My Investment Record (10) - 30th June 2014

Market Overview

The general theory is that stock market (KLCI) performance are determined by three major factors, 

A. The dividend paid out rate, which in the past average about 3% for KLCI stocks

B. The earning growth potential, general believe to be nominal rate of GDP growth (ie, real rate of GDP growth plus inflation)

C. Changed in evaluation level (PE ratio), or in other words, change in the rate of return (r) required by investor. 

The current consensus is that Malaysia's GDP will grow at 5%-5.5% per year (here)

The inflation in Malaysia for the first five month currently stood at 3.4% (here)

This mean, if all things go smoothly , we should see KLCI breaking 2,000 at the end of year. 

A few major things that will affect growth in the short term include

i. slowing down in domestic property & construction sector, due to cooling measures introduced by BNM and government

ii. Tightening of credit or more specifically, raising of interest rate by BNM

iii. How the importers for Malaysia goods like China, US and Europe are performing. For China, a slowing down in property and construction sector may lead to a credit event in their shadow banking system, causing doubt on growth this year. For Europe, deflation and stagnant economy still a big concern. For US, how fast Fed tapering their QE program will be the key. 

iv. Subsidy rationalization & GST which will cause inflation and might dampened consumer spending. 

For the change in evaluation level, in general

During crisis, investors will look for safe haven (like bonds), hence PE ratio tends to be lower

When economy is booming, investors tend to be optimistic about the future, hence PE ratio tends to be higher. 

One way to see if market is currently overheated is to compare the ratio of stock market capitalization vs national GDP. 

Currently my measures showing the ratio is slighly above 15-year historical average, however it still haven't reach level in 2000 or 2007. Hence, the safe conclusion is that, the market is currently overheated a bit, but a crash is not imminent yet. 

Current Return and performance

The holding period return for KLCI in the past period (1st June 2014 - 30th June 2014) is 0.76% (with dividend included). Holding Period return for my portfolio, is 4.18%. Total holding period return for my portfolio since the inception is 21.00%, annualized to be 10.96%, this is just slightly below  KLCI return of 21.77% (annualized, 11.34%). 

The reason for the over-performance was simply , lucky. 

As the stock that i heavily own - MNRB  (6459), had a better than expected last quarter earning, which sent its price jumped by about 20% in a single month.  I do not expect such out-performance will continue in near future, as most of the stocks i own is currently fairly valued now. 

Trading Activities

i. Addition of MFCB (3069). 

ii. Addition of Public Bank (1295). The price of Public Bank took a dive this month, as EPF is selling most of the new shares they acquired through the recent rights offering by Public Bank. This present a rare opportunity for me to add this one of the best performing stock for KLCI for the past. 

iii. Addition of Symphony Life (1538). I don't particularly fond of property stocks as their earning tend to be volatile in nature. However, if i believe a particular stock is underpriced i wont mind to made a bet.