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.

Applying The PEG Ratio

The Price-to-Earnings to Growth (PEG) ratio is calculated easily and represents the ratio of the P/E to the expected future earnings growth rate of the company. In theory, a PEG ratio of above 1.0x seems to suggest that the stock is overvalued and vice versa. Let’s apply a modified PEG ratio to 4 countries: Malaysia, Singapore, Thailand and Indonesia.

Continue reading “Applying The PEG Ratio”

Inflation & Stock Market

Malaysia July inflation at 1.1% rises at slowest pace in more than a year

KUALA LUMPUR (NewsRise) – Malaysia’s July retail inflation rate decelerated further, rising at its slowest pace in more than a year, as cheaper transport charges helped offset impact from costlier food, official data showed Wednesday.

The consumer price index — Malaysia’s primary gauge for inflation – rose 1.1% in July from a year earlier, the Department of Statistics said in a statement. That compares to June’s 1.6% year-on-year increase and lagged the median 1.2% rise predicted by economists. On a seasonally adjusted basis, the index rose 0.3% from June.

The latest reading marks the fifth straight month of price decline after annual retail inflation printed a seven-year peak of 4.2% in February.

Read more

Inflation & Stock Market Returns

High inflation can be good, as it can stimulate some job growth. But high inflation can also impact corporate profits through higher input costs. This causes corporations to worry about the future and stop hiring, negatively impacting the standard of living of individuals, especially those on fixed incomes. Because there is no one good answer, individual investors must sift through the confusion to make wise decisions on how to invest in periods of inflation. Different groups of stocks seem to perform better during periods of high inflation.

Most studies conclude that expected inflation can either positively or negatively impact stocks, depending on the ability to hedge and the government’s monetary policy. But unexpected inflation did show more conclusive findings, most notably being a strong positive correlation to stock returns during economic contractions, demonstrating that the timing of the economic cycle is particularly important for investors to gauge the impact on stock returns. This correlation is also thought to stem from the fact that unexpected inflation contains new information about future prices. Similarly, greater volatility of stock movements was correlated with higher inflation rates

Read more

Inflation & FBMKLCI

Based upon historical data of Malaysia’s FBMKLCI and inflation rate:

  • Generally, there appears to be positive correlation between inflation rate and FBMKLCI
  • When there is a divergence (e.g rise in FBMKLCI not matched with a rising inflation rate), FBMKLCI tends to reverse
  • With the latest inflation number (July 16) showing a slowing trend, we may potentially see a downward trajectory for the FBMKLCI

Grpah.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 OR INSTRUMENTS MENTIONED ABOVE.