Confusion and uncertainty

Apologies for the lack of postings. As usual, work is still a priority so I couldnt write much. But there were plenty of stories to tell, most notably the fuel and electricity price increase and more political twist this week with the SAPP's no confidence on the PM saga.

The KLCI today closed 10 points higher at 1206 points. But that comes after a series of declines over concerns on inflation and political uncertainty. With the energy price adjustment, the market is worried that inflation might exceed 7% from its usual 2-3% range (from what I last recall), which could also lead to interest rate hike of between 25-75 basis points (from what brokers been telling me).

For an average guy on the street, all this means higher cost of living. Suddenly your take home pay is not worth that much any more. You may need to adjust your lifestyle and cut leisure spending, dining out etc. The low-income bracket might not see direct hit on their electricity bills, or will only see a small increase in petrol expenses on their motorbikes, but prices of other products are rising too because of the general increase in energy cost. So all in all everybody is affected, both direct and indirect way.

The political drama is not helping either. Foreign investors often ascribe a premium to political stability, though the exact premium amount is still debatable. With all the noises of political defection and power transfer, investors are likely to take the sideline and wait for things to unravel. Shorter term investors might even decide to sell first and worry later. Perhaps one might not see rampant selling by all of them, but clearly there's no reason to favor this market when there is political and social tension on the ground.

We're lucky in the odd sense that the rest of the world are also facing challenging times. So the impact on Malaysia is not isolated. China market, for example, has fallen over 40 percent ytd. But this makes their market no longer expensive when compared to Malaysia. US is still unravelling the sub-prime losses on its financial sector and now coming to feel the effect from the spiralling fuel cost. It is a worldwide phenomenon not unique to Malaysia.

I think it is going to be a while before we see market recovery. Right now there are so many theories on how the market will react. Any data releases can have double meaning. Even further increases in oil price can be seen as a positive sign that demand is still strong. Less than three months ago the US Fed was cutting rates, now there are talks of a rate hike soon. May be the market is confused. I know I am.

-AY-