Disclaimer: This research should be used purely for informational purposes and is my own personal opinion. I bear no responsibility to whatever investment decisions taken by anyone with regards to this research.

Market Performance: KLCI is up in line with other markets in the Asia region, breaching the 1550 psychological level.

The Kuala Lumpur Composite Index (KLCI) today retreated by 0.4% to end at 1,556 points, still above the 1,500 level. Elsewhere in Asia, most markets were up especially Singapore (+1.7%), Thailand (+1.8%), Hong Kong (+1.8%) and Japan (+0.7%). The US market (+0.0%) took a breather today, unchanged from yesterday, while the Germany market (-0.5%) declined.

Market Outlook: Mix of good and bad news, as the world gets ready to enter the recovery phase.

Firstly, good news. The Malaysian Government today announced the economic recovery plan named “Penjana”, which comprises of 40 initiatives worth around RM35bn. Out of that amount, RM10bn will be direct fiscal injections comprising of wage subsidies, unemployment benefits, direct e-wallet debits and others. There isn’t really anything surprising with this plan, with most of the measures tried and true. There will be a couple of sectors that will benefit most from this.

• Automotive: Expected to benefit from the sales tax exemption for new car purchases, with 100% for local cars and 50% for imported cars. 
• Property: Reintroduction of Home Ownership Campaign with stamp duty exemption from RM300k to RM2.5m, and property tax exemption.
• Tourism: Allocation of RM1bn for tourism-related SMEs.
• Manufacturing: 0% tax on new foreign investments (RM300m to RM500m) into manufacturing sector for 10 years. For investments more than RM500m, 0% tax for 15 years.

In Europe, the European Central Bank has ramped up its stimulus program by injecting an additional €600bn of emergency financial support, increasing the bond-buying program to €1.35 trillion. 

This is where the bad news start to hit. The Eurozone contracted by 3.8% in 1Q 2020, with the Bank forecasting a 8.7% contraction in 2020 as a whole. It has cautioned that this is the deepest recession in living memory, with rapid loss of jobs. In the US, data on continuing jobless claims came out weaker-than-expected at 21.5m compared to the forecast of 20.1m. In Japan, while household spending for Apr 2020 came up stronger-than-expected at -11.1% (Forecast: -15.4%), the leading index data which tracks 12 economic indicators came out much weaker-than-expected at 76.2 (Forecast: 84.7). 

Portfolio Performance: Portfolio returns moderated, but still higher than KLCI returns

To date, the portfolio of companies I am keeping track on has moderated to 15.4% return (4 Jun 2020: 16.7%), outperforming the KLCI index at 13.6%. This indicates an alpha of +1.8% for today (4 Jun 2020: +2.7%). (Note: Alpha is a measure of how much higher or lower the portfolio performs against the market. A positive alpha indicates that the portfolio outperforms the market and vice versa). The recent narrowing of the alpha indicates that the broader market is starting to recover fully.

From a sectoral point of view, the performance of the manufacturing sector (+23.9%) has been overtaken by the Automotive sector (+27.6%), due to the announcement of exemption of sales tax on purchases of vehicles. This is followed by Banking (+16.7%), Construction (+14.7%) and Retail (+13.5%).

The lower returns today were due to daily losses from Lotte Chemical Titan (-7.9%), Aeon (-3.7%), Gamuda (-3.6%) and Cocoaland (-2.1%). To date, Lotte Chemical Titan (+78.8%), Cahya Mata Sarawak (+37.5%) and Bermaz Auto (+27.6%) are my highest returning stocks. You can have a look at the companies I am keeping track on in the Google Excel sheet here or the table below.