The market has been very vibrant for the last two months.
For those who had sold everything before the US presidential election, they would be regretting. Even though it was not smooth sailing for the whole election campaign, the market had reacted favourably since the outcome appeared clearer. Just days after the election, drug makers Pfizer and BioNTech flagged strong progress in their COVID-19 vaccine, indicating the experimental vaccine was more than 90% effective in preventing COVID-19. The higher hopes for a more stable US trade policy, plus the anticipation of faster economic recovery has seen the U.S stock market challenging new highs.
In fact, you would feel the global stock market sentiment has turned more positive since the US elections.
In the domestic front, Malaysia’s economy has recovered from the record low of -17.1% in the second quarter, to -2.7% in the third quarter of 2020. Bank Negara Malaysia (BNM) has projected a positive economic growth for 2021 to range between 6.5-7.5%. The positive forecast is in harmony with the recent KLSE Composite Index movement, as it closed at 1599 on 16th November 2020, forming a reversal pattern from downtrend since beginning of November. So is the global economy on the recovering path? While it may be early to tell, there are signs of showing it. To look at a broader picture, let us observe the U.S. market before we discuss further.
The companies or strategies mentioned in this article are meant for study purpose only. It doesn’t constitute any ‘buy’ or ‘sell’ recommendation. Please consult your financial professional if you want to make any decision.
The Dow Jones Industrial Average (DJIA) chart on 13th November 2020 shows the bull is in strong control compared to a month ago. One clear bullish sign is the big gap that appeared on 9th November 2020, following the positive vaccine news from Pfizer. Since then, the DJIA is able to stand above 29000 comfortably. From the strong momentum as showed, the index is poised to break the 30000 historical and psychological levels.
Signs of Recovery
While some would ponder if the current rally is sustainable, it helps by observing some signs of recovery:
1) Yes, we are talking about the recovery of the global economy. Since we know the stock market is the barometer for an economy, we can see how the global stock market indexes perform. Indeed, not only the three major U.S. stock market indexes, the European countries and Asia indexes, including China, Hong Kong, India, Japan, Indonesia, Singapore and Malaysia indexes have moved above the MA200 lines, with most indexes going up 10% from the bottom. This is an obvious sign that the global stock markets have returned.
2) Since oil price is also a barometer of the economy, the recovering crude oil WTI futures from 35 to 41 per barrel also shows some subtle signs of economy recovery. If oil price can stand above 42 for a few weeks, it is clearer that recovery is on the way.
3) U.S. GDP grew 33% in the third quarter after a 31% plunge in the second quarter. Additionally, its unemployment rate in October also declined by one percent to 6.9%, and the number of unemployed persons fell by 1.5 million to 11.1 million.
4) Similarly in Malaysia, our GDP has recovered from -17% in the second quarter to -2.7% in the third quarter of 2020. If we can contain the pandemic effectively, the lifting of CMCO should see stronger recovery in the coming months.
5) The newly enforced CMCO in most states in the Peninsular since 9th November has led to rising daily trading volume of KLCI. But interestingly, this time the gloves counters are no longer dominating the top volume and top gainers list. Rather, you can see the blue chip counters have surfaced in the top gainers list, such as Public Bank, Airport, Tenaga and Genting to name a few. It shows the leaders are leading.
6) In most economy crisis, the sector that is leading the recovery is the finance sector. Recently, not only we can see many Malaysia banking counters that have gone up, banks in Singapore such as OCBC, UOB and DBS have behaved similarly too. Three of these banks have risen around 20% since November 2020.
With the above signs, we can feel the optimism is coming back. Of course, one should not be over confident as the effectiveness of the vaccine, which could lead to the demand eventually, does matter.
Binyuen is the founder of BY Enrich Resources and the author of ‘Life beyond the Comfort Zone’ and ‘Profit from Share Investment’. His books are available in the National Libraries in Malaysia and Singapore or online http://www.teybinyuen.com/profitfromshareinvestment