GLOBAL markets started the week in a sea of red as panic selling sent prices tumbling across the board but stocks rebounded smartly to end the week on a stronger footing.

Given the wild swings in recent days, it is difficult to say with any degree of certainty if this latest rebound is sustainable. It does seem more likely that heightened volatility is here to stay for a while longer.

The main culprit for last week’s bloodbath was China, specifically growing fears of a sharper than expected slowdown in the world’s second largest economy and its cascading impact on the rest of the world.

After allowing stock prices to freefall through the better part of the week, the Chinese government is believed to have stepped in at the last minute to lift the market broadly higher on Thursday. The Shanghai Composite index, though, is still down 7.9% for the week.

Notably, rather than adding to previous draconian measures to support the market, China has fallen back to the more traditional policies of cutting the interest rate — for the fifth time since November 2014 — and reserve requirement for banks, injecting liquidity into the financial system to counter capital outflows.

Key government officials have also taken pains to reassure markets that there is no basis for further devaluation in the yuan. Many investors, though, are sceptical on this point.

The recovery in sentiment towards the end of the week was underpinned by a rash of upbeat data out of the US, countering concerns of a global slowdown. US GDP growth for 2Q15 was revised higher to 3.7%, from the initial estimate of 2.3%, with broad-based improvements in business investments, government and consumer spending as well as inventories.

The timing for a US interest rate hike remains wide open, with better than expected economic data on one hand and repercussions of market turmoil and sluggish global growth on the other.

On the home front, the FBM KLCI closed higher for the week, ending a three-week losing streak, bolstered by support from local funds. The benchmark index closed at 1,612.7 Friday, having fallen as low as 1,504 at the start of the week.

The ringgit, whilst off its lows, extended losses against the greenback. The country’s forex reserves fell to US$94.5 billion in the latest reading. Yields on the benchmark Malaysian Government Securities (MGS) neared 4.5% during the week, from 4.3% the previous Friday. Yields go up when bond prices fall.

Total value for my portfolio fell 2.6% last week, dragged down by losses in Elsoft and Willowglen.

Share prices for Elsoft fell sharply after the company reported a weak set of 2Q15 earnings results. Net profit slumped 73% y-y in the latest quarter, attributed to lower demand from smart device industry. Revenue was down 64% y-y in 2Q15.

On a positive note, sales in 3Q15 is looking to recover strongly based on current orderbook while earnings in 2016 should be supported by sale of testing devices for new smartphone models as well as better demand from the auto and healthcare sectors. Elsoft has some RM33 million net cash and a minimum 40% dividend payout policy.

My portfolio gains (since inception) have fallen from the peak of 16.4% to 5% over the past month amid the broader market selloff. It is proving difficult to swim against the tide — even the best companies get hit. Positively, my portfolio continues to outperform the benchmark index, by 16.8%, over this period.

This article first appeared in digitaledge Weekly, on August 31 - September 6, 2015.

http://www.theedgemarkets.com/my/article/tong%E2%80%99s-value-investing-portfolio-more-volatility-likely