Markets tumble: Is it time to be fearful or greedy?
KUALA LUMPUR: Screens in dealing rooms continued to be in a sea of red yesterday. Share prices plunged in a domino-style effct, starting on Wall Street, then in Asia, and Europe. The selling wave is nerve-racking, reminding many of the global financial crisis 10 years ago.
On the local front, some RM42.26 billion was wiped off Bursa Malaysia yesterday. Decliners sharply outnumbered gainers by 1,215 to 121, with another 198 counters traded unchanged.
The benchmark index FBM KLCI slipped 40.62 points or 2.2% to 1,812.45 as of closing, recovering from its low of 1,795.85 in morning trade.
In addition to the climb on the US bond yield, the trigger of the selldown was that US wages had increased in the fastest pace since 2009.
Ironically, increase in wages should be a sign of positive, if not rosy, economic prospects, which should still augur well for companies’ earnings. However, investors interpreted it in the negative light, seeing the wage rise would fuel inflation, hence more an aggressive interest rate hike. Some started fleeing the equity markets.
Now, the pertinent question — are the economic fundamentals still intact? If so, should long-term investors buy on dip?
Fund managers, analysts and economists contacted by The Edge Financial Daily do not see any alarming elements of an economic crisis. Most believe that the fundamentals remain sound.
“Unlike in 2008, there was whooping sub-prime loans in the US banking system that had caused the collapse of Lehman Brothers, or in 1997 when most Asian currencies were overvalued and companies were highly geared …. as of now, I don’t see such factors in place that would lead to a severe crisis,” said a regional fund manager.
AmInvestment Bank Bhd research analyst Lim Sae Wai acknowledged that it is difficult to time the bottom of the market but the right strategy is to gradually accumulate as the rebound will come in just as quickly as it has fallen, given the volatility of the market.
“Those which have retraced and are fundamentally good stocks will present a good buying opportunity. It would be wise to gradually accumulate now,” Sae Wai said.
The chief executive officer of Inter-Pacific Asset Management Sdn Bhd (InterPac), Lim Tze Cheng agreed that the sharp correction seen presents a good buying opportunity for investors.
Tze Cheng said the sharp correction seen in the global equity markets was anticipated and welcomed.
“If you look at the US market, it has been rallying for a few years but nothing goes up forever. In fact, although the US market has been getting higher and higher for the last few months, there’s not much volume … the correction we see today is something that we need. It’s a valuation-driven correction and not an economic-driven correction. With the sharp pullback, it’s good,” Tze Cheng said.
He pointed out that unlike an economic-driven correction which could lead to a recession and a bear market, a valuation-driven correction happened because of the steep valuation in the US especially after the strong rally.
Fundamentally, the world economy remains healthy, he noted, adding that the pullback in the market would be a short-lived correction.
UOB Kay Hian Malaysia head of research Vincent Khoo replied via an email exchange that the selldown is a correction to the US market, which led to a spillover effect on the rest of the world.
“I feel that this correction phase is part of a healthy ‘sanity’ check, so the correction would be short-lived, although it also signals that the upside for the year is limited from hereon” Khoo said.
Rakuten Trade Sdn Bhd’s research has issued a note to its customers that despite the current selldown in the Malaysian market, they have remained “positive” on the equity markets as the prevailing weakness is viewed as a healthy correction.
“Though we note that there may be some panic selling, we see the present situation as a good buying opportunity since the fundamentals of our country are still intact, aided by a stronger ringgit, oil price and corporate earnings growth. For now, we advise investors to accumulate on weakness,” it said.
Nonetheless, not all are convinced that it is a good buying opportunity now. Maybank Kim Eng issued a report on Monday, the day when the global equity rout sent Asian and European markets tumbling, saying it is of the view higher bond yields and the risk of inflation pose downside risks to global equity markets in the first half of 2018.
“The consensus view has been a stronger 1H18 (first half of 2018) for markets, followed by a weaker 2H18. We think it may well be the other way around. If we are correct that bond yields are headed higher and we see higher China inflation points, markets will pull back, in our view, said Maybank Kim Eng analysts Willie Chan and Sadiq Currimbhoy in the report.
“Given where valuations are, in bonds, credits and equities, recent market moves and the reaction to payroll suggest this scenario could pan out,” said the report entitled ‘Skewey’ prices and the case for 1H18 Market Downside’.
The report said Maybank Kim Eng recommends a switch from growth to value as the investment theme for the year, that is from China to Asean, predicated on the higher bond yields and higher Chinese inflation in 1H18.
Source: The Edge