Higher Yields Needed, Higher Valuation Market Goes

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Saw this on Facebook feed and it just made it all clear once again that the bull had just started. If you remember previously we said that the interest rate would continue to go higher before market really crashes this proper evidence to prove our point.

Junk bond traders channeling money to stock is just a good example of pushing stock valuations higher and in return, the cost of debt would eventually rise. Companies using bond issue to finance their operations would need to raise the coupon yield to get investors of fixed income interested once again.

The overvalue market would then spark central banks to rise interest rates ensuring that money goes into savings rather than risky investments. Junk bonds would have to compete with risk free rates rising their yield higher. This goes on and on…

Never in history the market crashes with low interest rate. High interest rates are the killer of bulls.

Valuations?

Well I did not use the word cheap any more compared to 2016 where everything is really cheap that time. The rise this year had come to a halt for Malaysia but not for US or other Asian markets especially Hong Kong. Bull run is imminent in that sense.

Bear in mind that we stated the bull just started but we no longer deemed that the market is cheaply valued. But if you fear the bull now, you might feel left out forcing yourself to start buying stocks again but at higher levels. That’s really not worth it.

The best solution is to keep hold of good fundamental companies and try to avoid speculative trades with companies that has rubbish fundamentals.

Up till now, we are still bullish and need to prep towards 2018.

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CIMB Navigating Asia Pacific

Asia Pacific is so vital in China’s plan of One Belt One Road (OBOR) policy. Most of the major corporations in China had already kickstarted the OBOR craze positioning themselves for this wave to sweep them to new locations.

Chinese government is still under communist style economy which is a good thing when they initiated the OBOR policy. It will be done no matter what, simple as that!

Take a look the the latest Navigating Asia Pacific report by CIMB which encompasses how to strategize anticipating this policy.

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iPhone X Effects to Malaysian Equipment Makers

Well the biggest benefit definitely goes to Inari Amertron (INARI) but of course we are unsure how many parts would Broadcom be involved in until someone tears down the iPhone X.

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Some of the Broadcom RF Chips on previous iPhones

Broadcom recently stated that there would be a 40% in blended content in the new iPhone model. The non-RF components are expected to be taking place such as wireless charging and touch controller. This would not benefit Inari Amertron which specializes in RF Chips.

It looks like this time around, the retina scanning module by Inari would not make it into the new iPhone.

Globetronics (GTRONIC) on the other hand might see a better gain in revenue spike from the new iPhone. Light and gesture sensors equipped on the new devices would paved the road for the company. 3D sensors that are coming into the market in 2018 would see a new revenue stream with higher margins for GTRONIC.

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Release Date

The launch of iPhone 8 and iPhone X came out together but the only the iPhone 8 is available for pre-order. We felt that this would lag iPhone suppliers by around a month or so before it register true sales numbers.

Customers would love to compare both before buying and pre-orders for iPhone X to begin only in Oct 27. Foresee that most suppliers to remain weak for September and October. We expect iPhone 8 not to register good numbers even though the selling price is much cheaper than the iPhone X. Commonly, iPhone buyers are not price concern and doesn’t seem to prefer anything secondary to the top product.

The approach is simple now, if you are still holding to any iPhone based suppliers be sure to be holding on to it. If you are looking to jump in and leverage on what we think is one of Apple’s best product in years, fell free to buy on market weakness in the next two months or so.

 

 

Maybank Summarizes Banks 2Q 2017 Earnings

Take a look at the whole summary of bank’s report card for 2nd quarter of 2017.

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Our Take

We think that banks had rallied and recovered the losses trading fair to what it is now but we still think that you should hold if you have already seen capital gains holding from last year plus dividend payout that were made.

From now on, the movement is likely broad market related and we do not think that the major banking blue chip would outperform the KLCI. But we are still holding it rather than returning to cash as most stock seem fairly valued too.

What’s your take?

VIX is Back!

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If you refer to one of our previous write up on VIX, you find that we urge investors to buy when VIX is high! The article I’m talking about is here.

Still similar in plan, VIX is a good measure knowing that people are actually buying when the market dips. Furthermore, the current market scare comes from Trump playing fire with North Korea’s provocations. The severity is unknown and that is the reason why markets see it as a threat.

Markets do not like unknowns and the retracement opens up opportunity. Of course if a war break loose then markets would likely go sharp south first before heading up slowly just like in Operation Iraqi Liberation.

But for now, our bets are on everything returning to normal. That is the reason for a buy call on blue chips if your are the conservative type.

Strike the good small caps if you are the brave ones!