Friday 29 Mar 2024
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ASIAN stock markets extended their two-month-old rally, kicking off the month of May on a distinctly stronger footing. Sentiment for equities globally remains positive.

After a short one-week breather, the local stock market also resumed its uptrend. There was broad-based investor participation with trading volume hitting its highest levels of the year. The rally is also drawing in retail investors, as evidenced by high trading volume and interest in lower-liner stocks.

For the week, the KLCI rose 36 points or 3.6% to end at 1,026.8, reclaiming the psychologically important 1,000-point mark again. For the past eight weeks, the KLCI has gained a total of 183.4 points. Trading volume rose substantially, averaging a hefty 2.56 billion shares per day, with a record 3.3 billion shares traded on Thursday.

The two-month-long rally showed little sign of abating, fuelled by increasing optimism over the likelihood of a recovery in the US and global economies soon. Investor confidence has been bolstered by a series of better-than-expected economic data. In China, the latest April manufacturing figure also showed an expansion for the first time in nine months.

US economic data continue to be better than expected, suggesting a moderation in the pace of the economy's decline. The latest upbeat numbers on US construction spending, pending sales of existing homes and new unemployment claims served to further fuel hopes that the worst of the recession is behind us. All eyes will be on the April jobs report on Friday, which will provide a better picture of the labour market.

The widely expected US bank stress test results showed that while the US banking sector was secure, credit losses over the next two years could total US$600 billion (RM2.11 trillion), and 10 banks were ordered to raise US$75 billion in private capital over the next seven months.

Domestic investor sentiment has also been boosted by the recent equity liberalisation moves as well as high commodity prices. Crude palm oil prices traded at around RM2,700 per tonne, nearly double the lows of late last year. Expectations of a global economic recovery also drove crude oil prices to around US$57 per barrel, the highest level since mid-November 2008.

Even occasional scares like the swine flu outbreak (which appears relatively well contained so far), the results of the US bank stress tests or automaker Chrysler's bankruptcy has so far failed to dampen sentiment very significantly.

While investor optimism is currently high, investors should also bear in mind that global financial markets have rallied very strongly. The two-month rally on Wall Street has pushed the S&P 500 index by 36%. Thus, intermittent profit-taking activities are also to be expected from time to time — even if most opine that the worst for the global economy is behind us.

Portfolio review
Our model portfolio enjoyed a spectacular performance last week, one of its strongest yet.

Our basket of 18 stocks surged by a hefty 8.1% last week, much better than the KLCI's 3.6% increase. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by 5.4% to RM463,187.

The portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.

Our total profits are very substantial at RM303,187, of which RM206,221 has already been realised earlier. This represents a hefty return of 189.5% compared with our capital of RM160,000. We continue to outperform the KLCI significantly, which is up by 58.7% in the same period.

Last week, 16 of our stocks rose, one fell (DiGi, down 2.2%) and one was unchanged (Tanjong plc).

The star performer of the week was Pantech Group, whose shares surged 33.9% from 59 sen to 79 sen. Our decision to double our stake in the company the previous Friday paid off very well. We now have 25,000 shares at an average cost of 69 sen per share.

Our other major gainers include Masteel (up 20.5%), Bursa Malaysia (up 17.9%), Notion VTec (up 14%), Muhibbah, Tanjung Offshore warrant-B and EON Capital, all up 11.2%-11.6% each.

Last week, shares of Selangor Properties and HELP traded ex for dividends of 11 sen and three sen, respectively, which we have adjusted accordingly.

We are leaving our portfolio unchanged.

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.

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