On Friday the Dow Jones closed at an all time high while the Nasdaq continued to lag closing 8 % below its high. This shows a shift from over priced technology favorites to lower priced value shares. This is significant because US markets are driving world markets and effect our investments in Asian shares.
I am waiting for a shift in Malaysia to recovery plays in banks, autos, healthcare and consumer goods. Technology shares have been the best performing sector this year up 17.6 % this year while most other sectors have lagged. There is still momentum in the technology sector but will not add at the present and will hold. Semiconductor demand is driving the world and our technology shares are key players in this space. As economies open up from the pandemic demand will only increase.
Some of you are actively trading and have asked me should I buy Top Glove which has dropped over 50 % from its high. It is a quality company and is a good investment at the current price but that does not mean it is a good trade. I would wait for an accumulation on relatively higher volume and wait for price to break out of the accumulation. In this way you are following the smart money. The same goes for the other sectors.
Every day I track the KLSE sectors for price and volume breakouts. This tells me where the money is flowing. Suppose the consumer sector is exhibiting volume breakouts then I will scan the sector for the best opportunity. In early November 2020 Heineken rose from RM 19 to 21 on massive volume and wide price spreads. This happened as the government was easing lockdowns and allowing the breweries to re open. Since Heineken is a solid well managed company, this was a low risk opportunity to invest or trade. Because of the shift into recovery this business had the wind in its sails. The massive volume showed that smart money was pushing through supply and marking the price higher.
The same thing happened with OCBC in Singapore. On 4 November 2020, massive volume and a wide price spread pushed the price to SGD 8.80. Smart money was behind this move as they know that Singapore was getting the pandemic under control . Other Singapore banks also broke out on high volume on this day confirming that banks were back in favor.
Although I am an investor and focus on high quality shares this technique works for all shares including 2nd board, syndicate or ACE shares. I use tradevsa.com to identify the strong sector and then I drill down to find shares in this sector.
In the weeks ahead as recovery unfolds there should be trading opportunities in the KLSE and Asian markets.
Take care Bill
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Uncertainty about inflation and rising interest rates has effected equity markets worldwide. The technology focused Nasdaq has lost over 10 % of its value in the past month while the Singapore SGX has risen 10 % due to a heavy concentration of banks, and value focused companies.
In world markets including Malaysia there has been a notable shift from growth to value shares.
We have been holding Nasdaq listed Canadian Solar which has suffered a correction from its highs but has held weekly support. Growth shares are represented in the Nasdaq which focuses on high growth in the future such as Tesla and Zoom teleconferencing . PEs are at nose bleed levels and revenues are uncertain but the investment crowd is willing to chase momentum and higher prices similar to Bitcoin. Higher inflation and higher interest rates would throw a wet blanket over this party.
Despite Canadian Solar being in the Nasdaq and in a growth industry, I will continue to recommend to hold.
PE is 13.7 which is reasonable compared to 1046 for Tesla Tesla is a high growth share while in my opinion Canadian Solar is a value plus growth share or growth at a reasonable price. Value for me is seeing the money now and Canadian Solar is certainly showing us the money now.
On Thursday 18 March 4th quarter results were released and Canadian Solar went up by over 10 % by Friday . Every metric including earnings, revenue and profit margins exceeded analyst’s expectations.
For those of you holding do visit Canadiansolar.com and view the results under the investor relations section and their plans moving forward. My view is that Canadian Solar offers both value and a runway for growth in an industry that will benefit from Biden’s green policies and infrastructure spending.
Weekly chart with a 50 week moving average defining support and a powerful uptrend. Notice the ultra high volume at the right edge of the chart which could be short covering.
Below is some research on solar power and why this trend has a lot of room to run. In Malaysia we have Solarvest which has potential but wait for a price correction before buying.
Five Reasons to Install Home Solar Panels
1. Provides Clean, Renewable Energy
Solar power is a 100% clean, renewable energy source. It reduces reliance on oil, coal, and natural gas for electricity production. These fossil fuels produce harmful emissions that affect the quality of air, water, and soil and are responsible for global warming. It’s estimated that between 2000 and 2065, the Earth will lose more species of plants and animals to extinction than in the previous 65 million years combined.2 That’s a staggering statistic and one driven significantly by the effects of greenhouse gases from fossil fuels.
In contrast, solar energy produces no pollution. The sun's abundant power offers an unlimited energy source that does not strip the landscape or harm the ozone layer. Residential solar energy systems represent an investment in the planet's future, conserving non-renewable energy sources and protecting the environment.
2. Gives You Freedom and Control Over Electricity
According to research from Lawrence Berkeley National Laboratory, U.S. households have experienced a steady increase in both frequency and duration of power outages over the last 15 years.3 The United States has the highest number of power-outage minutes of any developed nation. Our electricity grid is 100 years old and was not built for today’s vastly increased population and extreme weather events. California’s largest utility, PG&E, estimates it will need $75 billion to $150 billion over several years to make the grid more secure, a cost that will be passed on to customers.4
Our grid needs to be modernized to meet the increasing demands of a plugged-in society. Adding a home battery unit powered by residential solar panels can store enough electricity to power homes through peak usage hours, thereby giving households the freedom to control their family’s electricity.
BrightboxTM battery storage service along with solar panels, are also a viable buffer against the rolling blackouts introduced by electric companies for wildfire prevention. Today’s antiquated grid means that even communities not directly threatened by wildfires will experience power outages. All PG&E customers are at risk of losing power this summer, impacting up to 16 million people.
With a residential solar system, your home is powered by rooftop solar panels during the day and by energy stored in the battery at night. By installing solar panels, you gain energy independence.
Solar panels and home batteries are becoming more affordable, accessible, resilient, and efficient. They provide peace of mind and energy security for households when the power goes out, or the next storm strikes. Sunrun’s Brightbox home battery system replenishes with energy generated from the sun and removes the inconvenience, uncertainty, and expense of refueling a gas or diesel-powered generator. The clean and silent Brightbox battery is a preferred alternative for many families to a traditional backup generator.
3. You May Save on Your Current Utility Bill
If you’re facing rising home energy expenses, home solar panels can offset your costs.
Savings can even accrue on cloudy days since the sun emits energy through clear and cloudy skies. Solar offers year-round efficiency and savings, even in colder, cloudy climates. Depending on their size, efficiency, and orientation relative to the sun, some solar panels generate more electricity than your home consumes. This could reduce your monthly electric bill to zero. You may qualify for a rebate in some areas if your residential solar power system produces excess electricity. Check with your area’s solar power guidelines.
Most utility bills are rising every year. With Sunrun’s solar service plan, customers pay predictable rates for the next 25 years.
4. Qualifies for Tax Breaks
Another factor in the increasing affordability of solar panels is the federal, state, and local tax breaks. For example, the federal solar tax credit gives you a dollar-for-dollar reduction against your federal income tax. Currently, the residential federal solar tax credit gives you a dollar-for-dollar deduction against your federal income tax equal to 26% of the final cost of solar energy systems you install on your home. This benefit exists through December 31, 2022. In 2023 the residential tax credit will step down to 22%. In 2024, the tax credit for residential solar ends.5
What's more, purchased residential solar panels can improve the resale value of your home. According to Zillow Economic research, homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power. For a median-sized household, that translates to an additional $9,274.6
5. Costs Have Fallen
The cost of solar has dropped dramatically in recent years, falling more than 70% in just the last decade.1 You’ll save money on maintenance too, since there are no moving parts to break down. In addition, the cost of home solar batteries has dropped substantially as well. The benchmark levelized cost of electricity (LCOE) for lithium-ion batteries has fallen 35% to $187 per megawatt-hour since the first half of 2018, according to research company BloombergNEF (BNEF).7
Among the best performing shares in the KLSE last week were Heim, Carlsberg, Dutch Lady and F & N. These are high quality recovery shares as Malaysia gets back to normal. Heim has risen from rm 17.80 in October 2020 to rm 26.24 as of the Friday close.
Quality shares are like tennis balls. They will go down with everything else during a panic or collapse but will recover faster like a bouncing tennis ball. The low quality shares are like lead balls. When they hit the floor do not expect a bounce. The benefit of these quality value shares is that they also usually pay regular dividends so while we wait for recovery we earn some income.
The money you have intrusted us to manage , we have diversified into value and growth. Value gives us stability and money now while growth gives us future potential money. If interest rates rise a lot than the value of future cash flows will diminish. Growth shares will suffer, especially the highly leveraged ones with weak financials.
Presently, I do not forecast a big rise in interest rates and inflation based on the TIPs (Treasury Inflation Protected security).
Weekly chart of the TIPs with a 50 week moving average.
If players think that inflation and interest rates are going up they will buy TIPs as a hedge on their treasury bonds. Bonds lose value if interest rates go up. The players in this space are institutions and pension funds who have the best research and insider connections. The chart to me signals consolidation and no dramatic moves one way or another. Notice that in the last 5 weeks TIPs have dropped although the 10 year US T Bond rates have increased. The professionals are not worried about higher rates at this time.
Our high quality growth shares such as Inari, Uchitech Canadian Solar and Kellington should be fine.
Keep safe Bill
Biden and his Sec of the Treasury Yellen will print and pump multi billions into green energy which will benefit solar stocks, and electric vehicles.
Despite the 13.6 % correction in the Nasdaq since the middle of February, Warren Buffet’s Berkshire/B closed at a new high. Investors who are buying Berkshire are shifting from many of the high flying technology shares such as Tesla and Zoom to more traditional companies such as Kraft, Chevron, Apple, Verizon and undervalued Japanese conglomerates such as Sumitomo.
Weekly chart of Berkshire/B
On the home front our technology index in the last week has fallen 6 % on low volume, falling in sympathy with the Nasdaq. Unless weekly support breaks down on the technology shares we hold for you such as Inari, I am not concerned.
The economic background is positive and is being supported by the rise in oil prices and the rise in finance counters. Sentiment is improving as vaccines are being rolled out. Some of my clients who are physicians have already received their first Phizer shots.
Our Singapore shares have come back to life. This includes OCBC, DBS, SGX and Parkway Life Reit.
The volatility since the beginning of the year in my opinion has a lot to do with fear of inflation, rise in commodity prices and uncertainty of Biden’s stimulus programs.
These are issues we have no control over but if we select quality well managed companies we can ride the ups and downs and come out ahead. At least our share selection gives us a measure of control and puts the odds in our favour.
Take care Bill
Zoo Negara is now open which is a good sign that our economy is getting back to normal.
