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.

The American Effect

…Yale’s Robert Shiller (founder of the Case-Shiller Index on U.S. housing prices), who said yesterday that “the U.S. stock market looks a lot like at did at the peak before all 13 previous price collapses,” investors may look at this as another brick in a new wall of worry. (Shiller defines a bear market as a 20% drop in prices, but does not issue a firm timeline for this drop.) ...” read more

How would a bear market in the US affect the FBMKLCI?

Since 2010 (post-GFC), Malaysia’s FBMKLCI has trended in tandem with the positive movements in the SP500 index. Nevertheless, the SP500 index has outpaced the FBMKLCI since 2015, as shown in the comparison charts of 60-day moving median of FBMKLCI and SP500:

KLCI vs SP (median).png

A simple regression analysis is computed between the moving medians of FBMKLCI and SP500, of which an r-squared of 0.54 has been derived:

Regression Results.png

Based on the statistical relationship against the SP500, the FBMKLCI is currently at level below that of the forecast value (based on median) of 1,851 but it is within the 95% upper & lower confidence bands (since Apr 2010 till date):

Forecast Median KLCI_Sep 17.png

The following simple high-level analysis shows the potential & possible impact on FBMKLCI if there is a 5% – 30% drop in the SP500. In this case, the lower band may be potential support zones (assuming the regression relationship holds).

Scenario.png

 

On why I use moving medians for the analysis, it is just one of the possible avenues to part filter the market noises.

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.

It Is All About The Edge

Little Rocketman has certainly created much anxiety in the financial markets. Further, the planned reversal of QE is envisaged to have greater impacts on emerging markets. Foreign funds have continued (?) to sell their positions on the Malaysia’s stock exchange. The FBMKLCI has suffered a 6-day consecutive decline. Are we in an oversold position?

IntroKLCI.png

If Rocketman decides to launch a missile, there could be more downside risks. Assuming that I would like to take a punt by taking a long position (i.e the KLCI is currently oversold), I may want to consider the following structured warrant:

Warrant Terms.png

Finding My Edge For A Long Position

To re-iterate again and again, I do not have the crystal ball to foresee what is going to happen in the next few days. More importantly, one should understand the trading edge before executing a position. So, what is the edge for this bet?

1.  Support, Support, Support

If you see the following hourly chart, there could be some possible zonal support around 1,761 ( a clear rebound). The next point of defense will be at 1,756.

FBMKLCI.png

2.  Implied Volatility < Actual Volatility

At current warrant price of RM0.05, the implied volatility of the underlying could be in the low range of 3% – 4%. Relatively lower than the actual volatility.

Implied Vol.png

Actual volatility has spiked up to 9.40% , as of today:

KLCI_VOLS.png

3. Seasonality may matter

With FBMKLCI-C3F, I have more than 180 days prior to the expiry of the warrant in March 2018. Based on the following seasonality table:

  • Possible profit taking opportunity in the months of October, December and March which appear to be historically positive (m-o-m basis)
  • Be cautious (with a possibility of taking stop-loss) in historically weak months of November and January

October Seasonality.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.

Random Blathers (14 Sep 2017)

Kumpulan FIMA: Possible failure test. Share price has not touched $1.68 since Q4 2011 (may appear to be a strong resistance point). Management’s assessment of prospects – appears to be challenging for the rest of the financial year. Nevertheless, the Company is currently in a net cash position.

Based on the following simulation parameters:

  • Target price ($1.90), Stop loss ($1.60), Entry price ($1.71)
  • Risk-to-reward ratio = 1.73x
  • Return (%) =  11.1%

FIMA_14092017_1.png

FIMA_14092017_2.png

Company Prospects

FIMA_14092017_4.png

Relatively healthy balance sheet

FIMA_14092017_3.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.

Is KLCI Running Ahead Of The Ringgit?

One possible global macro tenet that relates to currency, equity and capital flows is that when the performance of equity markets continue to rise, it will attract foreign money flow and capital flows in turn strengthen the currency. Another possible permutation is that future expectation of a depreciating currency will contribute to capital outflow from the capital markets, which in turn will lead to an overall decline in the equity market.

The following graph shows the positive relationship between USDMYR and KLCI from 1 Jan 2015 till present:

KLCI vs USD.png

As shown above, when Ringgit depreciates, the KLCI will fall and vice versa. The following graph depicts a clearer positive relationship between KLCI and Ringgit from a return perspective (since 1 Jan 2015). Nevertheless, are we seeing a possible divergence in the relationship between KLCI and Ringgit, whereby the KLCI has risen way ahead of the movement in Ringgit?

Return Comparison_Updated.png

Given the recent low level volatility in the Ringgit, the KLCI appears to have run ahead of the Ringgit. As per the regression analysis, the actual index value of KLCI of 1,772 is relatively higher than the predicted value of 1,692 (as per regression analysis). It is imperative to highlight that the relationship between KLCI and Ringgit is relatively low at R-squared of ~0.24 (which may be attributable to the divergence).

Regression &amp; Forecast

KLCI forecast

 

Forex News: KUALA LUMPUR (Jan 17): Bank Negara Malaysia’s (BNM) measures taken are bearing fruit in terms of stabilising the foreign exchange market so far. The exchange rate volatility has declined with average ringgit intraday movement narrowing to around 61 points from an average of 82 points in December last year, according to the central  bank.

MYR_VOL.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.