Money supply has flattened.

2 March 2019

Dear Fellow Investor,

Yesterday, I spoke with the head of research of a prominent asset manager. For privacy reasons I can not mention his name.

He has been consistently correct in his views regarding the Malaysian stock market over the years.

I asked him why the Malaysian market has been underperforming of late and why some of the index  linked favourites such as Tenaga, Telecom, Gamuda  have fallen.

He mentioned the main reason is that the M1 or money supply has flattened.  He showed a Bloomberg chart of money supply versus the KLSE and how every correction/ recession  since 1980  has been correlated with a drop in M1.

Bank Negara publishes M1 on their website at the end of each month. Of course a single number does not make a trend but the lack of growth in M1 is a matter of concern.

The second reason he mentioned was that some of the index linked shares are showing earnings declines and shrinking profit margins. Tenaga is an example. Felda although not an index linked share is a prime example.

It means we must focus on individual shares and invest in them based on their individual merits.

With careful and patient research, these low profile value shares exist. Our research team is focusing on these. Some are export related, in niche sectors, have expanding margins, low or no debt, pay dividends  and are run by experienced and honest managers.

If we focus in this space we should prosper no matter what are  the M1 numbers.

I leave you with a quote from Dr Mahathir as reported in the Edge which is the remedy for M1 growth,

“They(businessmen) are the ones who invest their capital, set up businesses and industries, provide employment and pay taxes. Without taxes, the government will not have sufficient funds to administer the country or states”  . He was calling on some Pakatan leaders to cease their criticism of the capitalist system and change their socialist way of thinking.

Invest well and grow your wealth,
Bill

Critters of the week are pygmy elephants from Sabah. The reserve is a short drive from Kota Kinabulu and they also have sun bears.