I don't think Fed is raising rate soon....

The fed are looking at two main indicators, unemployment rate and inflation. 
"In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. " (source)

The maximum employment occur when unemployment rate reach between 5.0%-5.2% (source), 
which had been reached according to latest unemployment statistic from US bureau of labor statistics (here)

However, core inflation remain low at zero level (source), i believe mostly thanks to collapse in crude oil price and appreciation of dollar. As crude oil price is expected to remain low in foreseeable future (see here), and there is unlikely for dollar to depreciate soon, given all major economies around the world (EU, China, Japan) are still trying to pump liquidity to revive their economy growth pace, the core inflation rate will likely remain low in foreseeable future. 

Even if the inflation rate do climb beyond 2%, the Fed will still likely wait until the trend (inflation) become firm before taking further action, as per below statement: 

"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."- source

The implication could be that, the longer the Fed hold off in raising rate, the less attractive it is to hold dollar asset, and the more undervalued emerging market asset could reach.

My Investment Record (17) - 31st January 2015

Market Overview
On the back of higher selling pressure from foreign institute (see following chart from Bursa Saham), KLCI surprisingly climbed back from 1750 lvl to 1780 lvl.

The fall and rebounce of oil price during last month was something interesting and worth study. It just demonstrate a typical case of business cycle, where falling price will deter capital expenditure investment, and thus led to a slow down in production (supply), and ultimately bringing the price back to equilibrium point. Signs already shown in US where the total US rig count is down 25% since October according to baker hughes (source). 

Moving forward, the short term nature of shale oil production cycle will act as a spring keeping the oil price at equilibrium level (which is the price where NPV of new rig for shale oil is positive). This article summarize the mechanism well. For Malaysia, the induced consumption brought on by the lower oil price will be balanced out by the cut in CAPEX of oil & gas industry and lower government budget spending. Hence, despite the current short rebound of oil price, the current low oil price impact to Malaysia economy i guess will still be negative. 

Current Return and performance

The estimated holding period return for KLCI in the past period (1st January 2015 - 31st January 2015) is 1.41% (with dividend included). Holding Period return for my portfolio, is 0.32%. Total holding period return for my portfolio since the inception is 8.61%, annualized to be 3.48%, this is far lagged behind KLCI total return of 17.37% (annualized, 6.85%) and almost equivalent to return from Fixed Deposit according to current market rate. 

There is no trading activities this month. 

Crash! Crash?

Last few trading days were particularly bad for Malaysia stock investors where, instead of enjoying the usual pre-budget rally, KLCI suffer one of its worst fall in the year and down to 6 month low.

There are a few explanation for the fall, in summary
- lack of growth momentum concern in Euro zone and China which expected to affect world's economy performance
- Outflow of capital from emerging market on expectation that US Fed will raise interest soon, thus stronger dollar anticipated.
- People suddenly feel that Bursa's stocks are overpriced? Especially O&G counters and Palm Oil counters?
- Rising inflation which will hindered consumer spending?
- Other factors, like bombing near bukit bintang, or potential outbreak of Ebola in US or Spain.

While some of doomsayers, like Mr. Tan Teng Boo maybe start laughing on " hah, i knew it" mood,  here are a few sign why KLCI shall not crash yet...
- Malaysia economy's growth rate remain healthy at 5%-6% range.
- Lower Crude Oil price actually good for economy growth.

My view is that KLCI had been bouncing around range of 1780 to 1890 for 2014.There are no particular strong reason why the index shall move up and down, current movement looks more like emotional base. As market sentiments are strong, we may see a wider swing to continue.

Hence, at current level of 1808.88 , there are equal chances that the KLCI index can go up, down, or remain flat.

Change of the wind? On BNM Policy Rate Hike

Bank Negara Malaysia recently raised its overnight policy rate (OPR) by 0.25% to 3.25%. 

At the same time, US Federal Reserve had been on track to end Quantitative Easing (QE) program on October (source)

It might be the signal that an era of cheap credit to support quick recovery of the economy following world financial crisis at 2008 will end soon. This also mean that, a period of inflated properties and shares price may end soon, where the growth of properties price and share price will likely return to normal level. 

It could be an pre-emptive measure by BNM to contain the Malaysia's Household Debt which had reached 86.8% of GDP in 2013 (source). Rising OPR will increase cost of borrowing for existing fixed-rate mortgage taker and new mortgage taker. This might prompt a de-leverage exercise for some of the heavily in-debt house owners, thus depressing the property price down for a while. 

Depending on how serious BNM is in raising OPR further, the economy might be slow down for one year or two, before picking up its normal pace again after the adjustment period for the OPR hike effect. 

Which mean, the wiser actions for now seem to be

i. Sell gold

ii. Stay from properties and stock markets unless there is good bargain

iii. Keep cash. 

Why the proposed Real Properties Gain Taxes in Malaysia might not curb the rising of house price?

As titled.

The price of the properties in the market are determined by supply and demand.

Depending on whether the demand is more inelastic (due to real need of people to live) or more elastic (due to speculative money)，the price of the properties can go two different way.

One thing for sure, RPGT will reduce the supply of second hand properties into the market (no one will like to sale when RPGT take away a large chunk of profit), making the properties market more illiquid.

An illiquid market will exaggerated any upward price distortion (unless the price raise enough that the property owners gain the same with/without RPGT).

Market Watch - 4th August 2013

Question 1: Recent Fitch downgrading Malaysia's public debt sent KLCI to its first largest decline since GE13, which prompt a question, is KLCI overheat? 

I say no. We are far from overheat. Although KLCI had risen to all time high of 1800 compared to 1400 reached 6 years ago, just before the world financial crisis erupted, Our national GDP in nominal term also expand 1.5 times during the period, which make the KLCI market capitalization to national GDP ratio still significantly lower than what we are 6 years ago. The quick rebound in last two trading day after the sharp decline can confirm that market still confidence in the short and long term outlook of our economy.

However, we might already be at the brink of overheating. A quick scan through majority of stocks in Bursa Saham main market can tell you that there are no more undervalue stocks left to be hunted by value investor. 

Question 2: Talk about recent trend in property market, especially in KL area? 

First, property market rarely collapse unless there is market madness occurring. 

Second, the loan structure that triggered massive rate of default of housing mortgage, which in turn triggered the further collapse of property market, don't exist in Malaysia. I haven't heard of loan with teaser rate, where the borrower pay only 1-2% interest rate at the first few year, then subject to Base Lending Rate at 6-7% been offer in the market yet. With majority of the loan made are in fixed rate, you can be sure of the loan paying ability of the borrower. 

Third, with the latest MRT project coming online, KL will have more extensive transportation network that can cater more population. Property price in this area could hardly go down, when demand still outweight supply , or when people still expecting price to increase in the future. 

Question 3: The long term stability of Malaysia economy? 

I have a theory, which i shall elaborate more if i have the time to do research. 

Malaysia government had done a brilliant thing in creating the Employment Provident Fund (EPF). 

With the total asset of EPF amounting to RM 537 billion, which is about 60% of our national GDP. 

We have the financial capacity to fulfill government borrowing's need, pumping liquidity into private bond market, investing in stock market supporting prices, and even diversify out by investing in foreign equities, bonds and properties. 

A nation economy will start to collapse if investors realize the government might not be able to repay the national debt, which caused the market to charge extremely high interest rate to newly issue government securities, thus forcing the national debt cannot be finance in sustainable way anymore. 

In Malaysia, with EPF fund growing faster than increment of government debt, we wont see problem in near term future. 

However, with huge amount of EPF asset in government's liabilities form, the government is effectively funding our retirement, through collection of tax to pay the interest of the debt. The different between us and the western countries is, western countries like UK and Europe are lived on define benefit plan, while we are living on define contribution plan. The former is more prompt to collapse of the system. 

Question 4: Is China Growth Myth Over? 

I'm afraid the answer is yes. 

Failure to relax the birth control earlier had forced China to enter an Old folk society sooner than expected. The newly implemented retirement scheme and medical care requirement, will put the government financial at strain. 

There is other thing to worry about, 

Civil society required highly educated civilian to sustain. A society where its elite/talent group isnt producing enough offspring, will face the decline of populace cultivation when its education system cant replace the loss.

 It wasnt about the gene that can be inherit from the  parents, but is more about the education environment that the family can provide to the children.