STOCK market downturns are common.
But sharp declines are often terrifying to most people; exciting, however, to some.
For long-term investors, in particular, the sea of red in stock markets is often a magnet to dive in to collect good stocks at low prices, and then, wait for the eventual recovery wave to push things up.
On that note, while no one knows how low the markets can go, or long it will take for them to recover, history has proven that patient (and smart) investors, who took the risk, are often rewarded after every downturn.
And such opportunity could just have arrived again for the risk takers.
With global financial markets in a meltdown mode over the week, the shares of many good companies are now trading at extremely cheap valuations.
In Malaysia, for instance, a good number of big-capitalisation (cap) counters have now turned into penny stocks, while several blue chips have been beaten down to their multi-year lows.
Good counters
It is, therefore, not surprising that some are now calling this phenomenon a “buying opportunity of a lifetime”.
Fund manager Danny Wong, for one, agrees with that sentiment.
“I do agree that it is a good time to collect good stocks now that the market is down.
“But I would advocate picking companies with healthy cashflow, resilient earnings and stable orderbook, and pay dividend,” Wong says.
The CEO of Areca Capital tells StarBizWeek his firm’s long-term investment strategy remains despite the present market rout.
“We see emerging value from the current sell-down of equities. In fact, with the cash we have in hand, we have been collecting big-caps since the fourth quarter of last year to boost our portfolio,” Wong shares.
Similarly, for Eastspring Investments Bhd CEO chief investment officer Doreen Choo, the game plan is to buy good counters on weakness.
“In the current risk-off environment, we will continue to stay defensive, and remain focused on accumulating fundamentally sound stocks on weakness,” Choo says.
Striking a more cautious tone, however, JF Apex Securities head of research Lee Chung Cheng there is no need to rush into the stock market now.
“I don’t think anyone wants to time the bottom and catch the falling knife at this point in time. The risk-off sentiment will prevail in market at the moment, as investors are affected by pandemic threat, slump in crude oil prices and fears of a global recession.
“Hence, there’s no rush for investors to buy at this stage,” Lee points out.
“They could always bottom-fish for stocks, provided the market has stabilised, with more clarity on the novel coronavirus disease (Covid-19) crisis.
“It still won’t be too late for investors to buy in, although at some premiums, should the market recover at a later stage,” he adds.
Markets in freefall
Global stock markets were in a freefall over the week, following the crash in global oil prices, and the Covid-19 crisis being escalated to pandemic level.
The United States, for instance, saw the tanking of Wall Street on Thursday, with both the Dow Jones Industrial Average and the S&P 500 index suffering their worst day since the 1987 “Black Monday” market crash.
In just one day, the Dow Jones fell 2,352.60 points, or almost 10%, to 21,200.62.
The S&P 500 lost 260.74 points, or 9.51%, to 2,480.64, while the Nasdaq Composite Index dropped 750.25 points, or 9.43%, to 7,201.80.
The Malaysian stock market fared no better.
In tandem with the global sell-off, the benchmark FBM KLCI extended its losses, falling 74.68 points, or 5.3%, to close at 1,344.75, off an intra-day low of 1,320.96.
Almost 1,000 counters were in the red, while 158 rose and 249 were unchanged.
The one-day rout wiped out RM15bil in the market cap of the local stock exchange.
In total, over the last five trading days, the FBM KLCI benchmark had fallen 5.6%, with a loss of RM3bil in market cap.
In general, the Malaysian equity market has been on a downtrend since the start of 2020.
This has been due to a confluence of factors, ranging from geopolitical tensions in the Middle East to uncertainties in domestic politics and concerns over the economic impact from the spread of the Covid-19 disease.
Year to date, a whopping RM107bil has been wiped out in the country’s stock market cap, with the FBM KLCI down 244.01 points, or 15.36% since the start of 2020. At current value, the index is trading at 14 times the estimated earnings for 2020.
V-shaped recovery
According to Areca’s Wong, panic selling over the week has caused the market to become increasingly volatile.
“People are in a hurry to sell, hence the huge selling volume in the market.
“But buyers were few, hence the downward pressure on the market,” he explains.
“I see this as an overreaction by nervous investors to the two major factors, namely, the oil price crash and the Covid-19 crisis, both of which are short-term issues,” he argues.
Wong sees the potential of a V-shaped recovery once these short-term issues blow over, as they always do.
The recent collapse in global oil prices was triggered by a row between Saudi Arabia and Russia over oil production.
Wong says he does not expect the “oil war” between those two countries to last long.
This is because both countries have been running on fiscal deficits, and therefore, cannot afford to let oil prices remain low for a long time, as that will be damaging to their economies.
Wong is also optimistic that the Covid-19 pandemic will soon pass, and the crisis will eventually be resolved.
China, where the plague all began, has declared the peak of the Covid-19 outbreak in the country is now over.
Wong believes other countries, now suffering from the Covid-19 threat, will soon make the same positive progress in addressing the problem.
“Yes, GDP (gross domestic product) growth will be affected for the first two quarters of the year.
“But we expect a V-shaped recovery to set in subsequently,” he notes.
“We do not see a destruction in demand, merely deferment in orders, because of Covid-19, which is causing temporary disruptions.
“The (purchase) orders are there, waiting to be fulfilled. We expect growth to pick up once the threat of Covid-19 subsides,” he adds.
Meanwhile, Lee of JF Apex says he expects the current market downturn to last as long as the Covid-19 outbreak remains a severe problem for major economies.
“Judging from the current situation, it seems like the pandemic could prolong till at least the first half of 2020, and hence global economic growth could be badly affected or even tumble into recession,” Lee says.
Market volatility
He reveals JF Apex is revising its year-end FBM KLCI target down from the original 1,525 points.
“This is because our previous assumptions – no prolonged pandemic (we had earlier expected Covid-19 to recede in the first quarter of 2020), stable crude oil prices and a V-shaped economic recovery – no longer hold,” Lee explains.
Undoubtedly, market volatility is uncomfortable.
But as one investment manager puts it, if one could remove the focus on the short-term ups and downs, and lengthen one’s perspective to focus on the long-term prospects, one can not only recover one’s losses, but also potentially see the value of their investments grow over time.
“The bull may be in retreat now, but it is not dead.
“At the right time, it will come charging again, and the bear will have to give way,” the investment manager, who requested anonymity, says.
“The case for investing in equities over the medium to long term remains sound,” he adds.
So, don’t let fear drive your financial decisions, he says.
But sharp declines are often terrifying to most people; exciting, however, to some.
For long-term investors, in particular, the sea of red in stock markets is often a magnet to dive in to collect good stocks at low prices, and then, wait for the eventual recovery wave to push things up.
On that note, while no one knows how low the markets can go, or long it will take for them to recover, history has proven that patient (and smart) investors, who took the risk, are often rewarded after every downturn.
And such opportunity could just have arrived again for the risk takers.
With global financial markets in a meltdown mode over the week, the shares of many good companies are now trading at extremely cheap valuations.
In Malaysia, for instance, a good number of big-capitalisation (cap) counters have now turned into penny stocks, while several blue chips have been beaten down to their multi-year lows.
Good counters
It is, therefore, not surprising that some are now calling this phenomenon a “buying opportunity of a lifetime”.
Fund manager Danny Wong, for one, agrees with that sentiment.
“I do agree that it is a good time to collect good stocks now that the market is down.
“But I would advocate picking companies with healthy cashflow, resilient earnings and stable orderbook, and pay dividend,” Wong says.
The CEO of Areca Capital tells StarBizWeek his firm’s long-term investment strategy remains despite the present market rout.
“We see emerging value from the current sell-down of equities. In fact, with the cash we have in hand, we have been collecting big-caps since the fourth quarter of last year to boost our portfolio,” Wong shares.
Similarly, for Eastspring Investments Bhd CEO chief investment officer Doreen Choo, the game plan is to buy good counters on weakness.
“In the current risk-off environment, we will continue to stay defensive, and remain focused on accumulating fundamentally sound stocks on weakness,” Choo says.
Striking a more cautious tone, however, JF Apex Securities head of research Lee Chung Cheng there is no need to rush into the stock market now.
“I don’t think anyone wants to time the bottom and catch the falling knife at this point in time. The risk-off sentiment will prevail in market at the moment, as investors are affected by pandemic threat, slump in crude oil prices and fears of a global recession.
“Hence, there’s no rush for investors to buy at this stage,” Lee points out.
“They could always bottom-fish for stocks, provided the market has stabilised, with more clarity on the novel coronavirus disease (Covid-19) crisis.
“It still won’t be too late for investors to buy in, although at some premiums, should the market recover at a later stage,” he adds.
Markets in freefall
Global stock markets were in a freefall over the week, following the crash in global oil prices, and the Covid-19 crisis being escalated to pandemic level.
The United States, for instance, saw the tanking of Wall Street on Thursday, with both the Dow Jones Industrial Average and the S&P 500 index suffering their worst day since the 1987 “Black Monday” market crash.
In just one day, the Dow Jones fell 2,352.60 points, or almost 10%, to 21,200.62.
The S&P 500 lost 260.74 points, or 9.51%, to 2,480.64, while the Nasdaq Composite Index dropped 750.25 points, or 9.43%, to 7,201.80.
The Malaysian stock market fared no better.
In tandem with the global sell-off, the benchmark FBM KLCI extended its losses, falling 74.68 points, or 5.3%, to close at 1,344.75, off an intra-day low of 1,320.96.
Almost 1,000 counters were in the red, while 158 rose and 249 were unchanged.
The one-day rout wiped out RM15bil in the market cap of the local stock exchange.
In total, over the last five trading days, the FBM KLCI benchmark had fallen 5.6%, with a loss of RM3bil in market cap.
In general, the Malaysian equity market has been on a downtrend since the start of 2020.
This has been due to a confluence of factors, ranging from geopolitical tensions in the Middle East to uncertainties in domestic politics and concerns over the economic impact from the spread of the Covid-19 disease.
Year to date, a whopping RM107bil has been wiped out in the country’s stock market cap, with the FBM KLCI down 244.01 points, or 15.36% since the start of 2020. At current value, the index is trading at 14 times the estimated earnings for 2020.
V-shaped recovery
According to Areca’s Wong, panic selling over the week has caused the market to become increasingly volatile.
“People are in a hurry to sell, hence the huge selling volume in the market.
“But buyers were few, hence the downward pressure on the market,” he explains.
“I see this as an overreaction by nervous investors to the two major factors, namely, the oil price crash and the Covid-19 crisis, both of which are short-term issues,” he argues.
Wong sees the potential of a V-shaped recovery once these short-term issues blow over, as they always do.
The recent collapse in global oil prices was triggered by a row between Saudi Arabia and Russia over oil production.
Wong says he does not expect the “oil war” between those two countries to last long.
This is because both countries have been running on fiscal deficits, and therefore, cannot afford to let oil prices remain low for a long time, as that will be damaging to their economies.
Wong is also optimistic that the Covid-19 pandemic will soon pass, and the crisis will eventually be resolved.
China, where the plague all began, has declared the peak of the Covid-19 outbreak in the country is now over.
Wong believes other countries, now suffering from the Covid-19 threat, will soon make the same positive progress in addressing the problem.
“Yes, GDP (gross domestic product) growth will be affected for the first two quarters of the year.
“But we expect a V-shaped recovery to set in subsequently,” he notes.
“We do not see a destruction in demand, merely deferment in orders, because of Covid-19, which is causing temporary disruptions.
“The (purchase) orders are there, waiting to be fulfilled. We expect growth to pick up once the threat of Covid-19 subsides,” he adds.
Meanwhile, Lee of JF Apex says he expects the current market downturn to last as long as the Covid-19 outbreak remains a severe problem for major economies.
“Judging from the current situation, it seems like the pandemic could prolong till at least the first half of 2020, and hence global economic growth could be badly affected or even tumble into recession,” Lee says.
Market volatility
He reveals JF Apex is revising its year-end FBM KLCI target down from the original 1,525 points.
“This is because our previous assumptions – no prolonged pandemic (we had earlier expected Covid-19 to recede in the first quarter of 2020), stable crude oil prices and a V-shaped economic recovery – no longer hold,” Lee explains.
Undoubtedly, market volatility is uncomfortable.
But as one investment manager puts it, if one could remove the focus on the short-term ups and downs, and lengthen one’s perspective to focus on the long-term prospects, one can not only recover one’s losses, but also potentially see the value of their investments grow over time.
“The bull may be in retreat now, but it is not dead.
“At the right time, it will come charging again, and the bear will have to give way,” the investment manager, who requested anonymity, says.
“The case for investing in equities over the medium to long term remains sound,” he adds.
So, don’t let fear drive your financial decisions, he says.
https://www.thestar.com.my/business/2020/03/14/opportunities-in-meltdown
