Are things getting overly bearish?

Yes I believe so. Fundamentally we are now trading near crisis levels. Should it be a screaming buy now? Yes, politically we are now in unchartered territory but opportunities like this don't come very often. Below is an article from the Singapore Business Times.


Business Times - 08 Jul 2008
Uncertain times in Malaysia

IF Malaysia's stock exchange were regarded a barometer of its economy, the country is headed for a mighty storm. Since January, the benchmark Composite Index of the Kuala Lumpur stock exchange has dropped around 22 per cent, one of the worst performances in the Asia-Pacific region. Much of the steepest falls came after March 8, a watershed date in the country's history when the ruling National Front coalition registered its worst-ever electoral showing.

Sadly, things appear to have taken a turn for the worse since then. Prime Minister Abdullah Ahmad Badawi has been attacked relentlessly by his predecessor Mahathir Mohamad who blames him for the Front's poor showing. In turn, Dr Mahathir himself is being attacked by a High Court judge for attempting to influence trial outcomes when he was in power.
And as if all this were not enough, a 23-year-old male aide claims that he was forcibly sodomised by the 61-year-old former deputy premier and de facto opposition leader Anwar Ibrahim, echoing an allegation made against Mr Anwar a decade ago for which he was tried and eventually absolved.

Adding to the tension are allegations that Najib Razak, the current Deputy Prime Minister, was involved with a Mongolian model whose murder is the subject of an on-going trial. Worse, the man who released his statutory declaration with the allegations, retracted them the next day and has since vanished with his family, raising more questions about this case.
Meanwhile, Mr Anwar has lodged a police report alleging corruption against the country's top police officer and its Attorney-General. The reports are being investigated by the country's Anti-Corruption Agency.

Then there are questions about the integrity of High Court appointments following the inquiry and report on the so-called Lingam tapes. Clearly then, Malaysia is in a political mess. Yet, despite the gloom in the stock market, the broader economy is doing relatively well: it remains a net oil exporter and is a leading producer of commodities from palm oil and rubber to gold and pepper, all of which are fetching high global prices. Exports remain buoyant, the country has a strong net reserve position and domestic demand remains surprisingly resilient.
But, make no mistake, continued political uncertainty will take an economic toll; investors will stay on the sidelines till the dust settles.

Mr Anwar claims that he has enough support within Umno, the dominant partner in the ruling coalition, to engineer a collapse of the government.
But this only adds to the uncertainty. Economic management is getting little attention. Left to drift, the situation will eventually erode Malaysia's economic, as well as social, foundations - a dangerous development.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved

Is the KLCI index hitting a low?

Is the index hitting a low? It appears to be building a base above the 1,188 support level. I think we should see a low this week, probably marginally lower then the 1,188 level - maybe 1,180 or so. Being a contrarian is akin to taking on high risks - so, investors who cannot or unwilling to take on such high risks ought to wait a while before getting. And for those who choose to get in, keep your stops tight - very tight.

Because there are too many stocks to buy and you don't know which is better, you might want to learn a bit more about trading futures. Trading the KLCI index futures (which is listed on Bursa) can offer certain oppotunities which stocks cannot offer - such as Leverage and shorting, where it is allowed in futures trading. Nevertheless, it is a double edge sword. You can make as much as the market gives you but you could also lose all in a blink of an eye.

Things are looking bearish here in Malaysia but...

Everything are starting to look bearish right now. Even our Bank Negara's governor - Tan Sri Zeti Akhtar Aziz says that BNM may revise their GDP forecast for 2008 of 5-6%. She says that "Right now there is also a risk that we may have a slower growth and this is being experienced in the global economy, including the region." The general feel is definitely cautious with a slight twist of bearishness right now. I think that this is common within a Wave 4 correction or a Wave 5(ii) correction. I believe that we are in a Wave 5(ii) and once this is over, the KLCI could rally strongly to all time highs by the final quarter of this year. Stay tuned!

Everything is looking bearish but...

Right now, everything is looking bearish... globally, everyone is facing high inflation. In the US, unemployment just rose and the word stagflation has begun spreading. However, it is still too early to confirm that the US is indeed in stagflation. Regionally, everyhting is also looking bleak. China's monetary tightening could squeeze the tight market even more. Coming back to our shores, Malaysia is now facing high political risk and 'possibly' high inflation. Everything and I mean Everything!!! are pointing to more bearishness ahead.

But wait, if everyone is hyper bearish, should we be contrarians and trade the other direction? There are still the element of risk if one should trade against the trend. Nevertheless, the returns do outweigh the risks, in my opinion. I believe that the KLCI index will find support around the 1,200-1,213 levels. The Hang Seng Index to find support around the 22,000-22,400 level. STI to find support at 2,945-3,006. Shanghai should hold around the 3,000 level, or slightly below. I still believe that the bull will be back sooner rather than later.. Will update again when the regional indices start to move upwards again.

Steel counters looking overbought...

Steel counters on the KLSE are looking overbought and a temporary pullback is likely... Yesterday we saw a large surge in all steel stocks including the smaller ones like leader steel. Trading volume was also up suggesting that the uptrend has just started. However, do not be fooled. There is a good chance that yesterday was a buying climax - at least for the time being. There is no doubt that there is an uptrend but TRY NOT to jump in at this current lofty levels. Wait for a pullback maybe a better choice, in my opinion. Just my 2 cents. Trade cautiously.

Kinsteel - could ease to RN1.37-1.45. Lion Ind - could ease to RM2.30-2.50.

Also note that, steel prices could be on its final leg of its long term uptrend. Be forewarned that steel prices, as a matter of fact, all metal prices could peak sometime in 08/early09.

KLCI short term Wave count

I believe that the KLCI is currently its Final Wave 5 rally towards the end of the year. The current count is that the index is in its Wave i of its final Wave 5. Where is the index within this Wave i? Here is a chart to show where the KLCI is right now and how I see it going in the coming week. We could see a rally back up to about 1,314-1,320 for Wave v in Wave 3. This count would be incorrect if the KLCI falls back to below 1,256 levels - the high of wave 3, i. (Source for the chart above: Bloomberg)

Losers with a capital L

Here are some of the biggest trading losses ever reported in the media.

1. Nick Leeson and the downfall of Barings Bank. Leeson lost an estimated $1.4bn.
2. John Rusnak and the Yen. Rusnak lost an estimated $691m.
3. Yasuo Hamanaka aka Mr Copper. Hamanaka was a trader at Sumitomo Corp, losing S$2.6bn in copper trades
4. Jerome Kerviel and Societe Generale. He lost more than $7bn speculating in European futures.

Just like in the previous note, Losers begets losers, these so called 'superstars' were doing very well before disaster struck. When these traders started losing, they went out to look for ways to magnifying their bets and try to win back the losses. Apparently, luck has deserted them when they needed it the most.

My 2 cents - It was not that luck has deserted them. It was that they took on too much risk. To seek expectional returns one has to take on equally exceptional risks. There is no magic trick. Investors ought to play great defense and not great offense, i.e. one should manage risks and the returns will take care of themselves.