Market Trends - Important Posting

The index is nearing 1600 but it certainly does not feel that way. Why is that? Usually when any market index gets near their all time highs, they are accompanied by vociferous volume, which is non existent at the moment. That said, obviously the high index is a "controlled event", largely by the largest couple of local funds - that is possible because foreign funds have not been big locally.



The true barometer of a genuine market is the level of retail participation. This may be "truer" 10 or 15 years ago when retail participation usually overwhelms even the institutional plays. What has happened?

Well, the markets grew up, its not so easy to trade in and out anymore even as stock commission rates were cut to the bones. Its not like before. Many remisiers and older retail players still think about the 1993-1997 days when a remisier can make RM5,000-10,000 a day in commissions. Some were even more audacious, turning away client orders as they do better by speculating themselves.

We all know that those days will NEVER return because now all private clients must have some collateral before buying and even then margin amount is limited. Before almost anyone could buy RM100,000 to RM300,000 worth of stocks with nary a sen for collateral. You can say that the incredible volumes chalked up during 93-97 were largely artificial, probably 50% of volume were from pure "thin air".

That said, this has made syndicates a much harder business to make money from, thus the way syndicates operate nowadays are tighter and harsher. Retail players are also tighter and harsher when it comes to goreng stocks. The way markets are playing out now, is a stalemate. Thus, leaving only big local funds to control the movement of the index.



Knowing that its much tougher to make money from trading stocks, that is why even with the index near all time highs, you see little retail participation. Well, 3Q2009 till January this year was pretty good in light of recent history. The key is that there must be a driver, a sector that captures the imagination. That period was largely a boom time for property stocks.

To lift the markets to the next level, we need a grouping to standout. Oil and gas had a run early this year but petered out. So, what can we hope for in the coming weeks? It seems the groundswell is there for a big move up for the local markets, but what is going to drive it higher?

Certainly not plantations as volume in inventory just shot up again.

Property is not entirely bullish anymore as launches are seeing less hyperactivity. The sell down in SP Setia is an indication of things to come, Mah Sing and the rest may weaken a bit from here.



The Acronyms Davinci Code

What about those wonderful new acronyms? Strategic Reform Initiatives (SRI), being the core enablers to 12 existing National Key Economic Areas (NKEA) under the Economic Transformation Programme (ETP). One of the six SRIs seeks to ensure a clear separation of the government’s involvement in regulatory and business functions to avoid conflict of interests and boost private sector investments. A divestment strategy will be put in place to pare down government’s holdings in GLCs. For a start, the plan involves: (i) lowering stakes in 5 GLCs, (ii) listing 7 GLCs, and (iii) the outright sale of 21 GLCs. 24 GLCs (73% of the identified 33) would be involved in this plan this year and into 2012.

I think this acronyms ladened grouping could have a chance to bring fresh impetus to the markets. This could mean more "fresh meat" for foreign funds to focus on. As foreign investment banks strive to get a piece of the action, indirect market activity in the related counters will jump. RHB Capital was supposed to start the ball rolling. We need things to be actually "done", not just talked about. Maybank may be "asked" to seriously consider buying RHB in the end, just to get the ball rolling cause CIMB certainly won't pay the high price.

Khazanah should start the ball rolling with the 32.2% stake in POS Malaysia to DRB-Hicom this quarter. What Khazanah should do is to "activate the process" and not drag out each and every share sale. Counters that will come into focus positively on that theme will include: Axiata, CIMB, Malaysia Airports and UEM Land. If you are a mid to long term player, AND is bullish for the rest of the year, these are the stocks to have in your portfolio.



MSM did wonderfully well, if we could all pull the levers together and get these companies listed within the next 3 months, namely Firefly, MAS Engineering, Mas Kargo, etc... one can easily see the kind of flow on multiplier effects it will have on the local bourse.

Now, its all nobody is talking to each other. Khazanah should talk to EPF, PNB and then then MOF and then other strategic GLCs. Coordinate, plan and execute. While we are on that, how about a relisting of PLUS after its new concession is inked; packaged with the Penang Bridge concession under UEM Group??!!

Oiling The Machinery, Or Is It Just Gas

Thanks to the Kencana-Sapura Crest merger, this could very well reignite the oil and gas sector again. However, it may not be so wide ranging. Attention could shift to "undervalued" or sought after assets in specific sub industry groups. The Offshore Service Vessels groupings should come under more attention. There is too many small players. The SapuraCrest-Kencana merger paves the way for the right strategic thinking, get bigger or be sidelined. You cannot be small and beautiful.



Most houses have a hold or under perform on Alam Maritim, Tanjung Offshore and Perdana Petroleum, but I think they are under performers as well, which is also why they need to be bigger or be bought out for better efficiencies. Just look at similar players in regional countries, they are easily 2,3,4x bigger.

So, it looks like the government units need to get their act together if we are going to have a decent few months before the year is over. The groundwork and groundswell are there, a pity if we do not make the best of it.

Posted in: Araya Hargett