IT was another good week for the Malaysian stock market.

After rising 13.4 points in the previous week, the KLCI added another 28.6 points, or 3.34%, last week, with the benchmark ending at 885.4 points last Friday.

Stock markets around the region also fared well, anchored by Wall Street's relentless rally after earlier hitting 12-year lows. The Dow Jones Industrial Average has surged some 21% from its earlier lows, making March 2009 the best month for Wall Street in 35 years.

Investor optimism on Wall Street was led by hopes that the US economic downturn will bottom out by the end of this year. Investors also welcomed the government's plans to acquire US$1 trillion (RM3.62 tillion) of toxic assets from banks. This will help reliquefy the banking system, which has been subject to a credit crunch as banks are weighed down by bad loans and mounting losses.

Some recent economic indicators have turned out better than expected, leading investors to see a possible bottoming for the US economy later this year.

This is a positive development for Asia's export-reliant economies. Asian exports have plunged in the last few months, placing a major drag on the region's economies. While a sustainable recovery may still be months away, the latest numbers are seen as light at the end of the tunnel.

The US housing market — the heart of the current crisis — is finally showing signs of stabilisation after months of steep declines. Data released for February 2009 showed surprising growth in several areas. Sales of existing homes rose by 5.1%, while housing starts rose 22.2%. Sales of new homes also rose for the first time in seven months, gaining 4.7%.

An increase of 3.4% in US durable orders for February 2009 — for cars, household appliances and other durable goods — also bolstered sentiment. This was the first increase since July 2008.

On the other hand, weak demand during an auction for government debt raised some concerns. The US government needs billions of dollars to fund its stimulus package and various rescue plans. US gross domestic product (GDP) for the fourth quarter of 2008 was also revised further downwards from 6.2% to 6.3%, while unemployment remains high.

After the recent strong gains though, profit-taking activities across the region gained traction on Friday as investors were content to lock in gains ahead of the weekend, and await further clues.

Whether the rally will continue remains to be seen. With Wall Street having built in so much expectations of a recovery later this year, investors will assess every bit of economic data to see if forthcoming statistics show a recovery or at least a moderation on declining trends. This will determine the sustainability of Wall Street's recent gains — as well as those of the region.  

Portfolio review
Over the past week, our basket of 18 stocks rose by 1.8%, less than the KLCI's 3.3% increase. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by a smaller margin of 1% to RM395,657.

The 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 RM235,657, of which RM206,221 has already been realised earlier.  

This represents a hefty return of 147.3% compared with our capital of RM160,000. We continue to outperform the KLCI significantly, which is up by 36.9% in the same period.

Over the last week, we had 10 gainers, five losers and three unchanged stocks. The major gainers were Tong Herr (up 16.5%), Resorts World (up 13.7%), Muhibbah (up 9.3%) and Bursa Malaysia (up 6%). The main losers were Notion VTec (down 2.9%), Masteel (down 1.8%) and 3A Resources (down 1.6%).

On March 25, 2009, Tanjung Offshore's shares traded ex for interim dividends of four sen, which we have adjusted accordingly. Its shares rose 4.2% for the week.  

Buying more shares of Bursa Malaysia
We are buying 2,000 more shares of Bursa Malaysia at last Friday's closing price of RM5.15 for a total of RM10,300. This will average down our present holding of 2,000 shares, whose purchase price was RM8.34, with our average cost falling to RM6.74 per share for 4,000 shares.  

After this purchase, our portfolio will be 58% equity invested and we still have ample cash of RM167,196 for future investments.

Sentiment for Bursa Malaysia's shares has improved along with the better outlook for the broader market. The stock will be among the big-cap blue chips to lead the eventual market recovery. Its earnings are closely tied to the level of investor confidence and interest in the stock market.

Bursa has a high degree of operating leverage. This means its costs — primarily staff costs, new product and market development costs, IT maintenance and depreciation — are relatively fixed and little dependent on the level of business activities. Hence, fluctuations in turnover have outsized impact on profits.

The daily on-market trading volume for equities averaged at about 583 million shares last year. Fees from the trading of equities and derivatives accounted for about 54% of Bursa's turnover.

Daily trading volume increased to roughly 544 million shares, on average, last week compared to about 313 million shares in the preceding week. A sustained and material pick up in market volume would translate into higher profit growth for the company.

Bursa is on solid financial ground. Recurring and interest incomes alone should cover more than four-fifths of operating expenses this year. The company is in a net cash position with over RM400 million in available financial resources.

Excluding allocations for working capital, capital expenditure and clearing guarantee funds, Bursa has some RM100 million free cash that can be distributed as dividends. We estimate yields to gross a decent 3.3% this year.

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.