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.