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Thursday, 19 March 2020

(Tradeview 2020) - Recession is finally here? Or is it an Opportunity of A Lifetime?

Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :

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The Covid-19 news cycle seems be on 24 hours a day and that seems to be the most information i received every day in my WhatsApp or telegram group. In fact, it would seem to be the most dominating headline of our every day life. The question in my mind was why now? Why finally after so many long months only we are at this point? Was it ignorance, optimism, or wilful blindness? 

But enough of Covid-19, I am sure most are sick and tired of this. Let me focus on what matters, how to make the most of the current situation. When Malaysia was a tiger economy in the 1990s until end of the millennium, the crisis hit us hard due to the Asian financial crisis. It took Southeast Asia economy almost 20 years to be on a sound footing.  

Many have said, finally, this is it, recession. The recession they have predicted finally arrived. Some predicted it to arrive since 2013. I remember a very big fund listed on our share market was one of those. Well, surely a broken clock may be right once a day. The question is not about being right but if you are right, what are you going to do about it? This is the same thing I ask myself every single night before going to bed (second last thing is observing global markets indicators). Are we willing to pull the trigger? 

The reason why heroes are so well loved because there are few and hard to come by. I believe once this whole entire episode is over, there will be only a handful that people will sing about. Specifically about their success in making the most of this frightening times. So let me share few simple viewpoints and of course some of our actions taken in this climate. I do not believe we will be right but if anything, history have taught us well and we should always head back to history to guide us especially in the times of uncertainty and great crisis. I believe this is a major crisis and especially so unexpected to the start of a new decade. 

1. What rises will fall & similarly what has fallen will rise :

With the triple whammy of political instability, oil plunge and Covid-19, the perfect storm has come to the shores of Malaysia. None can escape unscathed. Now when the market is on a bull run, we think it will keep going up. Ex: At 15x PE, analysts say its cheap comparing to global peers which valuations stands at 25x. Today, those so-called cheap laggard counters are actually down to a valuation of only 4-6x PE valuation. True it is unfair to generalise as it is a downtrodden market affected even the best investors in the world. However this is a reflection of the market sentiment and investor confidence.

Let’s have a look at the charts to compare :

STI - Singapore Index has fallen substantially from its peak of 3650 in 2018 to 2425 today, estimated 34% down.

S&P 500 has fallen from 3400 to 2398 estimated 30.5% to date. 

KLCI has fallen from 1900 in 2018 to 1219 today, estimated 40%.

Now if you compare the major dips from the peak to the bottom in 1997 - (1250 to 500), 2008 - (1400 to 800), & today 2020 - (1900 to 1219), it would appear there may be still some down side. On average each crisis, it falls close to or more than 50% from the peak of the market. Also you will notice the timeframe of recovery is between 6 months - 12 months from the bottom. 2008 was more of a V shape rebound compared to U shape rebound for 1997. Would 2020 crisis be a V or U shaped? In my view, it would be a U-shaped if the vaccine is not created sooner than later. After all, since the explosion of epidemic in Wuhan, China till today, it has been almost 4 months.

The important difference is this, so far there is no mass layoff yet and no street protest or unrest for Malaysia. Also, BNM is still solid and fundamentally sound compared to back in 1997. However, all this will get out of control if the new Government do not get their actions together to formulate a proper way out for the country. Remember, there is still shortfall from GST, shortfall from oil plunge income for the national coffers, increasing budget deficit, high debt outstanding from 1MDB amongst the many other issues we have yet to resolve. With limited fiscal room for the Government to manoeuvre, there is a risk our MGS will become less attractive for foreign funds especially with this global sell down, foreign funds as more choice than before where the global markets having lofty valuations compared to Malaysia.

2. Statesmanship to Lead the Country out of Turmoil :

One of the most notable effort by our country leaders during the 1997 crisis was to implement capital control to help us out. Shortly in 1 year, Malaysia was back on growth track. Till today, many dispute this decision by our Govt then. It wasn’t until much later that international community praised Malaysia government in rejecting IMF money by pegging Ringgit against USD. 

The fact of that matter is today, we do not have the leader of comparable calibre to lead us, be it in terms of government policy or economic policy. The backdoor government only cares about their own position and power and in the midst of the Covid-19 played a terrible political play for their own personal interest leading to the spike in cases due to lapse in supervision and control measures implement.

Many things could have been prevented and many rescue plans could have been formulated if the government was still operating, not a window of 2 week coupled with further effort spent on politicking, trade bartering and on boarding for new / old but incompetent ministers. This is my biggest concern as I believe the international community will find a resolution to the virus but the aftermath will have long lasting effect on the country whereby the economy will take a long time to rebound due to poor leadership.

We previously shared the following stocks as our favourite :

  1. CCK
  2. OCK
  3. RCE Capital
  4. DKSH
  5. Riverstone Holdings
  6. Pintaras Jaya
  7. GCB
  8. MFCB
Now, you may say by entering this 8 counters, it has fallen also since the time we shared out article. Indeed, however, similarly the valuation you entered is way cheaper than its FV am I right? So if you should hold it for 12 months, would it still concern you? That is what you should ask yourself.

We are looking at these few more :
  1. Scicom
  2. RHB Bank
  3. Pentamaster
  4. Public Bank
  5. QL Resources

We have many more counters we are thinking to invest with the current market sentiment. They all say Cash is King, best to hold cash, stay sidelines. Now, then what would the purpose of holding cash be for?

Please stay tune for our next write up on ”Cash Is King”, Time to Deploy?


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Food for thought: 

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