August 08, 2022

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A Time of Reckoning & The Battle of Titans

Malaysia is a blessed country with abundant of resources, human capital and potential. Before the Asian Financial Crisis of 1997 / 1998, Malaysia was regarded as a "Tiger Economy" and even Bursa (then known as KLSE) was the third largest stock exchange by value after Tokyo and Hong Kong Stock Exchange. Today, countries which were once behind us have surpassed our country in terms of economic strength, competitiveness and stability. Countries such as China, South Korea, Taiwan, Singapore are far ahead with Vietnam, Thailand and Indonesia catching up. Thankfully, Malaysia still have strong economics fundamentals laid down from our forefathers with SME forming the backbone of the economy. However, with the Covid-19 pandemic onslaught, SME segment was badly impacted with SME association forecasting close to 100,000 to shutter or on the brink of closing down by end 2020. Official figures from SSM shows 30,000. The huge discrepancy is likely due to the delay in official reporting.  
The stock market has however performed extremely well comparing to regional peers throughout the year. At today's closing of 1662 points, Bursa is up 4.66% YTD. This is unbelievable considering what is actually being felt in the real economy. I think regulators like BNM, SC, Bursa has done well to support the stock market. Another major reason is because Malaysia is blessed with a competitive Technology and Glove Sector which sustained our stock exchange during the triple whammy of oil price crash, government change and Covid-19 pandemic. 
In fact, thanks to glove makers, Bursa, hit record high retail participation and attracted some foreign investments. Of late, due to the announcement of vaccines such as Pfizer, Moderna and its ongoing rollout, the healthcare index took a beating especially the glove and tech sector. The rotation of funds from growth to value stocks and beat down laggards was swift. Banks, Steel, Construction, Telco, Plantation, Tourism, Oil & Gas rebounded strongly while technology and glove stocks was hit The market rally has drawn continuous retail participation, comparable to local funds and more so than foreign funds. This has kept the stock market lively and vibrant with average daily value above RM 4 billion. 
This spectacular stock market rally can be seen all over the world, not only Malaysia. However, it is impressive considering our country went through an unprecedented regime change midterm. I believe this would not be possible if not for the strong retail participation and remarkable earnings performance which led to share price ascend of glove makers. If we were to look at the entire stock market of Bursa today, the only sector with strong earnings visibility and sustainability is the glove sector. Nevertheless, the sector has been thrown into the limelight for good and for bad. Praise were given for their contribution to the world supply of gloves in the battle against Covid-19 (65% of market share globally), resolving PPE shortage. Criticism being zoomed in on labour issue, Covid-19 outbreak in workers hostel, welfare and extraordinary windfall in income. I have covered various angles of glove sector in the past 9 months and do not want to repeat further. I have however, a friendly advice to fellow readers who are either in the investment banking research fraternity, media or authorities / politicians, in everything we do in life, be fair, reasonable and objective. Do not make judgments, comments or opinions with a coloured lens. The glove sector of Malaysia is one which should be proud of. I know these days any articles or news on glove sector attracts huge number of views. I know it because I can see the statistics in my blog & channel. Do not for the sake of attention and populist agenda destroy an entire sector that was organically grown through entrepreneurial spirit, hard work and grit. This sector is a golden goose of our country. We must preserve, protect and help improve it.
Today, Tun Dr M and Tengku Razaleigh join hands during a press conference to share their advice input on the state on the nation including potential hint on tomorrow's Budget 3rd & final reading where a vote will be required of all 222 MP. This has led to last minute selldown of the market close to 1.3%. I believe the stock market will continue to be impacted and profit taking will continue across the board until a political resolution is in place or the budget 2021 is passed without hiccups. For investors, be prudent, hold sufficient cash and do not chase blindly. Avoid loss making stocks, whatever recovery theme it may be & focus on earnings or yield as your north star in these foggy times ahead. If you do that, I believe the worst will pass and eventually, you will see the light again.  

Food for thought: 

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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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