The Bear Strikes The Market

2018 is now drawing to a close but the usual year end rally is not in sight this time. The FBM KLCI is down 7% this year but if you measure from its peak in April, it’s down almost 13%. A drop of 10% is technically considered a correction.

If you look at the darlings of 2017, such as electronics related stocks, the decline is much more pronounced. The same can also be said for construction and property stocks.

Inari is down 40% from its peak.
Globetronics is down 52%.
KESM is down 65%.
Gamuda down 58%.
MMC down 63%.
Ekovest down 63%.

Some of these stocks used to trade at very high P/Es buoyed by expectations of high growth. But now they are down to more palatable levels. I think their prices are now at fair levels although it is possible that they continue to fall further in the near term. This is because institutional investors like EPF and KWAP continue to sell while the companies and their directors desperately buy back to support the prices. Unlike the institutional investors, company buy backs have their limits while directors are paying out of their own pockets.

In investing it’s important to take a long multi-year view. In the long run, consumption of electronics goods will continue to rise globally. Vehicles will become more intelligent and the same goes for common household appliances. Malaysia as a developing country will continue to require infrastructure investment and homes to be built. The demography of the population supports the growth for at least a few more decades to come.

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