When I first started investing, I heard a market myth that says that the Malaysian market tend to suffer a crisis every 12 years. There is the market recession in 1985-1986, the Asian financial crisis in 1997 and the global financial crisis in 2008. Each crisis seriously affected the financial market of Malaysia and astonishingly, they did happen nearly every 12 years. However, it seems that that might be more of a coincidence. However, the prediction of a crisis has always fascinated investors. In the Malaysian market, the Kuala Lumpur Composite Index (FBMKLCI:IND) has been rallying close to 6 years now, many of the gains have come from not increased in earnings by the companies within the index, but rather a re-rating of their valuation. With headwinds ahead of the Malaysian economy and high valuation across most of the stocks within Bursa Malaysia, is there still value to be found?
Malaysia market has been growing at a stable rate at about 5-6% for the past few years. With a mission to move the country to a developed status by 2020 and growing middle class, it seems the best days are still ahead. Moreover, Bursa Malaysia is home to many strong subsidiaries of global brands. Nestle Malaysia Bhd (NESZ:MK), Dutch Lady Milk Industries Bhd (DLM:MK) and Carlsberg Brewery Malaysia Bhd (CAB:MK) are just a few examples of the calibre of the blue chips in Malaysia.
Malaysia is facing a slowdown in its growth rate due to the implementation of Goods and Services Tax in 2015. Market is not optimistic about the short term effect of the new regulation. Furthermore, Malaysia’s household debt is one of the highest in the region. With the household debt at 87% of its GDP recorded in 2013, any increase in the interest rate situation in Malaysia will have a dramatic effect on the consumer confidence.
Value In Action
Investing in the Malaysian market is no longer as easy as before. Bargains are harder to come by and investors should not get carried away by the enthusiasm of the market. The time to be greedy is during a fearful market but the time to be fearful is during a greedy market. It seems KLCI is moving closer and closer toward the “greedy” scale.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above.