The global stock market kicked off the year 2021 on a steady note. This is despite the unprecedented chaotic scenes ever: a forceful riot at the capitol which led to the impeachment of the US outgoing president Donald Trump, the soaring COVID-19 cases plus the highest number of death tolls worldwide.
The good news is, investors do not seem to be affected by these dramas. At the time of writing, the three main US indexes have broken new highs and remain bullish. Likewise, in Europe and Asia, you can see their stock indexes are continuing to be upbeat. Perhaps, the markets have factored in the recovery with the help of vaccines.
Locally, Malaysians have been going through a tough time since the beginning of 2021. First, the termination of KL-Singapore High Speed Rail (HSR) and second, the reinforcement of another MCO followed by the surprising declaration of State of Emergency. On 16th January 2021, there were 4029 COVID-19 cases reported on a single day and the overall infection in Malaysia has surpassed 150,000 cases.
It is a mixed feeling seeing the worsened public health situation with the performing stock market. Does the bull still have legs? Let us look at some facts and begin with the US stock market.
Disclaimer:
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 15th January 2021 broke new highs in November 2020 and it has been moving steadily. However, the bull would take a rest if it has run for a while. A healthy correction could be expected with an immediate support of 30500 followed by 30000 level. What would happen afterwards? I believe the uptrend would resume based on the following reasons:
- The US market is still flooded with liquidity and president-elect Joe Biden has unveiled a $1.9 trillion stimulus package to jump start the economy.
- Interest rate is near to zero and the FED has recently signalled that they are willing to let the inflation rate run above 2%. This means investing in stocks is a much better idea than holding cash.
- Gold price has fallen more than 10% from its peak and showed weaker momentum, indicating the market perceives lower risk currently.
- The recovered crude oil price to above $50 per barrel implies a more positive economy outlook.
Potential Threats
Despite all the bullish signs, one should be cautious as there are underlying threats.
Firstly, the higher the market indexes mean the higher the valuation. If the growth does not catch up with the high price to earnings (PE) ratio, price may fall. Whilst everyone likes their stock prices to skyrocket – the higher the price, the higher the risks.
The good news is; bull generally climbs amid fears and worries. As long as there are still plenty of uncertainties in the year 2021, the bull would continue to run.
Secondly, although more countries have commenced the vaccination process, it looks like the virus has mutated and spread faster. So far, there is no evidence suggesting that the vaccine is effective to the variant. Time would tell.
Thus far the market has behaved positively in anticipation to the effective vaccine. What if the vaccine is not as effective and the variant is more evolved? Not to forget, with stricter global lockdowns in place, it is hard to believe the economy would recover as soon as expected.
Potential Sectors
Nevertheless, some sectors could still perform amid all the challenges. The next sector is related to growing trend of global electronic appliances and home consumption.
Electronics Manufacturing Services (EMS)
The reason that Malaysia’s EMS sector continues to perform is because more companies seek to diversify their supply chains to Southeast Asia. This trend has become clearer since the trade war that started in 2018.
There are a few EMS companies in Malaysia such as VS Industry, ATA, SKPRES and SCOPE. If you read their quarter reports, you would learn that they are poised to clinch new customers or secure new orders from existing customers. In preparing to cope with higher demand, they are in the midst of capacity expansion.
Conclusion
So the world is never short of threats every year, just as it is never short of opportunities. As investors, let us be mindful of both.
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
