Tuesday, August 20, 2013

Is financial crisis around the corner?

FBMKLCI Down by 32.94 points or 1.85% today while Thailand fell about 27.62 points or 1.98%, Indonesia fell 138.53 points or 3.21% in a single day. Indonesia had droped about 524.74 points or 11.2% from 15 august 2013 while Thailand drop about 89.77 points or 6.2%. Malaysia drop 48.39 points or 2.7% since 14 August 2013.

Looking at the big drop, lots of investors has started to worried whether should they sell? Is this just the beginning? Is there any big crisis around the corner?

Personally, I don't think that this is a very big deal and I would advice to take this opportunity to buy good stock on weakness. Why?

1st, the market was dropping not due to our economy is having any big issue but it was due to the FED tappering! 

As we know, the QE had press down the cost of fund in America, where we can see that their 10 years treasury rate was just about 1.6%. This was due to the US govt keep buying back the treasury which is creating more demand just to press down their interest rate for the economy to move back again. This is because the company will have cheap money to do business and those with jobs can buy house again with such a low interest rate.

As the funds are cheap, investors will take the opportunity to do the "carry trade" where they borrow the cheap fund to invest in other places. We can say that they abuse what the FED plan to do but this is human isn't it? After getting the cheap money, they invested in SE Asia and some emerging markets which causes them to rose since last year.

Until somewhere around May, there are concern about FED is going to tapper QE if the unemployment rates turn better and better inflation rate and this has create some unrest in the market. Why? As the FED is tappering, thats mean they are not going to create as much demand as before for the Treasury. This will causes the price of the Treasury to fall while having a higher yield. What will you do when your cost of capital rose? You will try to repay as soon as possible right? That explained why do the market fell so badly since Bernanke talk about tappering.  Anyway, QE tappering is actually telling us that the consumer giant is about to awake again!

IT's obvious that its the foreign funds are running away from the market due to the higher cost of funds, and this can be proven by the weakening ringgit towards other currencies. This was due to the foreigners need to get back USD in order to go back their country ( they won't use RM in US right? LOL)

Anyhow, we can see that our GDP as well as Thailand GDP is not doing well for last and this quarter. Yes, this will be an issue to us as economy is not doing well. Our GDP will not doing well due to the fall of the CPO price which contributes a lot to our GDP. Even this might be a bad news for us but I think it wouldn't be worst as long as our big brother US awaken!

When US awaken, the demand had came back and we will start to export item again and economy will still grow.

In short, grab some good stock when U think the valuation and pricing is right at this falling chance. Remember, buying stock is to invest and not to gamble. 

Personally, CLIQ and SONA will still be my top call as their mother share is real safe for now. U have a 90% cash back guarantee if they failed to purchase anything. If they purchase something and have good prospect, then there is only 1 direction to go. On the other hand, maybe U should avoid property stock as the rising interest will causes lower demand for the housing industry. I'm still positive with medium term.  Hope that I'm right.

Good Luck and Huat ah! 

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