Saturday, July 19, 2008

My unfinished thoughts on KLCI, Part I

Looking back on the last two entries I made: (i) OKS's Rocket Science -- Quant Forecast and (ii) The perfect storm and price actions, I need to tidy up my thoughts. I was expecting the rest of the stocks that will benefit from the crude oil fall to offset the plantations sector weakness. The crude oil did fall but the horse is not drinking the water yet. Perhaps, there are two kinds of group out there.

The first group is thinking correction for crude oil is finally here, to be safe take money off the table on plantation stocks. I'm taking a view of crude oil correction had arrived early of this week. The second group is still cautious about the macro-economy and political uncertainty. The consumer and banking stocks are not moving up reflecting most people are thinking the economy will slow down biting into corporate profits.

Lower crude oil prices will not translate into lower inflation expectations immediately. Most think US $ 130 / barrel is what the current worldwide economy cushion can stand. Beyond that demand destructions set in. The real wages and wealth need some time to grow further before absorbing higher crude oil prices. US $ 90 - US $ 100 / barrel will be a nice breathing space to have -- I mean central banks can be a bit more relax on their monetary policy to stimulate the economy again.

As the stock market is a big discounting machine and forward looking, they need to have confidence to price in this or am I missing something?. What could that be or just lack of positive catalysts?

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