Sunday, August 29, 2010

Being feared of missing next rally or avoiding the train wreck?

The market breath has been negative even though the FBMKLCI breaking many new highs. There were only two out of last ten trading days managed to have more rises than falls.

If you look at the FBM Small Cap Index - one of my indicators to measure the risk appetite - appeared to have rolled over.

From valuation stand point, it does not appear that we are at the peak of the cycle. We are slightly above 10 year PE avearage of 16.73.

Our market is kind of more expensive compared to regional valuation. You can see from the chart that regional valuation is below its historical level.

I don't think we are heading for a train wreck scenario. If we one of the most expensive, the only motivation left for foreign investors will be forex gains. If Ringgit stops gaining ground against USD, then I think the risk of our bursa to correct is high.

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