Thursday 28 Mar 2024
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UNCERTAINTIES over Greece and US rate hike have global markets on edge last week.

The long drawn out saga in Greece took a turn for the worse over the course of the past two weeks as negotiations became increasingly acrimonious. One of the key creditors, the International Monetary Fund dramatically walked out of bailout talks after failing to make progress. Across the negotiation table, the Greece’s Prime Minister also took a hard stand, railing against both his European peers and the IMF.

Greece’s existing bailout programme will expire by the end of June. With the looming deadline and talks at a deadlock, more and more officials are now openly entertaining the possibility of a Grexit and contingency plans are being made.

This is a sharp departure from sentiment when the crisis first erupted in 2012. Back then any possibility of leaving the single currency was categorically shot down. The change in sentiment is likely due to belief that contagion risk is now significantly lower with improved underlying fundamentals in the rest of the eurozone.

Countries such as Spain and Portugal had undertaken painful austerity programmes to shore up their finances. Additionally, the fallout, outside of Greece, is seen to be limited now that the bulk of its debts are owed to other eurozone countries and the IMF.

Still, few can be certain of the consequences. There is no precedent. So, whilst we are not yet seeing panic in the market, it is understandable for investors to take some money off the table. Asian stock markets closed mostly in the red last week.

 Interestingly, the euro has held up very well all things considered, though this is likely due, in no small part, to weakness in the greenback.

The US Federal Reserve, in its meeting last week, lowered GDP forecast for the world’s largest economy. And whilst a rate hike remains on the card for this year, indications are that the rate of increases is going to be slow through 2016-2017.

This will, to a certain extent, help moderate the pace of capital outflow, especially from emerging markets. Against this backdrop, the ringgit recovered some lost ground, closing at 3.74 to the US dollar Friday, after topping 3.77 in the previous week.

Nevertheless, I suspect the reprieve could be temporary as we are still grappling with myriad domestic issues, many of which I have previously articulated.

Last week, Tenaga Nasional’s share price was, again, buffeted after it was announced that the company will take over 1MDB’s 70% stake in Project 3B. The development is not necessarily bad in itself — that depends on the price tag. But it does raise questions of governance and whether this is a bailout. And if so, is there more to come?

My portfolio bucked the broader market’s downtrend. Total portfolio value was marginally higher compared to the 0.7% decline for the FBM KLCI.

Some of the notable gainers include Elsoft, SCGM and Willowglen.

Last week’s gains lifted total returns for my portfolio to 12.9% since inception. I continue to outperform the benchmark index, which is down by 5.9% over the same period, by some distance.

I kept my portfolio unchanged, for now, but I will not be averse to lock in some profits on any market rebound.

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This article first appeared in The Edge Malaysia Weekly, on June 22 - 28, 2015.

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