Random Charts : Inflation & Markets

Malaysia central bank sees inflation exceeding 8-year high

The recent spike in Malaysia’s inflation rate  to above the 4.5 per cent rate, is possibly attributable to increased crude prices as well as prevailing weakness in Ringgit. The following charts show the correlation:

Inflation vs Brent

Inflation vs USDMYR.png

Rising inflation will lead to rising yield in the debt markets:

Inflation vs MGS

What does this mean for equity market? Before 2013, debt yield has negative relationship with performance of stock market (i.e in a declining debt yield environment, the stock market tends to do better). Post-2013 onwards, we are seeing a rather mixed relationship between the two markets. Nevertheless, in general, a rising debt yield would tend to mean people would expect a higher return for equity market and as such, this would translate to lower prices for the equity market.

MGS vs KCI

Would inflation continue to rise?

Based on forecast model by TradingEconomics, inflation may have potential mean reversion and may adjust to a lower range of 3.2% – 3.6% by Q3-Q4 of year 2017:

Forecast Inflation.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Practising Risk Management

When comes to stock trading, there is nothing more imperative than adopting solid risk management procedures. Most people tend to forget Buffett’s two rules: Rule 1 – Do not lose money. Rule 2 – Do not forget Rule 1. Continue reading “Practising Risk Management”

FBMKLCI vs Brent Crude (Updated)

News Update: 

Oil prices fell to almost four-month lows on Wednesday after data showed U.S. crude inventories rising faster than expected, piling pressure on OPEC to extend output cuts beyond June.

The American Petroleum Institute said late Tuesday that U.S. inventories climbed by 4.5 million barrels to 533.6 million last week, outpacing analyst forecasts of 2.8 million.

Investors now want to see whether Wednesday’s figures from the U.S. Energy Information Administration confirm the rise. EIA will release its report at 10:30 a.m. EDT (9:30 a.m. ET).

“With U.S. crude stocks continuing to mount into record territory both in total and at Cushing following almost two months of OPEC production restraint, we feel that the odds of a gradual unraveling in the OPEC agreement have been increased significantly,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

Global benchmark Brent futures for May delivery were down 59 cents, or 1.1 per cent, at $50.37 a barrel by 9:48 a.m. ET. Earlier the contract fell as low as $50.05, its lowest since Nov. 30 when OPEC countries agreed to cut output.

On its first day as the front-month, U.S. West Texas Intermediate (WTI) crude futures for May were down 53 cents, or 1.1 per cent, at $47.71 per barrel.

“A look below $50 (for Brent) is quite possible today if (EIA) data show a similar pattern, but it’s impossible to say how far below $50,” Commerzbank analyst Carsten Fritsch said.

A deal between the Organization of the Petroleum Exporting Countries and some non-OPEC producers to reduce output by 1.8 million barrels per day (bpd) in the first half of 2017 has had little impact on bulging global stockpiles of oil.

OPEC, which sources say is increasingly leaning toward extending cuts, has broadly delivered on pledged reductions so far, but non-OPEC states have yet to cut fully in line with commitments.

“OPEC has used up most of its arsenal of verbal weapons to support the market. One hundred per cent compliance by all is the only tool they have left and on that account they are struggling,” said Ole Hansen, head of commodity strategy at Saxo Bank.

U.S. shale oil producers have been adding rigs, pushing up the country’s weekly oil production to about 9.1 million bpd for the week ended March 10, up from an average of 8.9 million bpd for calendar 2016, according to U.S. energy data.

“OPEC’s market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience,” U.S. bank Jefferies said in a note.

But the bank said the market was undersupplied and, if OPEC extended cuts into the second half, inventories would draw down and prices recover above $60 in the fourth quarter.

However, it said U.S. crude production was expected to grow by 360,000 bpd in 2017 and 1 million bpd in 2018, and a price recovery could spur more U.S. shale activity.

Source – read more

Clearly, we are not seeing an optimistic view for the brent crude oil. Further, downside risk for brent still prevails. How does this impact on Malaysia’s FBMKLCI stock index?

Generally, there is a positive correlation between FBMKLCI and Brent. Nevertheless, lately, we are seeing a “divergence” whereby FBMKLCI has been rising whilst brent has been declining.

B v K.png

Given the bearish prevailing sentiment for brent, is Malaysia’s FBMKLCI’s overstretched?

0200I.MY.jpeg

The following table shows the updated regression analysis between FBMKLCI and brent (since June 2014), whereby there is significant statistical relationship between FBMKLCI / brent:

Relationship_March 2017.png

Currently, the actual FBMKLCI exceeds its forecast value of 1,697 points but nevertheless it is within the 95%-confidence interval of between 1,601 – 1,792.

FKLCIvsBrent_Graph.png

Based on the regression relationships, the following table shows the possible forecast range of FBMKLCI based on the movements in brent crude (USD) (USD25 – USD62.50):

Forecast Range.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

The Condom Company

Listed Malaysian company, Karex Berhad is engaged in investment holding. The Company’s principal business activities include investment holding, manufacture and sale of condoms, latex probe covers, sterile catheters and other rubber products. The Company’s segments include condoms, catheters, and probe covers, lubricating jelly and others. The Company’s products include condoms, lubrication jelly, probe cover and foley balloon catheter. The lubrication jelly is greaseless, non-toxic and water soluble, and is suitable for gynecological use or when additional vaginal lubrication is needed. The probe cover product is specially designed for flexibility and safety during intracavity examinations with ultrasound. The foley balloon catheter product is specially designed for transurethral drainage of the urinary bladder, commonly used on patients anesthetized or sedated for surgery or other medical care. The Company operates in Malaysia, Thailand and the United States. At market close on 13 March 2017, Karex’s share price has fallen to a year low of RM1.98. Karex’s share price has been on a declining trend ever since the announcement of its latest quarterly result on 24 February 2017, in which there was a decline in q-o-q earnings. Continue reading “The Condom Company”

We Are Still In A Range

An uptrend should have a higher High, higher Low. A downtrend should have a lower High, lower Low. We are in range if we are seeing neither of these patterns.

News Update

KUALA LUMPUR: Bursa Malaysia ended at an intra-day high today on persistent buying interest in selected heavyweights, particularly in consumer-and finance-related stocks, dealers said.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) ended 18.98 points or 1.11% higher at 1,727.36 from 1,708.38 last Friday.

The index opened 1.79 points easier at 1,706.59 and moved between 1,706.21 and 1,727.36 throughout the day.

On the broader market, gainers led decliners 567 to 358, 364 counters were unchanged, 406 untraded and 14 others were suspended.

Volume trimmed to 3.01 billion units, worth RM2.63 billion, against last Friday’s 3.41 billion units worth RM2.63 billion.

Among consumer-related stocks, BAT was the top gainer. It rose RM1.30 to RM49.50 followed by Dutch Lady which increased 26 sen to RM55.66.

Finance stocks, Hong Leong Financial Group rose 36 sen to RM15.66, HCK Capital Group improved 25 sen to RM3.60 and CIMB Group added 24 sen to RM5.46.

FXTM Chief Market Strategist Hussein Sayed said last week was the repricing of interest rates expectations, in which investors across different asset classes were no longer waiting for clarification from the US administration to base their decisions, at least in the short-run.

“The significant rally in US equities and the US dollar last week occurred without any new fresh fiscal signals.

“Infact, President Trump’s speech on Tuesday left many questions unanswered, and still investors reacted as if tax cuts and stimulus plans will be implemented regardless,” he added.

The FBM Emas Index rose 114.57 points to 12,172.16, FBMT100 Index surged 113.49 points to 11,849.8 and the FBM Emas Shariah Index was up 64.36 points at 12,563.13.

The FBM 70 added 71.89 points to 14,100.12 while the FBM Ace was 19.72 points higher at 5,280.8.

Sector-wise, the Industrial Index rose 26.22 points to 3,262.67, Plantation Index gained 13.95 points to 8,108.46 and the Finance Index surged 199.01 points to 15,487.57.

The Malaysian Rubber market ended mostly higher today, taking the queue from the rubber futuresd market on the Tokyo Commodity Exchange (TOCOM) which was prompted by higher crude oil prices.

However, gains were capped by the ringgit’s appreciation against the US dollar which stood at 4.4460 versus the greenback as at 5pm.

Among heavyweights, Maybank was up nine sen at RM8.82, Public Bank, TNB and IHH Healthcare rose six sen each to RM19.94, RM13.68 and RM5.95, respectively, and Sime Darby improved four sen to RM9.14.

Of actives, Dagang Nexchange rose two sen to 41 sen, Borneo Oil was up by half-a-sen to 17.5 sen, Berjaya edged up 1.5 sen to 39.5 sen while Nexgram was flat at 4.5 sen.

Main Market turnover fell to 2.18 billion units, worth RM2.49 billion, versus last Friday’s 2.34 billion units worth RM2.45 billion.

Volume on the ACE Market trimmed to 592.93 million shares, valued at RM105.15 million, from 794.75 million shares, worth RM143.94 million.

Warrants slid to 217.38 million units, worth RM26.92 million, from 259.62 million units, valued at RM36.27 million.

Consumer products accounted for 119.75 million shares traded on the Main Market, industrial products (332.42 million), construction (186.91 million), trade and services (1.02 billion), technology (107.89 million), infrastructure (12.24 million), SPAC (10.8 million), finance (103.39 million), hotels (499,200), properties (235.89 million), plantations (34.71 million), mining (nil), REITs (19.86 million) and closed/fund (34,900).

The physical price of gold as at 5pm stood at RM170.58 per gramme, up 64 sen from RM169.94 at 5pm last Friday. — Bernama

The sentiment appears “bullish” but are we in an uptrend ?

If the graph below is of significance, then it is quite clear that we are still very much in a range. We have yet to see a clear breakout from the range which started since September 2015. The range is evidenced as follows:

  • No clear higher High, higher High or lower High, lower Low
  • A clear trading price channel of between 1,610 and 1,727
  • No significant increase in trading volume throughout the price channel
  • Average true range has dropped significantly since Sep 2015 (signaling reduction in volatility)
  • Modified MACD signaling high frequency of buy and sell signals

March 2017.jpeg

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.