After the Tsunami

It has been a a great and volatile ride for KLCI this March. With the surprising rout of BN in the recent elections which resulted in KLCI dropping more than 10% in one sitting activating the circuit breaker by Bursa to 'cool the heads' for an hour.

I had a great time watching the elections and also the results on the KLCI. With GLC's plunging and limiting down with their future uncertain as many had projects approved by the BN government suddenly found themselves in opposition held territory.

KLCI was already dropping steadily since late February losing more than 100 points from 1425 on 19th Feb to 1280 on 5th of March. With the 12th General Elections 3 days away, the market was propped up un-convincingly to close slightly below 1300 point psychological resistance. After the results of the elections was known on March the 9th, all hell broke loose on March 10th with KLCI plunging more than 10% triggering Bursa's 'circuit breaker' which halted trading for 1 hour.

Many GLC's hit limit down as selling was fast and furious on any counters related to the government especially involved in projects in the new opposition states of Selangor, Penang, Perak and Kedah. KLCI close at 1173 on the 10th and stayed below 1200 until the federal government was formed and in some states the local opposition governments took office. Still the KLCI was bearish until recently it was propped up to above the 1200 resistance although with a low volume. I certainly am not convinced the recent spikes in KLCI is attributed to confidence returning as the volume is too low to justify it. The KLCI maybe rising but mostly due to heavy weights being pushed up rather than a general rally of all counters. Although some rebounds by smaller GLCs help prop it up as well.

To be honest I have the believe KLCI will not recover anymore and will be pressured downwards. Still there are some quarters who still believe the bull may return this year but I highly doubt so. I've always waited for a good opportunity to enter the markets and sit tight, and I thought a China bubble burst would do the trick but China didn't burst. Instead it slowly eroded like all other major indices in the wake of the sub-prime mess in the US. The 12th GE in Malaysia shot a dose of healthy correction to the local markets forcing everyone to re-evaluate their holdings and see how strong is it not only in times of recession but also in times of political instability.

Fall From Grace

Companies which lived off being spoon-fed with projects suddenly find themselves open to scrutiny by investors and their shares dumped on the market like it was not worth even touching. MRCB which was trading at RM1.88 pre-GE which is already lower than RM3 in Jan 2008, was dropped like a stone in a water closing at RM1.27 on 10th March. It has since recovered a little bit to RM1.43 last Friday.

TENAGA which depends on subsidies and price hikes controlled by the government also saw their share prices battered as their chances of a price hike after the 12th GE is squandered. Currently trading at RM7.30 compared to the RM9.95 in Jan 2008.

EQUINE which has a stake in RM25billion project in PGCC sent a bouquet of flowers to the new CM of Penang congratulating him and hoping their project doesn't get scrapped, dropped 50% from RM1.42 pre-GE to RM0.71 post-GE. Prices have recovered to some extent to RM0.90.

Immunity

It's obvious who got hit badly in KLCI after the 12th GE, but more importantly who didn't? Which counter actually survive unscathed after GE and would recovered back to their original prices after being dragged down by KLCI bearish sentiments after the GE. Who was what I would like to think immune to the effects of political instability and would still has its fundamentals intact after the GE?

For one batch of counters that aren't affected are the REITs. Unlike normal companies, REITs are involve in property holding and profits from rent is distributed as dividends after deducting management fees. Volume are naturally low for these kind of counters and price movements are minimal as most investors to put their money here aren't going to sell unless for anything more than the annual dividend returns which is about 7 - 10%.

Sin counters like GUINESS and CARLSBG whom are involve in consumer alcohol production were slightly affected more for sentiment but fundamentally sound so their prices were back to pre-GE levels as though nothing happened. Other sin counters like BAT and JTINTER which are involve in tobacco was also resilient post-GE with their prices fluctuating but recovered back to normal levels.

The communication rebels DIGI which only recently concluded a deal with TIMECOM for the 3G license was affected but rebounded beyond pre-GE prices. Probably hoping now the governments would be more lenient and investor friendly and allow for majority foreign holdings in the company.

My investment in YTLPOWR are still there which was rocked by the GE results and dropped about 10% before recovering back to normal prices. Recently received the dividend cheque as well. YAY! My evaluations of it's business is still the same. Being in the utilities sector, I believe not only is it resilient to recession but also resistant to political changes in the country unless Malaysia decided to go Socialist and nationalized them. I still want to accumulate some more to also position myself for the warrant offer.