A group of bears is pulling the bull

Can the bull stands as so many bears are waiting to "baham" him? Actually many factors now affected our mkt..it's not solely by credit crunch...the other factor is "keyakinan terhadap ketahanan pasaran".

Great Depression versus now

By OOI KOK HWA..

As much as there are similarities between the two crises, the damage caused by the current turmoil is likely to be less severe given the swift actions of central banks.
AS a result of the recent financial tsunami, some experts have started to ponder whether we are headed for a depression.
The current credit crunch and the meltdown in some financial institutions were quite similar to what happened during the Great Depression in the 1930s.
In this article we will analyse the reasons behind the 1929 Wall St crash, which kickstarted the Great Depression and compare it to the current situation to identify any signs that a depression is approaching.
Milton Friedman, the leading advocate of monetarism, argued that every great depression had been accompanied or preceded by a monetary collapse.
According to Ben Bernanke, the US Fed chairman, the main reason behind the Great Crash of 1929 was due to the tight monetary policies adopted during that period.
He said the high interest rates back then caused the US economy to fall into a recession that led to the great market crash in October 1929.
As the US dollar was backed by gold, the acute selling of dollars for gold resulted in a run on the dollar.
The Fed continued to increase interest rates in an effort to preserve the value of US dollar.
As a result, high interest rates caused bankruptcies for many companies.
At the peak of the Great Depression, the US unemployment rate hit 25%
To rub salt into the wound, massive withdrawals of cash by panicky depositors were the last straw that brought about the total collapse of financial institutions.
In that period, bank deposits were uninsured and the collapse of the banks caused depositors to lose their savings.
And due to the economic uncertainties, the surviving banks were reluctant to give out new loans.
Another culprit in the 1929 crash was margin financing which caused excessive speculation in the stock market.
Investors needed only to put up 10% capital and borrow the rest from the bank to invest in the stock market.
The collapse of stock prices led to margin calls and further selldowns.
Coming back to the 2008 crash, the banking and credit-market crisis was mainly due to the property boom and subprime bust.
The collapse of subprime loans sparked the credit crunch, which dragged some financial institutions into trouble.
As a result of the securitisation and the creation of innovative financial products like collateralised-debt obligations and credit-default swaps, the collapse of one financial institution had a domino effect, leading to the collapse of other financial institutions.
Now, the pertinent question is whether we are in a long bear market and heading for a depression.
We believe a depression like the one in 1929 may not happen exactly the way it did before.
Given the fast actions taken by central banks around the world, the damage caused by this crisis will be less severe than the one in 1929.
Central banks around the world have been putting in concerted efforts to make sure the global economy will not fall into a depression.
The rescue packages being implemented throughout the world will help stabilise the financial system.
We believe the reduction of interest rates and the increase in money supply will help cushion the impact of the credit crunch.
Besides, deposits placed with most financial institutions are guaranteed by central banks.
Even though the US unemployment rate may rise to 10% from 6.1% currently, it is still far below the peak of 25% hit during the Great Depression.
In the 1929 crash, the Dow Jones Industrial Average took about three years to reach bottom in July 1932 from its peak in September 1929.
From the peak to the trough the Dow lost about 90%.
The Great Depression in the US started in August 1929 and ended only in March 1933.
The stock market started to recover eight months before the US economy ended its depression.
At present, the Dow has already dropped for a year from its peak in October 2007, currently down about 37.5% against its peak of 14,164 points on Oct 9, 2007.
In view of the possible economic recession in most developed countries, we think the Dow will drop further from current levels.
Nevertheless, we believe it will recover much faster and the magnitude of the fall will be far less severe than the one in 1929.
Lastly, we believe the stock market will eventually recover.
At this point, to be more prudent, we may take a “wait and see” approach until things stabilise.

Guessing game over Valuecap’s stock picks

THE market has began to speculate which stocks state-owned fund manager Valuecap Sdn Bhd will buy, analysts say, pointing out that many investors will be looking to ride on its coat-tails.
“Investors will always look to ride on big funds like these. Whether rightly or wrongly, the participation of big funds tends to push up the share prices,” said the head of research at an investment bank.
On Monday, the government said it would give Valuecap an extra RM5 billion, boosting its fund size to some RM10 billion, so the latter can buy undervalued stocks to provide support to the recently battered stock market.
Deputy Prime Minister Datuk Seri Najib Razak said yesterday that the government would get the RM5 billion by taking a loan from the Employees Provident Fund (EPF).
“The RM5 bilion announced for Valuecap is not part of the 2009 budget allocation, but instead is a consolidated loan from the EPF,” Najib said on the sidelines of an event in Kuala Lumpur.
Analysts voiced surprise that the extra funds would be coming from the EPF, pointing out that the fund also makes investments in the stock market.
However, some said since the funds are meant to boost the equity market, it made sense that Valuecap should be handling it rather than the EPF, as the latter allocates a substantial portion of its investment portfolio in bonds.
Valuecap, a highly-secretive fund set up in 2002 to buy undervalued stocks, invests specifically in the Malaysian equity market and is jointly owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and the Retirement Fund (Inc).
The government has left it up to Valuecap to decide how to distribute the fund.
Analysts generally believe it will be used to invest in solid index-linked stocks.
OSK Research said the funds could well be used to buy small- and medium-cap companies that present good value following the market’s recent sharp falls.
However, it believes Valuecap could get more “bang for its buck” by focusing on selected blue-chips.
In a report yesterday, OSK highlighted 11 potential targets on the Kuala Lumpur Composite Index (KLCI) that Valuecap may go for — MISC, Petronas Gas, DiGi, British American Tobacco, Petronas Dagangan, MAS, Sime Darby, Maybank, IOI, AMMB and MMC.
As it stands, however, funds like Valuecap will never reveal what stocks it invests in. It is obliged to make the information public only if its investments in a company exceed the five per cent threshold.
Yesterday, Second Finance Minister Tan Sri Nor Mohamed Yakcop said the extra RM5 billion being pumped in is sufficient for Valuecap to buy undervalued stocks and the government had no plans for now to give it more funds.
Some analysts, however, believe RM5 billion isn’t enough to shore up the market at all.
Citigroup’s Choong Wai Kee said the sum represents less than one per cent of the overall market capitalisation and less than five per cent of shares held by foreign strategic and portfolio investors.
And even if the full RM5 billion were to be pumped into the KLCI, it would theoretically lift up the key benchmark index by only 10 points, said OSK acting head of research Chris Eng.
“Then again, the RM5 billion would have a multiplier effect that is larger than its actual sum as the buying activity, or even anticipated buying activity by Valuecap could lift sentiment and push the KLCI higher,” he said. The thin liquidity on the stock market will also see the RM5 billion having a multiplier effect, he added.

retracted from : The Star Online - Business Times

Another Trading Instrument- FKLI

Kuala Lumpur Stock Exchange Composite Index Futures Contract (FKLI)

Stock Index futures contract is one of the most useful financial instruments in today’s global economy. Even though stock index futures contracts was introduced for trading as recently as 1982; futures trading and the concept behind these financial instruments have evolved over the last few centuries. With the commencement of trading in Kuala Lumpur Stock Exchange Composite Index (KLCI) futures contract (FKLI) on the Kuala Lumpur Options & Financial Futures Exchange (KLOFFE), the Malaysian capital markets have reached another plateau of maturity.

What is stock index futures contract?

Stock Index futures contract is an agreement between a seller and a buyer to respectively deliver and take delivery of a basket of shares which makes up the stock index, at predetermined price but at a specific future date. However, almost all Stock Index futures contracts (and similarly FKLI) provide for cash settlement in lieu of actual delivery of the basket of shares. The KLSE CI futures contract is a stock index futures contract that is based on the KLSE CI.

What are the FKLI contract specifications?

Contact code : FKLI


Underlying instrument : Kuala Lumpur Stock Exchange Composite Index (KLCI)


Contract size : KLSE CI futures mutiplied by RM50.00


Minimum price fluctuation : 0.5 index point valued at RM25.00


Daily price limits : 20% per trading session for the respective contract months except the spot month.


Contract months : Spot month, the next month and the next two calendar quarterly months. The calendar quarterly months are March, June September and December.


Trading hours : First trading session : 0845 hours to 1245 hoursSecond trading session : 1430 hours to 1715 hours (GMT + 8.00hrs)


Final trading day : Last business day of the contract month.


Final settlement : Cash settlement based on the final settlement value.


Final settlement value : The final settlement value shall be the average value, rounded to the nearest 0.5 of an index point (values of 0.25 or 0.75 and above being rounded upwards) of the KLSE CI for the last half hour of trading on the final trading day, excepting the highest and lowest values.


Margins : Initial margins are calculated risked based and determinded by MDCH using the Theoretical Inter-market Marginign Systems (TIMS). Variation margins are based on daily marked-to-market valuation.

Does long-term investing work when bourse swings wildly?

By Noripah Kamso

FUND managers, me included, are forever telling investors to expect returns over the long-term. Results may vary from year to year, but over the long-term you may expect about nine per cent to 12 per cent potential returns annually.
We like to say things like: “In a bad year, the downside can be 10 per cent or more” and “In a good year the upside could be as high as 15 per cent or more”.
We also caution that risk and reward are inextricably intertwined, hence one should not expect to reap high returns without undergoing high risk and volatility.
However, we usually conclude, over the long-term it makes sense to invest in equities.
Now all that advice sounds good in theory but it’s hard to believe in it in reality when the market soars 26 per cent one year, then plunges 15 per cent another year, before swinging back up again. An investor wouldn’t be blamed for thinking, “This is madness! I don’t have the appetite for all these wild swings. What are those fund managers talking about?”
I hope, in this article, to shed some light on the issue and show that there is a method to the madness after all. Let’s look at how the stock market has performed since it started in 1976, as measured by the Kuala Lumpur Composite Index (KLCI):
Interesting points to note from this data are (See chart):
# In its 31 years of existence, the KLCI has hit the magic nine per cent to 12 per cent return range exactly once
# In seven of those years, the KLCI lost more than 10 per cent
# In 14 of those years, the KLCI gained more than 15 per cent
# Therefore, in 21 out of its 31 years of existence, the KLCI has either really disappointed investors or made them extremely happy Going by this performance, it would seem as if fund managers don’t know what they’re talking about, because the stock market has either performed outstandingly well or very poorly.
It is true that in the majority of its years, the KLCI has been pretty volatile. That’s why we advise investing over the long term, to ride out the volatility that will happen from year to year.
If investors were to analyse the numbers from 1977 until 2007, they would be surprised to learn that the KLCI enjoyed annualised returns of 9.15 per cent per annum.
Well how about that? This figure lies within the magic range of nine per cent to 12 per cent annual returns. Analysis also shows that the KLCI has registered an average yearly return of 13.33 per cent since its inception.
It is very important that investors expect returns to fluctuate widely from year-toyear, and they should probably even welcome this volatility. It is the market’s erratic journey over the long term that enables investors to get the nine per cent to 12 per cent annualised returns range. This is why a fund manager can sound like a broken record sometimes because the ending of the story doesn’t change. The important thing to realise is this: in order to get to the end of the story one must begin it, by investing.
So, when is the best time to invest? In my view, it is in the investor’s best interest to invest as much and as close to the beginning of the year as possible. In fact, I would take that year-end bonus and just invest it straight away. And I’m not saying this just because I’m in the business of managing people’s funds.
The reason is very simple and clear: in 21 out of the last 31 years, the KLCI registered a positive return. Therefore funds invested at the beginning of every year would have yielded positive returns two out of every three years, or 67 per cent of the time.
Alternatively, investors should invest regularly whenever they can, either using the ringgit-cost averaging or value averaging methods, which I will explain in detail in a later article.
In conclusion, long term investing works because it rides out stock market volatilities to give the potential returns in the nine per cent to 12 per cent range. Investors should start investing to not miss out on these potentially attractive returns.

Datuk Noripah Kamso is the chief executive of CIMB-Principal Asset Management Bhd.