1 Jan 2019

12 MONTHS MONEY - BE CAUTIOUS, BE VERY CAUTIOUS

I subscribe to the theory that the world will be entering a period of recession by 2020 with no easy solution .

I know, I know many of you will protest and point to the 10 years cycle ( 1998-2007, 2008- 2017, 2018- ? ) and rapid recovery from financial crisis in the past.

Here are my points

1. From the financial crisis of 10 years ago, the world was essentially bailed out by China and by Central bankers. The situation is very different now and cannot look for the same solutions.

2. We used to have what is known as the Greenspan put option wherein the FED  can reliably be called upon to intervene on behalf of financial markets, now people not so sure anymore.

3. China’s circumstances, priorities and capacity to intervene  are different today compared to 10 years ago. What happens if China is the cause ( of financial distress) and not the solution?

4. What about the US-China tariffs? Anyone who follows current events knows this thing is less about trade than about Americans fear of China. Two things can happen at the end of the truce period by March:

a) Declaration of good news, victory, mission accomplished by Trump

b) Declaration of bad news by Trump ( this is not likely to happen)

Neither of the two events is likely to change anything fundamentally….ie...the fear the Americans have with regards to the rise of China. ….and this fear is being played and exploited by US politicians from both parties...very popular amongst politicians.

This is a Long Term problem. No quick political solution. We are interested in  its economic impact and not any lasting political solution.

5. State of the world economy. We have US, China….and then we also have Brexit to deal with shortly.

6. Oil prices. What is happening in oil prices in recent months is weird, very weird. With Venezuela production almost coming to a halt ( due to mismanagement) , sanctions on Iran, close co-operation between Russia and Opec that Brent  oil price can drop from above US$ 80 to slightly above US$ 50 in such a short space of time is highly unusual. < US shales must be pumping like mad>. This is just more evidence of uncertainties in the world. I am not optimistic for oil price to end of 2019.

7. Solutions.

Technology.  Any solution is not likely to come from the world of politicians but from technology, from innovations, from scientists and from businessmen. There is  plenty of scope for innovators to improve the situation…..for good news.

China. As long as China GDP can exceed 5%, the risk to the world is tolerable. People will monitor China closely.

8. Impact on Bursa

Here, opinions differ. There are those who think Bursa prices have discounted for negative news and those who think, it still has some ways to go. Whatever it is , risks on Wall Street appears higher than risks in Bursa so we may be able to de-link ourselves from Wall Street to a certain extend. My opinion is that we should be ok as long as we are cautious in our approach.

9. Risks

Financial markets over shoots. Between Jan 2000 and Oct 2002 Nasdaq dropped from 4000 to 1300 ( 70% drop)  and between Oct 2007 and Jan 2009 Nasdaq drop from 3000 to 1500 ( 50% drop). Crisis investing is not as easy as you think…..unless you got infinite patience. Reality is different from myths.

10 Stock selections for 12 months money

Considering that one can also be right and still lose money ( or wrong and still make money) , one cannot ever be sure one has determined the best outcome 12 months later. But I did notice one guy who has gone out of his way to produce what in my opinion is the best designed model portfolio 12 months money given the state of the world:

By…...10154899906070843

1. Ql -20%

2. TOPGLOV -20%

3. Yinson -20%

4. Hartalega -20%

5. AirAsia -20% - balance of value

One will be hard pressed to find a portfolio of 5 stocks which are better managed, better strategies in place and better business in place to benefit from growth and also from  being cautious. I like this a lot. This is a model portfolio that is logical…..whatever the outcome by end 2019.

My own

For 12 months money and designed to be safe and conservative while also benefiting from investing, my idea would be:

Reits….IGB and Sunway  50%

Maybank                          10%

Serba Dinamik               10%

Jaks                               10%

Air asia                           10%

Vitrox                              10%

Whatever happens,  IGB and Sunway Reits will continue to find tenants,  the 5 equities will participate in the economy and growth…..Jaks is extremely interesting because there is both clarity ( to me) and skepticism ( from investing public) and at forced selling price.

Serba. Misconception about Serba that it is an O&G company. Far from it, business for Serba are all land based from refineries from factories, IPP and from anyone using huge turbines. Serba is a service and maintenance company with very predictable revenue and expanding fast.

Air asia is transforimg itself very fast. ... and a very very good managment team.

Vitrox , to me, is the most innovative company with the best prospects for long term growth in Bursa.

Pre-amble

Design of portfolio is about risk - reward, about risk profile of the reader, about risk tolerance.

Considering this is i3...full of retailers, full of remisiers, full of OTB types who are  just interested to corner stocks, wag up stocks, small cap stocks, low PE stocks easier to manipulate……….this write up is not for you. Don’t even bother to comment.

This write up is about 12 months money. This is not about next week or next month.  You will not know whether I write about is accurate or not, logical or not until enough time has passed. So, don't use this to trade the market next week....or blame me in anyway.