According to various research house (international & local included), the current market has been overbought. Please click here for a copy of these reports.
Let’s look into the valuation of Bursa Malaysia. Earnings of Malaysian companies will moderate in 2009 but their share prices have been going up and up. This has caused the forward market P/E to breach 16x. In January 2009,the forward market P/E was around 13x. P/E of 16x is actually the average P/E for Bursa Malaysia for the past 9 years but with current economic crisis, the P/E should be below 16x. Frankly speaking,I will value the whole market at 12x only.
The sharp rise in the share price is not supported by any good fundamentals. Most of the Malaysian companies have yet to show losses as their annual reports will be out around June 2009.But if you investigate into their quarterly reports,you’ll see that most Malaysian companies have shown sharp drop in their revenue & profit in Q4 2008 and Q1 2009. Hence,it’s matter of time for the bear to rule again.
So what cause the market to go up so fast? My group of friends (who are analysts) discussed & have several explanation for it.
a) Political power which requested inflow of public funds, trust funds and ‘Foreign Direct Investment’ which is ‘proceeds’ belonged to some politicians parked in overseas banks.
b) Human Greed: Retail investors who are actually market followers (PIGs) have been ushered by mass media to jump into the market now. When retail investors start to trade actively and confidently, big funds mentioned above will quitely and slowly sell their holdings to retail investors who are mostly ‘Uncle and Aunties’. This has pushed the volume to 1-2 billion several times.
Big funds exchange their paper money (shares) with real money (invested by retail investors). This is a great way to ‘collect’ money from the public. Who needs ‘EPF’ and ‘PNB’ anyway?
c) Foreign funds who have fled from the West into Asia. Foreign funds know that the current economic crisis is still with U.S. Therefore,it’s better to park their cash in Asia which has large pool of surpluses.These funds will pull back anytime especially right now, when market valuation in the West start to become more attractive than Asia.
I advise my readers to take their profits now. Even Mr. Tan Teng Boo is smart enough to sell his funds’ holdings. What are you waiting for?