World stock markets traded broadly lower last week. The latest raft of economic data fed growing worries that the pace of the global economic growth is set to taper off in 2H10. Indeed, some market observers even have gone as far as reviving the spectre of a double-dip recession. Others fret that mounting signs of demand weakness will result in a deflationary environment in the near to medium term, which would hurt corporate earnings.

While we believe a double-dip recession is unlikely at this point, it does appear that the sharp rebound in 4Q09-1Q10 —  which was boosted by unprecedented government stimulus and inventory rebalancing — is not sustainable.

Last week’s manufacturing data out of the US and China suggests a slowdown in activities on the back of weakening demand outlook. Governments in the eurozone, stricken by the sovereign debt crisis, have swung into fiscal consolidation mode. At the same time, US consumer confidence slumped in June on the back of poor job prospects. Despite the headline growth for the economy since 3Q09, new job creation has remained lacklustre. The housing market recovery is also stuttering following the expiry of government tax credits.

Key Asian markets ended in the red last week. During the week, both the Dow Jones Industrial Average and the broader S&P 500 slumped to their lowest levels for the year.

On the home front, shares on Bursa Malaysia traded broadly weaker. The FBM KLCI ended the week down 1.43% at 1,307.4. Trading volume dipped again after improving in the previous week. The daily on-market trading volume fell to less than 605 million shares, on average, down from 719 million shares in the preceding week. Trading volume may improve this week with the debut of Sunway REIT.

Stocks in our model portfolio closed mixed. Out of 16 stocks, 10 closed lower while six finished in positive territory. Our basket of stocks fell 1.38%, slightly better than the benchmark index’s decline.

However, including our large cash reserves (for which no interest is imputed), the total portfolio value fell by a lesser 0.98% to RM622,885. Last week’s loss pared our model portfolio’s cumulative returns since inception to 289.3% on our initial capital of just RM160,000.

Nevertheless, we continue to outperform the FBM KLCI, which was up by about 102.1% over the same period, by some distance. Plus, our portfolio holds a significant amount of non-interest yielding cash at all times for prudence sake.

We disposed our entire 20,000 shares in CSC Steel at RM1.61 per share. The investment netted us a very smart gain of 89.4%, on our dividend-adjusted cost of 85 sen per share, for an investment period of just about 10 months.

Our total profits are very substantial at RM462,885, of which RM262,718 has already been realised, including the RM15,200 from the sale of CSC Steel, while the rest are paper gains.

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.

This article appeared in The Edge Financial Daily, July 5, 2010.