KLCI extends gains as global markets rise
Petrofac gets RM220m Carigali refurbishment job
Bursa Malaysia Derivatives launches revamped options on index futures
Willowglen MSC unit gets RM19.99m of jobs
Axiata edges up on positive 1Q earnings
UAC surges on Boustead privatisation plan
April inflation seen at 2.1% y-o-y, matches March level
Suaram slams prosecution of opposition leaders involved in Bersih rally
Categories
| InsiderAsia's Model Portfolio — Week 332 |
| Business & Market 2009 | |||
| Written by InsiderAsia | |||
| Sunday, 05 July 2009 22:48 | |||
 SHARE prices on Bursa traded relatively flat for last week, despite large falls on Wall Street and a mixed performance for regional markets. Much of the resilience was due to key index-linked stocks as some funds may have rebalanced their portfolios ahead of the introduction of the enhanced FTSE Bursa Malaysia KLCI (FBM KLCI) index today (July 6). For the week, the KLCI lost a total of just 3.1 points or 0.3% to end at 1,072.7 points. The index had gained a total of 22.6% for the first half of the year. The local bourse's resilience was commendable given the more challenging environment for global bourses.   Wall Street's major indices have been posting losses for three consecutive weeks as the three-month long rally started to falter. Last week, the Dow Jones Industrial Average (DJIA) fell 1.9% and the S&P 500 index declined 3.5%. Part of the local bourse's outperformance is likely due to the slew of positive economic measures announced by the Prime Minister at the Invest Malaysia 2009 conference, which aims to further liberalise the economy and increase its long-term competitiveness. They were well received by the business community. These measures include the dismantling of the 30% bumiputera equity requirement post-listing, increase of foreign shareholding in stockbroking companies from 49% to 70%, liberalisation in ownership of wholesale fund management companies and de-regulation of Foreign Investment Committee guidelines, especially for property transactions and mergers and acquisitions. Externally though, conditions for equity investors globally were challenging. Last Thursday, the DJIA index plunged 2.6% to its lowest close in six weeks. Sentiment was soured by a weak jobs report showing US unemployment hitting a 26-year high of 9.5% in June, raising fears that the road to recovery will be protracted and bumpy. Some 467,000 jobs were cut in June, worse than expectations of 363,000. The report disappointed investors looking towards positive signs to sustain the recovery process and the stock market's momentum. With stocks having rallied strong since mid-March and expectations of the recovery growing stronger, more good news are needed to fuel the rally, which appears to be faltering. The data suggests that US consumers are likely to remain cautious and will continue to limit spending in the wake of continuing job losses and insecurity. Indeed, consumer spending has been very weak in the last few months despite rising income levels (from the government's stimulus package's tax benefits), consumer confidence and the stock market.  Most expect unemployment to keep rising well into 2010 when it could top 10%. The weak labour market is one of the primary reasons behind growing concerns that the global economic recovery may be slow as US consumers continue to build up their savings to repair battered balance sheets and provide buffers against unemployment.US consumer spending rose a modest 0.3% in May 2009 and the savings rate shot up to a 15-year high. As consumer spending accounts for two-thirds of the US economy and drives Asian exports, this suggests the road to recovery will likely be slow. The unemployment situation in Europe also looks grim. Unemployment in the euro-zone's 16 countries spiked to a ten-year high of 9.5% in May, from 9.3% in April. There were, however, also some positive economic signals last week. US May factory orders rose 1.2%, better than market expectations of 0.8%. Last Wednesday, data also showed more stable manufacturing activity and the fourth consecutive monthly rise in pending home sales. Asian stock markets have already done very well year to date, chalking up strong double-digit gains. The Chinese market has been among the best performers in the world — the Shanghai Composite index gained nearly 63% in 1H09. While the global recession may be nearing the tail-end, that is also already mostly factored into stock prices. Globally, investors are likely to continue staying cautious. Investors are unsure whether how long the current correction phase will last, how long the road to recovery will be and the strength of the eventual recovery. New leads are needed and expectations are now much higher. As such, investors will continue to assess economic data for signs as to the strength of the recovery. Investors should note that today, the current KLCI index will be replaced by the enhanced FBM KLCI index. Bumiputra-Commerce, Sime Darby, Public Bank and Malayan Banking Bhd (Maybank) will be the four biggest constituents in the enhanced index. Portfolio review Our model portfolio fell last week, in tandem with the broader market. Our basket of 16 stocks declined 2.4%, more with the KLCI's 0.3% fall, as the headline index was supported by the strength in key blue chips. Including our large cash reserves (for which no interest is imputed), the total portfolio value fell by a smaller margin of 1.7% to RM462,533. Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003. Our total profits are very substantial at RM302,533. This represents a hefty return of 189.1% compared with our capital of RM160,000. We continue to outperform the KLCI significantly, which is up by 65.8% in the same period. Reflecting the weak broader market, we had only two gainers last week (Genting Malaysia — up 1.8%, and HELP — up 0.7%). Two other stocks were unchanged (Masteel and Dufu), while 12 other stocks fell, led by Tanjung Offshore, Notion VTec, Pantech and Selangor Properties (down 4.5% to 7.3% each). Trimming portfolio and locking in gains Given the less certain outlook for global equities in the coming months, we have decided to trim our portfolio and lock in some gains. Recall that we had increased some of our stakes (as well as averaged down some loss-making ones) in March and April 2009, when prices were low. Some of our recent purchases have done well. We are selling:
Our equity weighting is reduced from 70% to 61%. Our pool of realised profits will increase by RM4,736 to RM221,386. Another RM82,186 of paper profits remain unrealised. Investors should note that our sales do not reflect a change in our outlook or view for the companies concerned, or their underlying fundamentals. We are only selling a portion of our stakes and continue to hold on to the bulk of our shares in these companies. We are reducing our portfolio's equity weighting in general and locking in more gains as we expect global stock market conditions to be more challenging in 2H09 after the strong first-half rally. Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
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