True to script, the US Federal Reserve announced a fresh round of quantitative easing to shore up flagging growth in the world’s largest economy last week. The central bank intends to buy Treasury bonds totaling some US$600 billion (RM1.85 trillion), more or less in line with market expectations, or about US$75 billion each month through to June 2011.
With short-term interest rates already near zero, the move is aimed at lowering the longer-term borrowing costs for consumers and businesses.
Nonetheless, market observers remain divided on the effectiveness of the programme on the domestic market where businesses are wary of making fresh investments without clear evidence of consumption growth. But consumer spending is picking up only very slowly in view of the stubbornly high unemployment rate. Households are still in de-leveraging mode while the housing market is languishing.
Pumping more money into a global financial system already sloshing with liquidity further raises the threat of inflation and asset bubbles, especially in emerging markets.
Most Asian currencies, including the ringgit, rose against the greenback after the Fed’s move. Currency appreciation would be painful for countries dependent on exports.
In a pre-emptive measure against excessive speculation in the local property market, and keeping housing affordable for the masses, Bank Negara announced a 70% loan-to-value cap for financing of third property and beyond.
Equity markets, on the other hand, are expected to stay buoyant in the near to medium term supported by increasing capital inflow seeking higher yields. Asian markets traded broadly higher last week.
On the home front, the FBM KLCI is now within spitting distance of its all-time record close of 1,516 points. The benchmark index finished at 1,511.7 points last Thursday. Trading volume held steady from the previous week, averaging roughly 1.27 billion shares daily. The local bourse was closed on Friday for Deepavali celebration.
Hot on the heels of Malaysia Marine and Heavy Engineering’s successful listing, the second Petronas unit, Petronas Chemicals Group launched its prospectus early last week. Based on the retail price of RM5.05, the initial public offering is set to raise some RM12.5 billion in proceeds and the company would have a market capitalisation of over RM40 billion. Its listing is tentatively slated for Nov 26.
Our model portfolio underperformed the benchmark index last week. Total market value for our basket of 17 stocks slipped 0.56% to RM548,950. Ten of our stocks closed in the red while five ended higher and two was unchanged for the week.
Among the bigger losers was Tanjung Offshore, which closed 4.3% lower at RM1.57. AmFirst REIT (-3.3%), White Horse (-2.7%), Pantech (-2.7%), HELP International (-2.1%) and Selangor Properties (-3%) too ended lower for the week. At the other end, Masteel was our best performer, gaining 8.9% to close at 97.5 sen while Quill Capita Trust was up 2.9% to RM1.06.
Including our large cash reserves, the total portfolio value was down by a lesser 0.44% to RM699,767. Last week’s losses pared our model portfolio’s cumulative returns since inception to 337.4% on our initial capital of just RM160,000. Nevertheless, we continue to outperform the FBM KLCI, which was up by about 133.7% over the same period, by some distance.
Our total profits are very substantial at RM539,767, of which RM336,964 has already been realised from previous shares sales. For prudence sake, our model portfolio continues to hold a significant amount of cash — for which no interest is imputed — totalling RM150,817, or a comfortable 22% of our total portfolio value.
Our 10,000 warrants for Masteel — acquired under the company’s 1-for-2 rights issue exercise — began trading on the local bourse last week. The warrants, which have a five-year maturity period and exercise price of 67 sen, closed at 40.5 sen last Thursday. Recall that we subscribed for the warrants at 18 sen apiece.
We kept our model portfolio unchanged and will continue to monitor the market for opportunities.
(This article appeared in The Edge Financial Daily, November 8, 2010)
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