14th General Election is coming soon.

6 May 2018

Dear Fellow Investor,

The Background

If we trade or invest we need to know the environment we are dealing in.  We need to know the trends that are behind the market movements which help us to allocate our capital and put the odds in our favour.

Some of you have asked me my opinion about the up coming 14 GE and how it will affect our investments. As an odds player, my bet is that BN will win. My forecast is based on underlying market trends.

That would include MGS bond spreads, foreign fund inflows/ outflows, KLCI futures premiums/ discounts and the RM exchange rates. They all indicate business as usual. Nothing dramatic. Malaysia continues to grow and develop while there are jobs for all who wish to work and opportunities for those who are business minded. Most Malaysians are happy with that.

The election will pass but what matters is the background.

The background includes rising oil prices, rising commodity prices, rising interest rates and  rising inflation world wide.

Companies could borrow at cheap rates in 2009 because of the world financial crises and the authorities pushed interest rates to zero but now as economies recover, rates are going up. Many high growth companies who borrowed too much are beginning to be squeezed. Those companies who are established with low debt, rising dividends, increasing revenue and cash flow are well positioned. I consider these companies to be the Generals. Examples include Gamuda, Sime Darby, F & N, and Public Bank.  In Singapore it would be OCBC Bank, SGX, SATS, Thai Beverage and HK Land.

Napoleon leading the charge to conquer Russia. Eventually most of his soldiers were slaughtered and only he and his generals  were lucky to escape. The same is true in markets.  Highly leveraged, small caps die first. The generals live to continue the fight.

We recently had a big drop in small and mid cap Malaysia shares. These shares are called the soldiers.  This is a warning that the background is changing to a new reality. The soldiers are dropping off and what is left are the generals. This phenomena is happening world wide.

For now we focus on the generals which are our port in the storm.

Invest well and grow your wealth

Bill

Today's 'critter' is the Java sparrow, or Java finch.  It's about 15-17 cm in length from the beak to its tip of tail feathers. The adult is unmistakable, with its grey upper parts and breast, pink belly, white-cheeked black head, red eye-ring, pink feet and thick red bill .