The recent KLCI index of 1620s and the weaker ringgit opens up multiple opportunities for investment. However, before buying into a seemingly cheap equity, it is always advisable to question yourself based on the sentiment of the market.

Sentiments act as a good proxy and an alternative to ‘time’ the market. While I’m totally against solely timing and predicting markets based on support and resistance, understanding the sentiments is key to value investing. To buy a counter when the sentiments are at its lowest will act as a margin of safety or cushion against further downside risk. Too often of a time the market will chase winners and dump losers. Seemingly good counter with positive sentiments will have sort of a priced in effect and consequently, might create a downside air pocket. Let’s delve into a few industries.

Oil & Gas – sentiment is at a very low level. However, we do see a temporary recovery and stabilization of oil price, though volatile. Based on a few Q3 reports by O&G counters, managements are seeing a more participation in the tendering market. While it has yet to translate into real earnings, we can see that the slight recovery of sentiments has yet to lift the share price. While most of the impairment are done at the time when oil was at the USD40/bb level, we expect the potential of positive earnings in the future to be higher.

REITs – Many investors categorized REITs as a ‘safe heaven’.  But we know that there is no such safe haven when price is an ever changing factor. REITs has received much love since 6-12 months ago. While yield seekers and big funds are in search of more stable yield and cash flow, the sentiments of REITs are at its highest. This can be seen in REITs’ MGS-yield spread. Malaysia REITs have never been so risky.

Property – the sentiment of property is on a downtrend. After quarters and quarters of diminishing earnings by property counters, the general perception is property will not see a rebound in the near future. Many property counters are at a ‘don’t make sense’ price point where the adjusted book value is way below the price. Except Ecoworld and a few other big boys, prices are trading at a very low or negative premium. It is actually a great time to take a peek at them.

Airline – many understand that airline business is a volatile business, but with the recent positive comments and buy-in by big investors (i.e. Buffett, LengYan etc), we see that the sentiment is rising. In addition, Quarter 4 and Quarter 1 might be Airasia and Airasia X best quarters and everybody knows this, this is expected lift the sentiment to a higher level. Be really careful.

Banks – sentiment is on a downtrend, aided by the recent recovery of Q3 earnings. Sentiment might rise after rounds of O&G impairments – posted earnings might increase ex one off item. However, share price has not corrected to the recent MGS yield spread.

Palms – lifted by the higher CPO price, favourable production weather and the search of sustainable yield by the big boys, we do see that sentiments are rising and palms counter will receive more and more attention in the future, as long as CPO hovers around the sub-3000 level. In addition to its stickiness in earnings, palm has a natural hedge against USD via CPO pricing and will continue to post good profits moving forward. It is not easy to score a deal.

Again, after looking at yield and valuation, it is always important to ask yourself which part of the cycle you are in. If one is paying for a business with low amount of yield support, he or she should understand the general market sentiments. If sentiment is low, chances are, there will be lesser possibility of a further sell down.

PS: also note that sentiments are being quantified in technical analysis as RSI or its variant. A longer time period of RSI may be useful as a reference.