December 06, 2022

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KLCI Index Dipped Below 1500, What's Next?

It is often during the market downcycle that investors, especially retail investors panic. I was having a conversation with a very senior and experienced investor. He shared his concern and view that the market is possibly going through an inflection point. Meaning, it is a time where fund flow and investment appetite starts to make a big shift. He is taking a prudent approach in asset allocation.

I have been advocating that global markets specifically US and Europe where the central banks / Fed were all too loose for too long with their monetary policy. This floods the market with liquidity hence we see extreme irrationality in the stock market. For instance, good companies which are profit making are outperformed by sentiment driven meme stocks which are loss making.

For Malaysia's stock market, we should not do an apple to apple comparison. This is because our market actually did not rally to new highs or outperformed regional peers. On the contrary, our stock market have performed very badly and is one of the worst performer for the region. We had an golden opportunity to do well when the stock market was back to 1600 level and could have rallied more or sustained if the Budget2022 was more pro-economy, business friendly and supportive of capital markets. Sadly, it wasn't.

Is it too late? I believe policy makers can still turn it around if they have the political will and willingness to accept the proposed new measures was a mistake. In addition, our stock market being heavily dominated by local institutions for years is now feeling the pain as local institutions have their own set of problems which is the massive withdrawal programme. This is what happens when policies are leaning towards populism. The verdict has been shown by the stock market performance.

Am I worried? On the contrary, unlike last year, I see any correction (we are in correction territory already as the index has went below 1510), as opportunity to buy wonderful companies to build a stable portfolio for the years to come. For instance, in the past, there is no chance to buy that many blue chip names or high dividend yielding at such a good price (except for March 2020). So while some are linking our local market selloff to US market selloff, I do not believe it is a fair comparison as the situation is very different.

That said, there is no harm to be more prudent and scaling entry / pacing it out. No rush as being first doesn't make you a winner. On the contrary, patience is an understated virtue in the stock market. It may be a drawn out process, not so much about Omicron variant but the elections and political uncertainty. 

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