Saturday, April 27, 2013

Post GE: What would you do if market plunges?

As at 25 April 2013, the daily trading participation statistics were quite telling. Retail investors 11%, local institutions 53% and the balance goes to foreign investors. The KLCI made fresh new high, 1,718 but I never felt the excitements. I suppose I wasn't alone. I have been thinking whether the market has been climbing wall of worries. Are the worries genuine or just silly irrational fears?

There have been many talks that if PR comes to power, the market will surely drop. The most popular explanation is uncertainty. Uncertainty of power transition or economics policy. The second theory is disappointment  Failure of BN to retain power will certainly create disappointment to certain group of investors or speculators.

Both theories can be correct but what is more important is this. If the market really plunges, will you scoop up with two hands? My take is political driven sell-off seldom last long. It is a matter of time, people will wake up. An event like that will create a trading opportunity.10 - 12%  corrections in oversold territory will be a good entry point, then sell into relief rally of another 8 - 10%. 

For those who practices a bit of  market timing, the answer can be a bit more complicated. The overall regional markets that have been hitting new highs but it has never corrected significantly despite of  many signs of weak global economy recovery. A sharp corrections in external markets may push the market down after triggered by assumed GE 13 political tsunami.

For those who believe in coupling theory will be even more complicated. The governments intervention around the world had turned every market participants into very disoriented mode. The non-stop liquidity pumping activities have been supporting the equities markets. It was not entirely correct however to say that all asset classes, especially risky one, benefited from the liquidity. BRICs indexes were still way off from their 2008 peaks despite of it accounts for 50% of global growth since 2001. Commodities prices tanked and yet to make any new highs. In other words, the recent gain so far have been quite narrow(US equities) or lagged such as Japanese market and to some extend of Malaysia equity market. This worries me a lot and at the same time stress me out seeing it keeps rally days after days.

So the answer ranges from very simple to a very complicated one. To make things simple, the true north is always guided by valuation. Post GE 13, one thing for sure -- I will deploy cash to buy stocks on big sale if PR wins.

But what if BN wins and the market rallies? I will surely not buy into that rally and I will explain why in the next posting.

1 comment:

jonathan keung said...

if market drops. look for good blue chips to buy. stagger buying is the best option. remember the saying "sell in May and go away"