the 2-day period between the ex-date and the entitlement date to allow for the implementation of the non-cash share exercises. Now is the right time for Bursa to act decisively in the interest of orderly market and the protection of innocent investors and players alike.

Friday, January 24, 2020

Happy Chinese New Year

I like to wish all my Chinese readers a very happy new year.

ICON: Watch Out Below!

After my post 2 days ago, ICON rallied to a high of RM0.715 yesterday. Those who made the mistake of overselling after the 50-to-1 share consolidation, were hit with a hefty loss this morning when they had to buyback at RM0.72 to meet the delivery.

If these unfortunate players bought back their oversold position on the same day, their losses would be the difference between the buyback price (possibly, the limit-up price of RM0.415 on 22 Jan) and the price of their initial sale.

However, if they failed to do that on the same day, they would have to face the market buy-in this morning. If they had attempted to limit their losses by hedging themselves yesterday, they are playing a high risk game because the rally on this stock may suddenly stop and the share price may go in the reverse gear.

Bear in mind; prior to the ex-date for the entire exercise, there were 1.177 billion outstanding ICON shares. After the stock went ex for the exercise, the number of outstanding shares has initially dropped to a mere 23.5 million shares.

After the completion and listing of Rights issue shares on 20 Feb, the outstanding shares will jump back to 2.374 billion. Since this additional 2.35 billion shares cost only RM0.10 each, the ongoing play is unsustainable. Amazingly, ICON is now trading at RM0.91 at the time of writing this post.

If you have this stock, you would do what is best for you- sell it off as soon as possible. The trick is how? How to sell a stock when it is going higher and higher?!


ICON Rights are traded today. They were traded at RM0.39, which is the limit-down price for the Rights! How did the exchange determine the reference price to be RM0.69? ICON is getting stranger and stranger everyday. 

Wednesday, January 22, 2020

ICON: Ex for a 50-to-1 Share Consolidation [WARNING!]

ICON has gone ex the 50-to-1 share consolidation today. This means that if a shareholder has 50,000 ICON shares yesterday, he/she would be owning 1,000 ICON shares now. Most shareholders may miss that, and when they see the share price shooting higher this morning, they would rush to sell the shares based on the quantity they thought they have. This will lead to overselling and subsequently a costly buyback.

To safeguard our clients, Kenanga  has posted a notice on its trading platform, Kentrade to alert the online traders. Remisiers are also informed to alert their non online clients about the share consolidation.

BEWARE! Don't oversell ICON shares you own!!

The share consolidation is one part of multiple proposal (here). In particular, you will note that there will be a Rights Issue of 100 shares at RM0.105 each for every 1 share owned after the share consolidation. If you choose to apply for this, you will receive 1 free warrant for every 4 Rights shares applied for. 

What would be the fair price of ICON today? 

Assuming yesterday closing price of RM0.035 is the fair price then (a bit of a stretch for most penny stocks), then the theoretical ex-right price is computed as follows:

Theoretical ex-rights price
= [(Initial cost cum rights) + (Additional cost to exercise the rights)] divided by (Total shares owned)

This is an incomplete formula as the free warrants are not included in the computation. The reasons for this are because:
1) I am unable to find the exercise price for the warrant. This is a real hassle which I hope Bursa will one day address. All pertinent information should be made easily accessible rather than hidden in another announcement or attachment. 
2) If the warrant exercise price is higher than market price, the warrant is deemed to be out-of-the-money and it can be excluded. In the circular sent to the shareholders in November last year (here), it was stated that the "warrants exercise price is proposed to be priced at not more than a premium of 25% to the TERP per Icon Share and have a tenure of 8 years"; while "the issue price for each Rights Share for the purpose of this Circular is RM0.060 (for illustration purpose), representing a discount of approximately 14% to the TERP based on the Maximum Intended Gross Proceeds"With these 2 points, it is highly likely that ICON market price under normal trading condition (unlike today) will be lower higher than the exercise price of the new warrant.
Based on the formula below, we can exclude the out-of-the-money warrant in computing theoretical ex-right price.

The theoretical ex-rights price
= [(0.035# x 50*) + (0.105## x 100**)] / (1*** + 100**)                                           
= [1.75 + 10.50] / 101                         
= 0.1213

#     Last cum price
##   Rights share subscription price
*     Original shares owned before consolidation
**   Rights shares entitlement
*** Original shares owned after consolidation

Chart: ICON's intra-day chart as at Jan 22, 2020_12.30pm (Source: Kenanga BTX)

Why is ICON share price trading at RM0.38-0.39 now? Besides being played up, there is possibility that a short squeeze is on. Those who oversold this morning is now being forced (or, squeezed) to buyback at much higher prices. Over times, the share price of ICON should reflect the theoretical ex-right price as computed above, which is about RM0.12. 

Monday, January 20, 2020

CPO Prices to Consolidate

CPO sharp rally tested the line connecting its previous peaks at RM3118. The last 2-3 days of correction brought CPO prices below its medium-term uptrend line at RM3010-3015. It is likely that the price correction may continue in the medium-term.

Chart 1: CPO's monthly chart as at Jan 17, 2020 (Source: Investing.com)

Chart 2: CPO's daily chart as at Jan 17, 2020 (Source: Investing.com)

The sharp rally in CPO prices caused an upside breakout for Plant index at 6900 in early November. The ensuing rally brought Plant index to a high of 7900 in the final week of December last year. The last 3 weeks of correction has finally brought the Plant index below its medium-term uptrend line at 7550 last week. Unless CPO price recovers significantly next few days, Plant index is likely to go lower.

Chart 3; Plant's weekly chart as at Jan 17, 2020 (Source: Shareinvestor.com)

Chart 4; Plant''s daiy chart as at Jan 17, 2020 (Source: Shareinvestor.com)

Based on the above, I expect plantation share prices to continue to correct in the near term.

Thursday, January 16, 2020

INARI: A Bullish Sign!

One thing you may notice in the past 1-2 years is that share prices generally go lower when the stock is implementing a Right Issue. The reason is simple; no one wants to cough out money to subscribe for new shares.

On the same logic, an expiring warrant, especially company-issued warrants which must be converted to shares instead of cash-settled, would suffer the same fate. It can get so bad that these warrants would trade at a significant discount.

The last 1 month we have been seeing INARI-WB trading at a discount of less than 1%. This warrant has the following terms:
1. Exercise price: RM0.5333
2. Expiry date: Feb 17, 2020

For example, at the time of writing this post, INARI was trading at RM1.72 and INARI-WB was trading at RM1.17. If you were to buy the warrant and pay the exercise price of RM0.533 to own the share, you would save 1.67 sen or about 0.97%. No matter how difficult it is to make money in the stock market, a saving of less than 1% won't get many retail players excited. 

So, who is buying INARI-WB, and patiently & laboriously converting them to shares? The smart money, of course. In the stock market, if you choose to be on the side of the smart money, you will win more often than not. 

That's why INARI the share is worth watching. If it were to drift down to the line connecting its recent trough (or, low), it is worth owning some. Good luck!

Chart 1: INARI's daily chart as at Jan 16, 2020_3.30pm (Source: Malaysiastock.biz)

Chart 2: INARI-WB's daily chart as at Jan 16, 2020_3.30pm (Source: Malaysiastock.biz)

TAKAFUL: A Sudden Selldown!

Takaful opened at RM5.50 and dropped to a low of RM5.20 in just 13 minutes. A check on Bursa website and on the internet failed to reveal any new development that might explain the sudden selldown.

In my opinion, this selldown may be due to the upcoming corporate exercise proposed by BIMB, which includes inter alia a distribution of Takaful shares and Bank Islam shares held by BIMB to its shareholders. Unlike the shareholders of BIMB who may be looking forward to receiving Bank Islam and Takaful shares, the shareholders of Takaful can only look forward to having more small shareholders joining their rank. These small shareholders may simply sell off their free Takaful shares received, which may depress the share price going forward. 

Having said that, it should be noted that Takaful's fundamentals are pretty good. See my recent post on its financial performance (here). However its technical outlook has turned negative with 50-day SMA line crossing under the 200-day SMA line (generally referred to as the death cross) and the current low going lower than the previous 2 lows, which together with the lower highs, would fulfill the requirement of a downtrend.

Chart 1: Takaful's daily chart as at Jan 16, 2020-11.20am (Source: Malaysiastock.biz) 

A similar technical set-up was observed in AEONCR in September last year when the lows and the highs were getting lower and the death cross took place. Despite the negative set-up in AEONCR had a big rally in October, which would have been an excellent selling opportunity. After that, the downtrend continued. What caused the change of investors' outlook for AEONCR? It's probably due to poorer financial performance which was highlighted in my recent post on its financial performance (here).

Chart 2; AEONCR's daily chart as at Jan 16, 2020-11.20am (Source: Malaysiastock.biz)

Based on the bearish technical outlook for Takaful, you may want to avoid buying into this good stock in the near term.