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.

Hot Money (Part 2)

Hot Money & South East Asian Stock Markets

Briefly touched on real interest rate and hot money in an earlier post: https://kenutau.wordpress.com/2016/02/12/real-interest-rate-hot-money/

BREXIT has certainly thrown a spanner into US Fed’s gradual plans in raising the fed funds rate. In fact, there may even be a rate cut in view of the prevailing uncertainties associated with BREXIT (http://fortune.com/2016/06/27/fed-interest-rate-brexit/).

Hot money from global quantitative easing programme has since created significant upward pressure on the asset prices of emerging markets (especially with South East Asian stock markets). Assuming a surprise rate hike or hike in market volatility this year, the South East Asian stock markets will potentially see a significant downward reversal due to flow of funds back to US assets.

Hot Money_10 Year_Jul16.jpeg

The magnitude of historical increase in the indices of respective stock markets will determine the extent of potential future reversal of these indices. From the above graph, it appears that the Jakarta Composite Index (“JCI”) has recorded the best relative performance since 2006 with more than 270% increase in its index, outperforming the rest of the selected South East Asian stock markets and S&P 500. Both Thailand’s SET and Malaysia’s KLCI have recorded relative performance of 110% and 78% respectively whilst S&P 500 only increased approximately 65%. Meanwhile, Singapore’s STI recorded a marginal increase of 17% since 2006.

Since 2011, the S&P500 has outperformed the selected South East Asian stock markets. Both SET and JCI have performed at 32% and 26% respectively whilst Singapore underperformed at negative 9%.

Hot Money_5 Year_Jul16.jpeg

In the past two years, both Malaysia and Singapore have underperformed at more than negative 10% whilst JCI is the only selected South East Asian stock market that has a positive relative performance.

Hot Money_2 Year_Jul16.jpeg

In one year timeframe, all selected South East Asian markets have corrected, i.e recording negative returns.

Hot Money_1 Year_Jul16

Final Words

This is a simple analysis without a detailed account of each country’s macroeconomic fundamentals. Nevertheless, it does present an angle to identify potential reversals in selected stock markets. JCI appears to be potentially most vulnerable whilst Singapore may appear to be resilient towards future correction.

DISCLAIMER: 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. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.