Pic from Forbes
Dear
all, it is almost 1 year since the last MCO in March 2020 that caught
everyone by surprise. Most expected Covid-19 to be over by now entering
2021. Sadly, Malaysia once again entered MCO 2.0. This was coupled with
the nationwide Emergency Proclamation. Whether we agree with the
rationale behind these measures is not important anymore, the issue at
hand that we have to face is the rising Covid-19 cases to record levels
and alarming infection rate in the community. With things as it is, we
are not yet on the path of recovery as what most pundits / "experts"
have forecasted as early as Oct 2020.
I
have written on this topic before and warned multiple times that
investors should not count their chicken before it hatches. I said,
recovery play can be considered for Banking, Telco, Utilities and select
blue chip names. I repeatedly warned against Hospitality, Tourism,
Retail. By nature, I am an optimist. I believe in the resolve and
ingenuity of mankind to adapt & overcome adversity. However, it
doesn't mean an announcement of vaccine translates into a "global rain
shower that eradicates Covid-19 overnight." 3 months since the
announcement of Pfizer, Modern, Astra Zaneca vaccines in November, it is
proven fact that the numbers continue to sky rocket daily (globally and
domestically). This is largely due to the 3 reasons below :
1. Slow execution / implementation of mass vaccination globally (logistical / manufacturing hurdles)
2. Slower receptiveness towards receiving vaccines
3. Lax mindset, overconfidence or failure to abide by SOP in view of the vaccines newsflow
I
am not a medical expert so I dont want to elaborate further beyond
this. I believe most would agree the main reason our own country's
Covid-19 cases spiked was due to the relaxation of CMCO allowing
interstate travels followed by the Christmas & New Year holidays.
Now imagine this for many countries around the world with larger
population which are less law abiding.
The
stock market is a reflection of an important part of the economy but it
does not represent all of the economy. We can see the rich gets richer
and the poor gets poorer everyday with the record high unemployment
rate, business shuttering yet market cap of billionaires reach new
stratosphere. This wide disparity is particular obvious in the stock
market. Many astute investors whom I know personally have even told me,
2020 was the best year for them in terms of ROI. What does this show
us?
It
means this is a time of great irrationality largely driven by the
liquidity flooded by central banks around the world (expanding M3, money
supply in the economy) and expansionary fiscal policies for countries
which can afford to do so. This is why, the stock market runs ahead with
such expectations whether rational or not. Remember, this is a time
where Tesla with no profits have become the world's 6th largest company
by market cap making the founder the richest man in the world. It is
also a time where Bitcoin broke US $40,000. This is a time of
"irrational exuberance" of epic proportions.
Locally,
I am seeing tech stocks which are actually manufacturers trading at
100x+ forward PER, stocks which signed MOU with nothing to show for
rallying, stocks with extraordinary earnings being shorted ridiculously
on weak justifications. Of course, everyone is entitled to their
opinion. After all investing is subjective and the stock market is a
platform for exchange of investment thesis. Right or wrong, we will know
in due course.
With
all things, irrationality will normalise. If you believe in Yin &
Yang or Newton's 3rd law, you will understand there must be balance. I
believe for 2021, there will be opportunities but investors have to be
selective and ignore the noises. Risk management is still the way
forward. A balanced portfolio not heavily skewed to any sectors with
sufficient cash holdings in hand is good. Value + yield stocks would be
the best combination.
_______________________________________________________________
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Food for thought:
https://klse.i3investor.com/blogs/tradeview/2021-01-14-story-h1539327709-Tradeview_Commentaries_14th_January_2021_This_Is_A_Time_of_Irrational_E.jsp
