Sentiment dampened due to the uncertainty.

6 Nov 2021

Dear Fellow Investor,

Last week  the local technology index tested an all time high as technology shares diverged from the broad market as uncertainty caused by the prosperity tax and raising of stamp duty dampened sentiment.  Our holdings in Inari, Penta  and Frontkin were up. KGB, Dialog, Genting Malaysia and United Plantation consolidated in narrow ranges and were not much affected. 

Foreign funds according to CIMB research have been net buyers for the 3 months up to October buying a net RM 1.6 billion of Malaysian equities in October.  There were no major foreign fund outflows after the budget announcement as these funds buy value when the market is depressed and sentiment is negative.

Moving forward what will drive the market are earnings. The companies we hold all show positive earnings growth. They also have pricing power and are able to raise prices with inflation. Heim and Carlsburg are examples as they benefit from strong brands.

They will also benefit from year end demand and economic and pandemic recovery. Pubs are open again.   Regional peers are more expensive . Thailand,  Philippines and Indonesia are at an average PE of 16.1 while Malaysia is 14.7.  We are undervalued and this attracts professional buyers.

Weekly CRB Index representing a basket of important commodities.

For the last year commodities have been up trending. Malaysia is benefitting from the rise of CPO, crude oil and natural gas and with the massive money printing by most central banks the trend is likely to continue. Joe Biden just got his USD 1.2 Trillion infrastructure bill passed through congress and this will add more inflation fuel to the fire. His build back better bill is still uncertain as the opposition is objecting to the high tax increases necessary to cover the costs.  The build back better  and infrastructure bills include USD 500 billion for clean energy and that will support solar and wind power companies as well as a broad cross section of commodities including copper, aluminium, steel and uranium.   Silver and gold may catch a bid.

Take care
Bill

The bigger pig is the Build Back Better bill Biden is trying to pass. That is why it is prudent to prepare for inflation.