June 20, 2021

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MCO 3.0 Total Lockdown Yay or Nay for The Markets?

AZ vaccination

On 18th May 2021, I was one of the many of fortunate ones who have registered for the AZ vaccination through the opt in programme. My center was at PWTC and it was well organised internally. The experience was a first time for everyone and I noticed regardless of the age group or background, most are eager for their vaccination and did their best to comply with the SOP. This led to a seamless experience. What I realised too was how massive the operation of rolling out the vaccine were. The number of volunteers, nurses, doctors, police and soldiers located at different station playing their role to facilitate this national agenda made a clear imprint in me that this country wide vaccination drive is by no means a small feat. In fact, it further confirm what I shared last year November, whereby administering vaccine is not like a rain shower that pours over and miraculously everyone would be safe and healthy. It requires laborious effort, strong coordination and support from all stakeholders involved. 

AZ vaccination at PWTC

Back to the stock market, today it fell by almost 1.4% or 21 points. The market have been going through broad base selloff. This is due to the MCO 3.0 sudden announcement that taken the market and investor by surprise last week followed by the impending fear of a total lockdown like what happened last year during MCO 1.0.

In my earlier articles and commentaries, I have previously highlighted before that while I do not believe the stock market this year will crash be it globally or domestically, I do believe there will be some correction between 5-10% range. The peak for KLCI in the past 1 year is 1684. Assuming a 5% drop, the index would be 1599 and 10% drop would be 1515 level. This are important levels to take note. At today's noon session closing, it is now 1553 which is about a 7.8% dip. 

An important distinction between a crash and a correction is the percentage of retracement. Usually a crash would mean anything exceeding 20%. A correction is between the range of 5-10%. Crash happens when there is a fundamental, structural or black swan event. Correction on the other hand is more to do with a healthy retracement be it due to overheating in the market or overvaluation, in order for the market to go further upwards in future. 

Assuming I am right and that there will be 10% correction, then the important level to look at is 1515 region. So investors can consider using this as a gauge to determine when to enter into the market for a long term buy and hold. Of course, seeking to predict the bottom is quite a futile effort as it is never easy. The best thing to do is always to make a list of stocks you would like to invest in for the mid to long term and when the share price drops to a palatable valuation, you pull the trigger. Another way to break your purchases into tranches and scale your entry. It is important to do this as a form of capital preservation.

Yesterday, our country hit a record high new Covid-19 cases at 6806. The death toll were also record high at 59. This may look like data or numbers but behind each number is a person who has a family. It is awfully heart wrenching to see this happening. The major camp of argument in our society is dividend between full MCO total lockdown like last year vs balancing economy & saving lives. It is an extremely hard decision and I definitely do not envy the position of the government. During a time of crisis, swift and decisive action must be taken in order to protect the citizens.

When Tun M was the Prime Minister during 1997/98 Asian Financial Crisis, he made the decision to peg MYR to USD and rejected aid from IMF. Many criticised Tun M as his decision on the currency control resulted in  the severe depreciation of the currency. Plenty of companies went under and never survived the crisis. However, years later, even IMF themselves acknowledged if not for swift action of pegging the currency by Tun M, Malaysia's economy would be worst off and it would take a longer time to recover from the slump. This story is somewhat applicable to our situation today.

The country requires a strong and firm leader who can stand his ground while making swift decision which may appear painful and unpopular so long it is in the best interest of majority of the people. No matter what decision made, there will always be opposing voices. One cannot please everyone. After all, a compromised decision will not lead to the best outcome. Instead of choosing to delay and procrastinate, the Government should set the tone once and for all. For the financial markets and business community, what affects them most is not the policy decisions but the flip flop, u-turns and uncertainty. Businesses can operate and find a way to survive so long there is clarity in policies. Uncertainties create volatilities which will be detrimental to all in the long run. 

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For those who enjoy my writing and would like to support me, my new book "Once Upon A Time In Bursa" is now available for pre-orders. Feel free to make your purchase at this online website https://www.modern.my/tradeview.html and you are entitled to a 10% discount with TRADEVIEW10 voucher code upon check out. 

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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