INVESTORS on the local bourse stayed, mostly, on the sidelines last week amid increased market volatility and uncertainties. Coupled with the traditionally slower activities in the last month of the year — many are off for the holidays — chances are sentiment will stay subdued for the remainder of 2014.

The FBM KLCI started the week on a weaker note, attempted a rebound midweek but ultimately could not hold on to the gains. The benchmark index closed 16 points lower for the week at 1,733. Trading volume dropped to 1.3 billion shares daily, on average, down from nearly two billion in the immediate preceding week.

Some of the other bellwether indices also had a bumpy ride last week. The Shanghai Composite Index registered its steepest loss in five years last Tuesday before recovering some lost ground while the closely-watched Dow Jones Industrial Average skidded to its largest decline in two months last Wednesday.

Global markets continued to be roiled by the freefall in crude oil prices. Brent crude hit a fresh 5½-year low last week, and is now hovering just above US$63 per barrel after Opec cut its demand forecast for oil next year. The US Energy Information Administration (EIA) had earlier trimmed demand expectations on the back of sluggish global economic growth.

While US economic data continues to show positive traction, the rest of the world is not faring too well. Japan’s revised 3Q2014, released last week, showed a larger contraction compared with initial projections while China’s trade numbers and industrial production data for the month of November were also weaker than expected. The world’s second largest economy may miss official growth target this year and may well lower targets for next year.

Market observers, by and large, are bearish on the outlook for oil in the near to medium term with prices still searching for a bottom. Oil majors are also starting to announce cutbacks to capital spending.

On the home front, the ringgit treaded water after breaking below the 3.50 to the US dollar threshold at the start of the week. It would, however, appear that momentum is still biased towards the downside, weighed down by prevailing weakness in commodity prices.

The government has, so far, yet to articulate any definitive policy options in response to falling oil revenue and ringgit.

A turnaround may be some way off, pending greater clarity on the impact on our economic growth, current account and fiscal deficit. In fact, current expectations may have to be pared back in the new year.

In the meantime, expectations for further ringgit weakness continue to drive capital outflows, from both the bond and equity markets. Yields on the benchmark 10-year MGS have risen above 4.1% currently, from 3.85% just two weeks back.

Stocks in my portfolio drifted lower last week under the bearish sentiment. The total value of my portfolio fell by 2.8%. This dragged cumulative loss to 3.7% since inception. Nevertheless, my portfolio is still outperforming the benchmark index, which has fallen by an even greater 5.3% over the same period.

In view of the poor market conditions and likelihood for more downside, I decided to take some money off the table.

I sold my entire holdings in Fitters Diversified, realising a loss of RM1,550. As previously mentioned, whilst the company’s diversification strategy has served it well over the past few years, it also raises a point for concern for me.

The fire services division, on which it has built its reputation, is no longer the key earnings generator. That would be the property arm but Fitters is, at best, a niche developer. It is venturing into two new industries — PVC pipes and renewable energy — where its competitive advantage and success is still to be proven.

Rising tide lifts all boats. But when the operating environment becomes increasingly challenging, only those with the strongest business models will continue to succeed. Following the disposal, my portfolio is now 67% invested.   

This article first appeared in The Edge Malaysia Weekly, on December 15 - 21, 2014.

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