EMERGING markets are definitely out of favour at the moment — both their currencies and equities are being hammered as capital flight intensified. The relevant bellwether indices in regional markets closed sharply lower last week. 

There is little evidence of an imminent reversal in prevailing sentiment and momentum suggests more losses in the near future. 

Volatility in Chinese stocks resumed after a brief period of relative calm. The draconian market supportive measures undertaken by the government have failed to restore investor confidence. In fact, these measures have arguably, had the opposite effect, creating a sort of market overhang. Its decision to weaken the yuan continued to reverberate across markets, even though the central bank has denied the move is the start of a longer-term devaluation policy. 

Slowing global trade — most emerging market economies are built on exports — and the collapse in commodity prices as well as imminent rise in US interest rates will underscore tough outlook for developing countries.  

Back home, shares on the local bourse remained under pressure as investors grapple with both domestic and external issues. The FBM KLCI closed lower for the third straight week, at 1,574.7. It is now hovering near the lows since mid-2012. 

And yet, the numbers hardly suggest time for bargain hunting. Valuation remains high at nearly 16 times forward earnings, which ironically is actually slightly higher than where we were at the start of 2015 — despite the 10.6% year-to-date decline in the benchmark index. 

This is because the pace of corporate earnings decline has, so far, been steeper than consensus expectations — and could get worse.

The ringgit is still sliding, now hovering near the 4.20 level against the US dollar. Oil prices have fared no better. The global benchmark, Brent crude futures, are back at levels not seen since early-2009 — the rally in 2Q15 all but fizzled out. Prognosis for the foreseeable future remains poor.

Total value for my value investing portfolio was down a marginal 0.1% last week, faring better than the FBM KLCI’s 1.4% decline. This is due, in part, to my relatively high cash holdings, which stands at roughly 59% of total portfolio value.

My portfolio continues to outperform the benchmark index, by 21.8% since inception. In absolute terms, I am up 7.8% while the benchmark index is down by 13.9% over this period. I kept the portfolio unchanged.

The majority of 2Q15 earnings results, to date, indicate a trend of falling sales on the back of weaker domestic demand and selling prices. Positively, profits are falling by a lesser degree for companies with high raw material cost component, thanks to lower commodity prices. Exporters are, by and large, faring better, although there is evidence of increasing competition in the global market.

SCGM, where export accounts for about half of sales, reported 8.7% topline growth in the latest quarter ended July. Pre-tax profit grew an outsized 29%, thanks to higher sales as well as lower raw material costs. The company is a leading manufacturer of thermo-vacuum formed plastic packaging, mainly disposable plastic trays and containers. Its shares will trade ex-entitlement for 4 sen per share dividends on August 26 and a 1-for-2 bonus issue on September 1.

Meanwhile, Willowglen’s 1H15 net profit was down 5.6% y-y to RM7.5 million despite 21.8% increase in turnover as a result of pricing competition and higher R&D expenses. Nevertheless, I am still sanguine on the company’s longer-term prospects. It is sitting on net cash of RM47 million, which is more than a quarter of its current market capitalisation.

This article first appeared in digitaledgeWeekly, on August 24 - 30, 2015.