I was driving on the road past few days and with the CMCO reimposition in the economic heart of Malaysia, I realised everyone is suffering. Big business or SME, this Covid-19 pandemic has delivered its second blow towards the country's economic health. The haste and lack of clarity by the Government in re-imposing this CMCO has caught many off guard once again. Around the commercial square near my office, I saw many roller shutters which were closed in March never to open again. Those survivors from the first lockdown, would likely not survive this second round. Unlike the first time, there were still moratorium for loans, this time, most would have exhausted their reserves.
It is extremely unfortunate but this pandemic truly taught me the important of cash reserve. Having cash reserve isn't enough. The usual practice is 3-6 months of cash in hand. This pandemic is coming to a full year. If indeed a company has only 3-6 months of cash in hand, technically, they would have gone under by now. This further highlights the importance of being net cash with minimal debt.
This economic downturn will have lasting effects as well. It will take time to recover and the impact will change the old ways of doing things including adoption of technology be it for delivery, connectivity infrastructure, working from home, ecommerce etc. From a hygiene practice angle, the importance of PPE stockpiles & R&D or biopharma technology will take precedent in the the progress of society.
If we are to look at investing in be it in our local market or foreign markets, there are only very select few sectors that one can safely put their funds. I remembered few months ago, many of my readers asked me about Disney. They told me this is the best time to buy Disney stocks because 1. Disney+ streaming service 2. Marvel & Star Wars series 3. Theme park will return once Covid-19 is over. Disney is the prime candidate for recovery play. Sadly, Disney announced it is laying off 28,000 employees on 30th September August. Such a strong blue chip company with solid balance sheet also have to resort to cost cutting measures to stay operational, what more the others?
This brings me to my topic. I am a believer in buying on weakness, selling on strength. I am also a strong contrarian. I bought heavily during the 2020 March plunge. I would say almost 90% of my cash were ploughed into the market in March. Reason I am sharing this is to show you evidence that I am a strong believer in recovery ahead of time. But I do not see signs of recovery anytime soon. They always say share price moves 6 months ahead of time. Hence I can understand why there are strong arguments from certain media commentators, analysts, funds industry experts who says gloves stocks are over, its time to rotate to recovery. They said that in July, August, Sept, October. We are heading into November now. Those who started buying then, have lost money heavily. They moved too soon believing the "market talks" of Vaccine by October and miracle disappearance of the pandemic. This wishful thinking is similar to that of Trump. It is nice but wishful.
I would put it bluntly, if the healthcare index do not perform and continued being sold off, nothing else will do well. Possibly tech sector may still sustain (but bear in mind if anyone thinks Gloves are overvalued, tech is 3 times overvalued). This means, no other sector will generate returns and yields to the funds in the next 1 year if the healthcare sector is dismissed as game over. I believe strongly that only glove stocks have the earning visibility minimum 1 year ahead. As of now, even Hartalega, Top Glove, Supermax, has come out to say their capacity is fully booked till end 2021. No longer 1H 2021. Its end 2021.
Do not be afraid of mini sell offs or profit taking by funds. Gyrations are normal. Be objective in your analysis and you will do fine. Similarly, be prudent but buy low sell high.
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Food for thought: