Major
events are catalyst for the stock market. Depending on the outcome,
more often than not, a knee jerk reaction is triggered. For those who
have position in the stock market, the dilemma of holding or selling
becomes the million dollar question.
2020
is a truly extraordinary year. It is extraordinarily worrying and
uncertain. For Malaysia, the people’s mandated government fell due to
Sheraton Move. Then the Covid-19 pandemic exploded globally. Yet in the
middle of all this, the stock market went through an extraordinary
period of boom due to the reactionary monetary policies from the federal
government.
From
the lows of March 2020, the stock market went through a V shape
recovery before hovering around 1500 levels. It is now end October. In
another 1 week, US will be having their election. Globally, it is the
most important macro political event as it impacts the global economy
especially after 4 years of Trump’s rule. Under Trump’s Presidency,
trade wars between nations commenced, trade agreements &
international accords were abandoned, multilateralism &
globalisation were replaced with unilateralism and nationalism. Again,
all these happened whilst a global pandemic swept the world.
Coming
back to the domestic front, it would now appear that Malaysia is going
through its own major political event. With the incumbent PN Government
seeking to stay in power via “Emergency Declaration”, that was a risk of
triggering a huge selloff for the stock markets. Foreign investors be
it in the stock, bond or FOREX market do not like uncertainty. What they
dislike even more is the erosion of democracy and free markets. In the
event this “Emergency Declaration” is allowed in whatever name or form,
it would be tantamount to a subversion of democracy and in turn the free
market as an authoritarian government doesn’t require Parliament
endorsement for its action allowing executive branch of the Government a
free hand to enact an laws, policies and orders they deem fit.
Thankful, this democracy crisis was averted yesterday when the King
rejected the proposal by the Prime Minister.
My biggest concern however has always been the US Elections 2020 as its the major political event for the world. The outcome will either roil or rally the markets globally, including KLCI. It will also determine if the stock market recovery of Bursa is L shape or W shape. In my view, most funds be it foreign or local have been selling off to raise cash and stay sidelines. In the event of a steep selloff, their position is protected and they have cash to manoeuvre.
This
is one of the rare video interview of Warren Buffet when he was only 31
years old and his views on the 1962 flash crash. I think its apt for me
to share this as I believe the potential selloff in the coming 1-2
weeks is temporary in nature and not caused by structural or fundamental
change to the economy.
Majority
of retail investors loses money. From my experience, even many
professionals / experts loses money from investing. This is because
investing based on sentiment and herd mentality doesn’t give you an edge
over others. The stock market is a zero sum game where when someone
wins another loses. Most who are successful in the stock market or in
life for that matter definitely would have extraordinary traits that the
majority doesn’t possess. One may be extremely intelligent, prudent,
brave, patient or lucky. Any of the traits mentioned, if you have one
over the others that means you have an edge.
My
readers would know by now I am a contrarian investor. I do not go with
the common view. This is because I am objective. Just because select
media, analysts or funds thinks in a way doesn’t mean I will follow.
Being objective and impartial in my view allows me to make the best
decision based on the circumstances. However, as a
believer in buying on weakness, selling on strength, potential flash
crashes in the coming weeks will provides good opportunity for me to
enter the market.
KLCI
apart from the healthcare and tech stocks, majority especially
traditionally strong blue chips companies has been whacked down
terribly. I have not seen Tenaga below RM 9, Genting below RM3, Axiata
below RM3 etc for a long time. However, these Foreign fund favourite
stocks are being punished for a reason. It is also in line with the fact
that foreign fund have been ditching out share market for a long period
now. I believe strongly this is related also to our unstable political
situation.
In my article last week, I stated “if
the healthcare index do not perform and continued being sold off,
nothing else will do well. Possibly tech sector may still sustain (but
bear in mind if anyone thinks Gloves are overvalued, tech is 3 times
overvalued). This means, no other sector will generate returns and
yields to the funds in the next 1 year if the healthcare sector is
dismissed as game over.”
There are only 2 courses of action for investors in the event of a market selloff.
1. Either you stay sidelines and observe (wait & see); or
2. You buy on weakness in batches (scale your entry)
This is on the assumption that you have cash on hand. Panic selling, which most retail investors do during a market selloff , is the sure way to lose money.
This is because panic selling leads to even more vicious selloff and
you neither benefit by selling at low price or when the market rebounds,
you have no position on hand to capitalise on the uptrend.
No
one knows what will happen in the next few weeks. Whether current
incumbent government would still be in power, whether a new leader will
emerge, whether Trump or Biden will win and so on. But I know the
pandemic would still be around and vaccine which may or may not be
approved by November would not eradicate Covid-19 in the next few
months. This means if you adopt either of the 2 choices above, your
best bet for buying on weakness would only be the glove sector and
select blue chips. This is a foolproof playbook.
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Food for thought:
https://www.tradeview.my/2020/10/tradeview-2020-flash-crashes-come-go-do.html
