Indonesia: Yield & Stock Market

Indonesia – a truly beautiful country.

KT

Indonesia’s stock market is even more beautiful, rising more than 4.7x since 2008:

JCI.png

There are many factors that may create thrust for a particular stock market. One such factor is the level of interest rate in the country. From a common sense point of view, we may be able to generalise the fact that the required equity rate of return is expected to fall in tandem with a falling interest rate environment, thereby this may potentially boost the valuation of equity market. The following chart compares the Jakarta Composite Index (JCI) and 10Y Indonesian Government Bond Yield (since Jan 05 – 19 Oct 2017), of which a negative relationship  appears to exist between the equity index and the bond yield.

Time Series_JCI vs 10Y Indo Gov Bond Yield.png

Regressing The Relationship

Statistical relationship is quite significant between the yield and the equity index:

Regression Relationship.png

Based on the above regression analysis / relationship, at current 10Y bond yield of 6.618%, the predicted forecast JCI value is 4,601 which is relatively lower than current index point of 5,929 but it is nevertheless within the 95% confidence range of between 2,844 –  6,357 points.

Forecast.png

A key question to ponder:

Will the Indonesian central bank continue to lower the rate?

Unless there is recovery in domestic consumption / lending, Indonesian Central Bank may continue to cut rates to boost the economy. However, if  global QE is to end / moderate, we may actually see a rising yield environment due to potential outflow of foreign funds.

Aug 17 – JAKARTA: Indonesia’s central bank on Tuesday cut its benchmark policy rate for the first time since October, unexpectedly pulling the trigger in a bid to boost sluggish lending and growth in South-East Asia’s biggest economy.

In another effort to stoke lending and consumption, Bank Indonesia (BI) also said it would change downpayments on automotive and home loans and review bank liquidity rules.

“The theme of this monetary policy meeting was to lower the benchmark policy rate due to stability and to support economic recovery,” BI governor Agus Martowardojo told reporters. Martowardojo said external risks, including those involving policy of the US Federal Reserve, had been reduced. BI cut the 7-day reverse repurchase rate to 4.50 % and lowered two other main policy rates.

Indonesia becomes the second major Asian economy to cut its policy rate this year after India on Aug 2. In a Reuters poll, 19 out of 20 economists forecast that BI would hold the key rate at 4.75% out of concern changes in other countries’ monetary policies could hurt the rupiah .
Read more at http://www.thestar.com.my/business/business-news/2017/08/22/indonesia-c-bank-surprises-with-rate-cut-in-bid-to-spur-growth/#0T7SHw67ie9IKweZ.99

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Happy Diwali

A day to celebrate. A day to rest. A day to ponder what is really going on with Malaysia’s FBMKLCI which has continued to underperform regional indices:

Regional Indices

There has been rotational play of which funds are flowing (?) from large cap (KLCI-constituents) to mid / small firms as mid-small cap indices are outperforming the large-cap KLCI on a year-to-date basis:

Mid-small.png

Technically, key support of 1,752 has been breached. Next expected support is anticipated at 200D moving average (around 1,740) and thereafter, at 1,727. As per Force Index indicator, it is observed there has been some level of bearish divergence earlier  prior to October.

0200I.MY.png

There are two ‘interesting companies’ may be worthy to watch:

Daiman – it may have appeared to have broken its trading range. Next resistance point is expected at around $2.53 as well as its 200D moving average line.

Daiman 18102017.png

BToto – After months of downtrend, are we seeing the bottom for this stock? Will the stock able to sustain above the key resistance of $2.48?

BToto18102017

Last but not least, what’s in store for Budget 2018 (to be tabled on 27 October 2017)?

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Trading Volume & The Exchange Company

Bursa Malaysia Berhad (MYX1818) is an exchange holding company approved under Section 15 of the Capital Markets and Services Act 2007. It operates a fully integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Significant portion of revenue of an exchange company is determined by the level of trading activity in both security and derivative markets. Other portions of its revenue include listing fees, others.

In the following chart, I will attempt to demonstrate the relationship between trading volume of FBMKLCI and share price of Bursa Malaysia Berhad. It is possible that the trading volume may serve as leading indicator for the share price of Bursa Malaysia Berhad, as the quarterly earnings of this exchange company will depend on the historical trading volume in the past quarter (prior to the announcement of its quarterly earnings announcement). In a nutshell, if trading volume goes up, this company is envisaged to do well in the coming quarter.

Instead of using the raw trading volume data of FBMKLCI, I have done a simple smoothing process whereby we have compared the 30-day moving median of trading volume against its historical median of trading volume since Jan 2010. There are possible pockets of divergence as the revenue composition of Bursa Malaysia does not solely depend on the level of trading activity (e.g listing fees, etc). Further, the trading volume of FBMKLCI represents the trading volume of the 30-largest market cap listed companies on Bursa Malaysia (i.e excluding mid-small caps). Nevertheless, as shown below, the recent divergence between the share price of Bursa Malaysia and trading volume appears to be relatively significant.

bursa malaysia 1.png

Let me try to quantify the extent of divergence by performing a simple regression analysis -share price of Bursa Malaysia Berhad vs 30D-moving median of trading volume of KLCI:

bursa malaysia 2.png

Based on this simple analysis, it appears that the current share price of $9.96 is relatively higher than predicted share price of $9.47 but it is still within the 95%-confidence band of $8.15-$10.79.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Week In Review, Nothing New

For this week, there is nothing new about Malaysia’s FBMKLCI index. Still consolidating, support  isstill holding up at around 1,752.

KLCI

What is more puzzling is that FBMKLCI has lagged behind our regional neighbours in terms of YTD performance:

KLCI_2.jpeg

One may wonder what may have caused the relative divergence in performance.

The recent drop in the Malaysian stock market may be attributable to recent sell-out by foreign investors (see: https://asia.nikkei.com/Markets/Nikkei-Markets/ASIA-MARKETS-Singapore-Stocks-Rise-To-Highest-In-2-Months-Malaysian-Equities-Fall).

Foreigners.png

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Support Is Still Holding Up?

For week ending 8 October 2017, it appears that FBMKLCI manages to hold up at its support level of 1,752 and more importantly, it is still above its 200D MA.

A streak of losses in preceding week / earlier part of the week has resulted in bargain hunting in later part of this week. This had contributed towards positive rebound, as FBMKLCI closed higher than its 8D EMA with a relatively higher trading volume. Stochastic clearly shows an oversold position.

KLCI 07102017

What could possibly happen next?

Scenario 1: Uptrend

Ideally, the following has to happen:

  • The index trades above the other MAs and EMAs;
  • The index is able to break resistance point at 1,793; and
  • All MAs and EMAs are sloping upward

Scenario 2: Downtrend

  • The index trades below support level of 1,752;
  • 50D MA breaks below 200D MA; and
  • All MAs and EMAs are sloping downward.

Scenario 3: Range Bound

  • The index continues to trade in range of between 1,752 and 1,793;
  • All MAs and EMAs will flatten; and
  • Trading volume will be low.

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Hello October

G’day everyone. This shall be my very first posting for the month of October. Many have considered October as ‘month that is filled with bad omens’ since this very month has witnessed numerous historical crashes in stock markets.

Nevertheless, I’m keen to look at one particular long-established company, Hap Seng Plantations Holdings (the Company  is engaged in cultivation of oil palm and processing of fresh fruit bunches carried out in Malaysia).

It appears to be trading in range bound, with its recent marginal uptrend in its 20D EMA. Whether the stock’s momentum will continue, it is dependent on whether it can break the next key resistance point at RM2.73

Hapl_TA.png

There have been pockets of major activities in its trading volume, which may be potentially attributable to recent accumulation in the shares of the Company by Lembaga Tabung Haji:

HAPL_Insiders.png

As shown below, Hap Seng Plantations tends to be ‘less reactive’ to the movements of the CPO. As such, we would expect a generally muted correlation between the Company and CPO.

Hapl vs CPO (multiple graph.png

Strictly For Educational / Illustrative Purposes Only

Based on a simple regression analysis (with R-square at 0.38) between the share price of Hap Seng Plantations and CPO, the current share price (RM2.67) of Hap Seng Plantations appears to be fairly valued if compared to its forecasted value of RM2.61 (with a 95%-confidence band of RM2.14 – RM3.07)

HapL_Oct17.png

We also run a regression analysis between P/E ratio of Hap Seng Plantations and CPO. Although the statistical relationship appears weak, the current P/E of Hap Seng Plantations of 14.17x is not unreasonable if compared to the forecasted P/E of 15.68x (with a 95%-confidence band of 8.3x-23.1x).

HAPL_PER vs forecast.png

As shown in the frequency distribution of the Company’s P/E, the current P/E ratio of the Company appears to be not unreasonable as it is below the mean PE (since 31 Dec 2008).

HAPL_normalitytestPER.png

The above analysis is a simple high-level desktop analysis. One should conduct further research and background study of the Company.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.