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 declined in line with other markets in the world

• The Kuala Lumpur Composite Index (KLCI) today declined by 1.1% to settle at 1,557 points.
• All markets were down with the exception of Philippines, as the Federal Reserve (FED) forecasts a gloomy economic outlook until 2022.

• The Singapore market was heavily affected by FED’s outlook and declined by 3.4% as the Singaporean economy is heavily reliant on the global economy for its growth. In the Southeast Asia region, exports of goods and services contribute the most to GDP for the small island economy. 

Source: World Bank

Market Outlook: Federal Reserve issues dire economic warning that could last till 2022 and Malaysia records bad performance in both Manufacturing and Services sectors in April 2020.

• The FED warns that the Covid-19 impact could last for 2 years until 2022, with bearish GDP and unemployment forecast for the US economy.
  The FED projects that growth is expected to decline in 2020, before recovering in 2021 and 2022. The unemployment rate is not expected to recover to its pre-Covid levels even after 3 years. Both projections will be the worst since the Great Depression, and should be taken seriously.

Source: St Louis FED

Source: BLS

• Malaysia registered dismal performances in both the Manufacturing Industrial Production Index (IPI) and Services Wholesale Retail and Trade data in April 2020.
  The steep decline in the Manufacturing sector was driven mainly by the industries of (1) Textile, Apparels, (2) Transport Equipment & Other Manufactures, (3) Mineral and Metal Products, and (4) Wood, Furniture, Paper Products & Printing. Meanwhile in the Services sector, the decline was driven mainly by (1) Motor Vehicles and (2) Retail. I think there needs to be a deep rethink on the valuation of the KLCI in light of these economic data. I personally think the market rally in May 2020 was on fragile footing.

Source: DOSM

Source: DOSM

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

• To date, portfolio returns moderated to 14.8% return (10 Jun 2020: 17.0%), outperforming the KLCI index at 13.7%.
• This indicates an alpha of +1.1% for today (10 Jun 2020: +2.0%). (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).

• From a sectoral viewpoint, Automotive sector continues to outperform the other sectors in the portfolio.
  The sector continues to rise with news on the sales tax on cars, but I am cautioning that in order for companies to sell cars, you need people to buy cars. So far, I have not seen the resurgence in demand for cars as I think most households are struggling with lower income from the recession.

• To date, Lotte Chemical Titan (+59.3%), Cahya Mata Sarawak (+35.0%) and Bermaz Auto (+39.7%) are the 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.