Technology index advanced despite of the dropped in volume of KLSE

 31 July 2021

Dear Fellow Investor,

Despite the low volume drop in the KLSE last week, the technology index advanced. Our tech holdings in Inari, Pentamaster and Frontkin were not affected. Our blue chip dividend producing shares were also supported both in Malaysia and Singapore.

When I select shares, I follow Warren Buffet’s principle of pricing power. Pricing power calculates a firm’s markup or the extent to which a company can raise prices over and above costs. I combine this with other margin strength.

For example, Inari supplies Radio Frequency  chips to Apple for their I Phones.  Despite recessions, bad news, negative sentiment and inflation, Apple is able to raise their prices due to high and consistent demand .  Have you noticed how the Apple store in the KLCC is always filled with customers although many other shops have low footfall ?  Once the MCO is lifted, Apple store in KLCC will fill up again.

Other shares we hold with pricing power include Carlsburg and Heim. They have unique brands and a loyal following who will pay a premium price for their products.  In Singapore we hold SATS and Sheng Siong. Both have pricing power. SATS controls the majority of gateways at Changi airport and other airports which means other competitors are locked out of gateway catering services.  It gives them a moat and the  flexibility to increase prices should inflation become a problem. Sheng Siong operates a supermarket chain in Singapore mostly located in HDP flats. The have pricing power as HDP residents can conveniently buy their wide selection of meat, fish and fresh vegetables products without having to travel.  Even an increase in prices should not drive customers away. Because of their low debts and strong balance sheet if interest rates go up they are not impacted.  

The Star today had an article on the National Recovery Plan. It mentioned that Labuan now has herd immunity with 86% of the residents vaccinated. This is the mass vaccination trend which will lead to economic recovery.  By October 2021 the target is have Malaysia fully vaccinated. This could be the light at the end of the tunnel.

Combine this with low interest rates, quantitative easing, and loose money, expect funds to flow into equities.   Inflation  could be an issue, but buying high quality dividend producing companies with pricing power   should help us prosper despite inflation .

Keep safe

Bill

Quality companies with pricing power can help us tackle inflation.