BAT: Rising from the Ashes

BAT share price has been dropping for so long that many investors have learned to avoid the stock. See the monthly chart below.

Chart 1: BAT's monthly chart as at May 4, 2020 (Source: Malaysiastock.biz)

The share price decline is brought on by the decline in revenue and profits. I have constructed a graph of BAT's rolling 4 quarters' revenue and profits, excluding lumpy restructuring expenses, from Dec 2007 up to Dec 2019.

Graph: BAT's rolling 4-quarter revenue and profit from Dec 2007 to Dec 2019

The latest quarterly results will be announced in 3 weeks' time. It will probably show further decline in revenue and profits. If that panned out, we can expect share prices, which have rallied from RM10 to RM13, may renew their decline. Why are investors buying into BAT shares now or in the near future?

The Investment Case for Buying BAT 

1) The share price has broken above the medium-term downtrend line, RR at RM12.00.


Chart 2: BAT's daily chart as at May 4, 2020 (Source: Malaysiastock.biz)

2) It is a well-managed multinational company. The downside is its products pose health risks which led to legal restrictions being imposed which curtailed its consumption.

3) BAT is trading at a fairly attractive valuation with PER at 10.9 times an dividend yield at 8.9%.

4) Due to poor enforcement, illegal cigarettes are widely available in Malaysia, and these compete very successfully against BAT's products as their selling prices are substantially lower. The result of this illegal trades is lower sales for cigarettes manufacturers, leading to plant shutdown and loss of employment. An example is BAT shutting down its main factory in Petaling Jaya, and moving its production to Indonesia. In addition, Malaysian government loses more than RM5 billion annually in term of duties/taxes collection due to the illegal trades (here).

In the Covid-19 environment where government income is sharply lower and employment opportunity is scare, a case can be made that the government will finally crack down on the illegal trades in cigarettes. This will lead to higher income flowing to the government coffers and greater employment opportunities for Malaysians. Consequently, we can expect increased sales and profits for the legal cigarette manufacturers such as BAT further down the road.

Conclusion

Based on technical and fundamental consideration, I believe BAT is a good stock for medium to long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

US Market Outlook as at May 4, 2020

Over the weekend, we heard Trump administration is seemingly eager to restart the trade war in order to punish China for the Covid-19 pandemic. With the opinion polls showing Trump losing ground in many states which carried him over the line in 2016, Trump & the republican campaign will not let off this angle of attack anytime soon.

Whether the threat would be carried out or not, the rhetoric will be enough to cause havoc to global stock markets. Over the few days, we can expect stock markets worldwide to be volatile. This new fear could be just enough to tip the balance, causing the market to go into a sell-off. Be careful!!

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


Chart 2: S&P500's weekly chart as at May 1, 2020 (Source: Stockcharts.com)


Chart 3: Nasdaq's weekly chart as at May 1, 2020 (Source: Stockcharts.com)

Market Outlook as at May 4, 2020

On April 30, FBMKLCI rose 27 points to 1408. On the following day, which was the Labor Day, the government announced the relaxation of the MCO to allow for the opening of many sectors of our economy on May 4. This is known as the Conditional MCO (here). 

However, there were many who spoke out against the relaxation of the existing MCO as the number of Covid-19 cases was still high. In fact, the number of cases reported today was 122. The DG of the Health Ministry has reminded the public that the MCO is not fully lifted yet (here). In addition, 6 states (Penang, Pahang, Kelantan, Kedah, Sabah and Sarawak) chose not to open up early as allowed by the Conditional MCO (here). How would the market react next week?

The unfinished business of controlling the spread of Covid-19 and the uncertainty surrounding the re-opening of the economy would create confusion in the market. This will likely lead to weaker market, which may follow by profit-taking activity. 

FBMKLCI has rebounded substantially off the low in late March. However the rally to-date is still rightly viewed as a bear market rally, as the MACD is still below the zero line, and, while the +DMI has crossed above the -DMI, it has not yet pulled away. 

Chart 1: FBMKLCI's daily chart as at April 30, 2020 (Source: Malaysiastock.biz)

As discussed in my earlier post, the start of the recovery in 1998 & 2008 were accompanied by the presence of the following conditions on the weekly charts:

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

I have updated my earlier charts, and you can see that FBMKLCI has not yet met the above conditions.

Chart 2: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020 (Source: Malaysiastock.biz)

The success of the MCO in flattening the curve is indeed laudable. Once the number of cases has been brought down to low double digit, the opening of the Malaysian economy would be a boost to our stock market. Whether that boost will lead to a strong recovery is still a question that's hard to answer. Covid-19 will probably be with us for the next 2 years and the ensuing economic contraction will likely be brutal on the stock market. I do not see how the market can rally higher under such challenging conditions. 

Push & Dump Operation in Progress

If you looked at the losers with volume, you would see the top 5 securities are CIMB, VIS, TECFAST, VIS-WB and SINOTOP. If you look at the charts for VIS, TECFAST and SINOTOP, you will notice huge volume accompanying the spike in share price yesterday.

We could well be witnessing push and dump operation here as retail investors or punters rush into the market under the belief that they have missed out on the cheap prices. Be careful! 

Chart: Sinotop, Tecfast & VIS's daily chart as at 29 April 2020 (Source: Kenanga BTX)

Market Outlook as at April 24, 2020

Last week, FBMKLCI surpassed the 1400 to reach an intra-day high of 1429 on Monday (20 April, 2020). The next day, it dropped back sharply and broke its tentative uptrend line, SS at 1395. On Wednesday, FBMKLCI staged a rebound which did not carry thru on Thursday. MACD is turning down but has yet to cross below the MACD signal line. However, the stochastic indicator has crossed below the 50% mark on Friday to close at the 20%. This signals further weakness ahead for FBMKLCI.

Chart 1: FBMKLCI's daily chart as at April 24, 2020 (Source: Kenanga's BTX chart)

FBM70, which represents the medium-cap stocks, also broke its uptrend line, SS last Tuesday. Its MACD has yet to crossed below the MACD Signal line while the stochastic indicator is still above the 50% level. The same pattern of the price movement and the indicators can also be seen in FBMSCAP. This means that our market is seeing more trading activity as retail participation increased. This may not be a good sign in a challenging and extremely volatile market of today. I hope that traders would exercise careful discretion and avoid chasing stocks which have gone up substantially from their recent low, as the market begins to show signs of weakness. 

Chart 2: FBM70's daily chart as at April 24, 2020 (Source: Kenanga's BTX chart)


Chart 3: FBMSCAP's daily chart as at April 24, 2020 (Source: Kenanga's BTX chart)

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!

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)

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!

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!

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!!

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.

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

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.

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)

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.

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.

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.

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.

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).

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.

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.

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. 

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.