WORLD stocks drifted sideways for the better part of last week. Investors are turning more cautious on pushing share prices higher having chalked up strong gains since early March.
On the positive note, there has not been significant selling pressure. Indeed, key bellwether indices are still holding on to most of their gains from the past two and a half months. This suggests that whilst there is a renewed sense of wariness investors are, by and large, still fairly confident that the current uptrend is not about to reverse, not unless economic data take a drastic turn for the worse.
Recent data do appear to support the view that the worst of the global economic recession is in the past. For example, Singapore revised its first-quarter 2009 (1Q09) gross domestic product (GDP) contraction to an annualised 14.6%, less than the originally estimated 19.7%. The earlier estimate was based on preliminary data largely from January and February. Hence, the lower revised figure suggests that conditions improved in March.
On the other hand, the data are not robust enough to suggest a sustainable or strong recovery in the near term, not by a long shot. At best, we are looking at an easing in the pace of deterioration. This may be one of the key reasons why world stock markets are taking a breather. Share prices have run ahead of underlying fundamentals. To rise higher, we do need to see improvement in company earnings in the next quarter or two.
Performance for the Bursa Malaysia was mixed last week. The benchmark KL Composite Index surged higher, gaining 3.1% for the week to 1,045 points. This is the highest level since September 2008.
On the other hand, daily trading volume fell quite sharply. Less than 1.62 billion shares were traded daily, on average, compared to nearly 2.8 billion shares transacted in the immediate preceding week. The drop could mean that investors are gradually returning to the sidelines again waiting for greater clarity on the market's outlook.
The benchmark index's gains were attributed, in part, to renewed interest in plantation stocks. Crude palm oil (CPO) prices have rallied strongly, especially in the past few weeks.
According to the Malaysian Palm Oil Board (MPOB) statistics, prices averaged around RM1,920 per tonne in 1Q09 compared to about RM1,600 per tonne in 4Q08 - and have risen further to about RM2,390 per tonne in the month of April. Prices surged again, rising above RM2,800 per tonne in the first two weeks of May but have since retreated a little.
Some industry observers predict CPO prices could even go beyond RM3,000 per tonne in the short term on the back of tight global supply of edible oils and oilseeds. Malaysia's stockpile of CPO fell to 1.29 million tonnes at end-April, down from as high as 2.27 million tonnes at end-November 2008.
It is likely that markets will continue to consolidate in the coming days. Whether the rally has more legs will depend on the health of upcoming economic data.
Portfolio review
Our model portfolio under-performed the benchmark index last week. Our basket of 18 stocks gained by just about 0.56%, trailing the KLCI's 3.06% surge. Including our large cash reserves (for which no interest is imputed), the total portfolio value gained by a lesser 0.37% to RM455,153.
Nevertheless, our model portfolio's total value and returns still 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 RM295,153, of which RM206,221 have already been realised earlier. This represents a hefty return of 184.5% compared with our capital of RM160,000. We continue to outperform the KLCI significantly, which is up by 61.6% in the same period.
The performances of stocks in our basket were mixed last week. Muhibbah Engineering and Resorts World were our top gainers, advancing by 7.8% and 7.9%, respectively. Bursa Malaysia's share price gained 3.7% to RM7.05.
However, there was also some notable profit taking on selected stocks. Ireka was the biggest loser last week. Its share price fell 11% to 69 sen. Some of the other big losers were Notion Vtec and Tong Herr, which fell 5.6% and 3.1%, respectively.
We have adjusted our investment cost and cash holdings for dividends totalling two sen per share from Tanjong Offshore.
In view of the uncertain market conditions, we are keeping our portfolio unchanged for the week. We will continue to monitor developments in the coming week before deciding on our next course of action.
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.