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Tuesday, 8 December 2020

Tradeview Commentaries - "Risk On" For Financial Markets?

  



Record high for Dow, SP500 and Nasdaq last Friday was a huge boost in confidence for participants of the financial markets. The global stock market participants are clearly risk on, with bullish mode and relying on a abundant of reasons to justify the rally. 

1. Liquidity due monetary policies of central banks around the world

2. Vaccine optimism and potential economic reopening 2021

3. A hopeful new Biden era ushering multilateralism and ending of trade wars 

4. Weakening USD and rebounding of commodities market

5. Inflow of funds into emerging markets 

Cumulatively, all these are strong reasons for a bull market. Locally, even KLCI Bursa closed at 1622 today with 16 billion in volume and 7.2 billion in value, erasing losses for the year to close above January 2020 levels. All naysayers which said if Trump is gone, stock market and economy will collapse are now proven wrong. The big question remains is whether the rally is sustainable? There ought to be some correction, no?

Whether we agree with the stock market rally or not, it doesn’t really matter anymore. The stock market and the larger economy is clearly at a disconnect. This is the effect of releasing large amount of liquidity into the economy. Although our government coffers are limited, our country monetary policies consist of loan moratorium, SOCSO, and EPF 1 & 2 early withdrawal. This is akin to bringing forward future earnings / income to the present. Raising debt ceiling and borrowing more to spend now to spur the economy is what's being done by most governments. This has structurally change the stock market direction. It can be seen from the banning of short selling, extension, holding back on force selling, the stock market is being prop up by agencies.

The worst in terms of the stock market is definitely behind us. Nothing can be worst than "March Plunge 2020" when Covid-19, oil crash and government change happen all at once. The strategy forward, should simply be to have 30% of cash on hand at all times (in case of any untoward incidents like sudden General Elections), buy into fundamentally sound stocks with minimal debts or net cash and not to get ahead of ourselves or too gung ho on recovery stocks especially loss making stocks. Sell into strength for stocks that hit TP or exceed Fair Value. I will maintain this strategy going into 2021. A gentle reminder to be careful of loss making companies especially penny stocks that are making announcements on deals / vaccine related plays etc without basis. 

As for the Glove stocks, it will remain a solid feature in my portfolio. I believe unequivocally it will rebound and the current levels are close to the bottom. There are no better value stocks in the market currently in terms of earnings, yield, balance sheet and outlook. Those who thinks otherwise, is making a mistake ignoring fundamentals. 

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