Better economic outlook, but poorer corporate earnings expected
This may appear a contradiction but it is not – they can go out of sync in the short-term.
The closely watched US corporate earnings results season currently underway underscores an important factor – that repercussions from China’s economic slowdown and ongoing trade spat are starting to negatively impact profits. Even though the US economy remains on solid footing as compared to the rest of the world, Corporate America is not immune to the global slowdown.
Apple’s warning of slower demand in China, at the start of the year, was just the precursor. Since then, multi-national companies including Caterpillar, Nvidia, Intel, Advanced Micro Devices, 3M, Harley-Davidson and Ford Motor have all reported weak earnings, attributed to slower Chinese demand as well as rising costs due, in part, to trade tariffs.
Additionally, companies are providing cautious, some even downbeat, forecasts for the near-term. For instance, Apple, which reported 4.5% y-y sales decline for the latest quarter ended December due to falling iPhone sales, has guided for another contraction in the current quarter, of between 3.5-10%.
Nonetheless, stock prices have reacted well to the earnings weakness, by and large rewarding both positive and negative surprises. This is in stark contrast to what we saw in the previous quarter when even above expectation earnings results were punished.
This suggests that investors may have over-reacted to the downside in the December selloff and had been bracing for the worst. Case in point, share prices for Apple rebounded smartly, gaining more than 6.8% the day after its results. The Dow Jones Industrial Average, S&P 500 and Nasdaq indices have recouped almost all of their losses in the last month of 2018, led by recoveries for the big tech stocks.
That said, analysts have been progressively cutting back their earnings forecasts. According to data provider FactSet, earnings for 1Q2019 are currently estimated to contract by 0.8% y-y, which is sharply lower than the 4.9% growth estimate at end-November and 3.3% at end-December. If true, this will be the first earnings contraction since 2Q2016.
Elsewhere, hundreds of companies in China, including giants China Life Insurance and Chongqing Changan Automobile Co (Ford Motor’s partner), have joined the chorus on profit warnings. Slower global economic growth and uncertainties over trade will likely damp corporate earnings for Asian companies reliant on exports. This could set markets up for more volatility going forward.
Thus, whilst sentiment has steadied in 2019, so far, investors are still likely to remain cautious. Future expectations remains fraught with uncertainties. Should earnings deteriorate, that will keep a floor on valuations, even if share prices drop.
Stocks in my Global Portfolio ended up 1.2% for the week. Total returns now stand at -8.9% since inception. This portfolio is under-performing the MSCI World Net Return Index, which is down by a lesser -0.7% over the same period.
Unsurprisingly, trading volume on the Bursa Malaysia was thin as many participants are away for long break. The local bourse was closed last Friday for FT Day and then again on Tuesday-Wednesday for Chinese New Year. The FBM KLCI is up 0.6% for the week ended Thursday but is flattish for the year-to-date.
Total returns for my Malaysian Portfolio now stand at 50.5% since inception. This portfolio continues to outperform the benchmark index, FBM KLCI, which is still down 7.5%, by a long way.
Performance Comparison Since Inception (%)
- Tong's Value Investing Portfolio
- FBM KLCI
| SHARES HELD | QUANTITY | AVERAGE COST | COST OF INVESTMENT | CURRENT PRICE | CURRENT VALUE | GAIN / (LOSS) | GAIN / (LOSS) |
|---|---|---|---|---|---|---|---|
| SCGM BHD | 11,066 | 1.732 | 19,218.4 | 1.240 | 13,721.8 | (5,496.5) | (28.6%) |
| AJINOMOTO (M) BHD | 1,500 | 11.813 | 17,720.0 | 18.620 | 27,930.0 | 10,210.0 | 57.6% |
| PANASONIC MANUFACTURING MSIA | 600 | 26.157 | 17,182.0 | 38.040 | 22,824.0 | 5,642.0 | 32.8% |
| Y.S.P.SOUTHEAST ASIA HOLDING | 10,500 | 2.413 | 25,340.0 | 2.710 | 28,455.0 | 3,115.0 | 12.3% |
| FORMOSA PROSONIC INDUSTRIES | 18,000 | 1.540 | 27,720.0 | 1.820 | 32,760.0 | 5,040.0 | 18.2% |
| HONG LEONG INDUSTRIES BHD | 2,000 | 9.126 | 18,251.0 | 9.200 | 18,400.0 | 149.0 | 0.8% |
| WILLOWGLEN MSC BHD | 19,900 | 0.500 | 9,950.0 | 0.470 | 9,353.0 | (597.0) | (6.0%) |
| MALAYAN BANKING BHD | 3,000 | 10.250 | 30,750.0 | 9.590 | 28,770.0 | (1,980.0) | (6.4%) |
| ECO WORLD DEVELOPMENT GROUP BERHAD | 15,200 | 1.235 | 18,772.0 | 0.920 | 13,984.0 | (4,788.0) | (25.5%) |
| DIALOG GROUP BHD | 5,700 | 3.452 | 19,676.4 | 3.020 | 17,214.0 | (2,462.4) | (12.5%) |
| SAM ENGINEERING & EQUIPMENT | 3,000 | 7.380 | 22,140.0 | 7.340 | 22,020.0 | (120.0) | (0.5%) |
| POH HUAT RESOURCES HOLDINGS | 13,000 | 1.490 | 19,370.0 | 1.510 | 19,630.0 | 260.0 | 1.3% |
| Total | 246,089.8 | 255,061.8 | 8,972.1 | 3.6% | |||
| Shares bought | |||||||
| No transaction. | |||||||
| Total shares held | 246,089.8 | 255,061.8 | 8,972.1 | 3.6% | |||
| Shares sold | |||||||
| No transaction. | |||||||
| Cash Balance | 45,954.3 | ||||||
| Realised Profits / (Losses) | 92,044.0 | ||||||
| Change since last update Jan 31, 2019 | |||||||
| Portfolio | (0.1%) | ||||||
| FBMKLCI | 0.6% | ||||||
| Portfolio Returns Since Inception | 200,000.00 | 301,016.1 | 101,016.1 | 50.5% | |||
| Portfolio Returns (Annualised) | 11.7% | ||||||
| Portfolio Beta | 0.650 | ||||||
| Risk Adjusted Returns Since Inception | 77.7% | ||||||
| Performance Comparison | At Portfolio Start | Current | Change | Relative Portfolio Outperformance | |||
| FBM KLCI | 1,829.7 | 1,693.4 | (7.5%) | 58.0% | |||
| FBM Emas | 12,700.4 | 11,753.4 | (7.5%) | 58.0% | |||
Footnote:
*Current price is as at February 7, 2019.
*Portfolio started on Oct 10, 2014 with MYR200,000.
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.
*Current price is as at February 7, 2019.
*Portfolio started on Oct 10, 2014 with MYR200,000.
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.
STOCKS SOLD IN THE LAST 12 MONTHS (Currency: MYR)
| SHARES SOLD | DATE BOUGHT | DATE SOLD | QUANTITY | AVERAGE COST | COST OF INVESTMENT | PRICE SOLD | SALES PROCEEDS | GAIN / (LOSS) | GAIN / (LOSS) |
|---|---|---|---|---|---|---|---|---|---|
| CLASSIC SCENIC BHD | 01-Dec-16 | 27-Jul-17 | 4,000 | 1.413 | 5,651.3 | 1.790 | 7,160.0 | 1,508.8 | 26.7% |
| PANASONIC MANUFACTURING MSIA | 21-Jan-16 | 27-Jul-17 | 400 | 26.125 | 10,450.0 | 37.100 | 14,840.0 | 4,390.0 | 42.0% |
| ELSOFT RESEARCH BHD | 30-Mar-17 | 24-Aug-17 | 8,000 | 1.844 | 14,750.0 | 2.650 | 21,200.0 | 6,450.0 | 43.7% |
| JOHORE TIN BERHAD - WA 12/17 | 04-May-17 | 24-Aug-17 | 17,000 | 0.655 | 11,135.0 | 0.680 | 11,560.0 | 425.0 | 3.8% |
| FOCUS LUMBER BERHAD | 03-May-17 | 30-Aug-17 | 6,000 | 1.660 | 9,960.0 | 1.530 | 9,180.0 | (780.0) | (7.8%) |
| WILLOWGLEN MSC BHD | 23-Nov-16 | 30-Aug-17 | 7,000 | 0.768 | 5,377.0 | 1.430 | 10,010.0 | 4,633.0 | 86.2% |
| WILLOWGLEN MSC BHD | 23-Nov-16 | 28-Sep-17 | 7,000 | 0.770 | 5,377.0 | 1.180 | 8,260.0 | 2,883.0 | 53.6% |
| LII HEN INDUSTRIES BHD | 14-Dec-16 | 28-Sep-17 | 5,000 | 2.820 | 14,100.0 | 3.720 | 18,600.0 | 4,500.0 | 31.9% |
| COMFORT GLOVES BERHAD | 28-Aug-17 | 08-Dec-17 | 25,000 | 0.960 | 24,000.0 | 0.930 | 23,250.0 | (750.0) | (3.1%) |
| JOHORE TIN BHD | 08-May-17 | 08-Dec-17 | 9,000 | 1.600 | 14,400.0 | 1.180 | 10,620.0 | (3,780.0) | (26.3%) |
| THONG GUAN INDUSTRIES BHD | 12-Dec-16 | 08-Dec-17 | 5,000 | 4.243 | 21,215.0 | 4.100 | 20,500.0 | (715.0) | (3.4%) |
| KERJAYA PROSPEK GROUP BERHAD | 12-Jan-17 | 15-Mar-18 | 11,000 | 1.025 | 11,280.0 | 1.540 | 16,940.0 | 5,660.0 | 50.2% |
| KERJAYA PROSPEK GROUP BERHAD - WARRANTS B 2018/2023 | 08-Mar-18 | 15-Mar-18 | 3,000 | 0.000 | 0.0 | 0.330 | 990.0 | 990.0 | - |
| LUXCHEM CORPORATION BHD | 30-Aug-17 | 15-Mar-18 | 16,500 | 0.732 | 12,072.5 | 0.720 | 11,880.0 | (192.5) | (1.6%) |
| WILLOWGLEN MSC BHD | 14-Dec-17 | 22-Mar-18 | 20,000 | 1.010 | 20,200.0 | 1.260 | 25,200.0 | 5,000.0 | 24.8% |
| MUAR BAN LEE GROUP BERHAD | 26-Oct-17 | 22-Mar-18 | 13,500 | 1.240 | 16,740.0 | 1.170 | 15,795.0 | (945.0) | (5.6%) |
| CHOO BEE METAL INDUSTRIES BHD | 07-Sep-17 | 16-May-18 | 8,000 | 2.190 | 17,520.0 | 2.440 | 19,520.0 | 2,000.0 | 11.4% |
| CHOO BEE METAL INDUSTRIES BHD | 07-Sep-17 | 21-May-18 | 8,000 | 2.190 | 17,520.0 | 2.300 | 18,400.0 | 880.0 | 5.0% |
| SUPERLON HOLDINGS BHD | 01-Dec-17 | 21-May-18 | 6,000 | 1.175 | 7,050.0 | 1.550 | 9,300.0 | 2,250.0 | 31.9% |
| OKA CORPORATION BHD | 14-Dec-17 | 28-Jun-18 | 12,000 | 1.541 | 18,488.0 | 1.270 | 15,240.0 | (3,248.0) | (17.6%) |
| SUPERLON HOLDINGS BHD | 01-Dec-17 | 28-Jun-18 | 6,000 | 1.175 | 7,050.0 | 1.210 | 7,260.0 | 210.0 | 3.0% |
| WILLOWGLEN MSC BHD | 14-Dec-17 | 28-Jun-18 | 100 | 0.500 | 50.0 | 0.540 | 54.0 | 4.0 | 8.0% |
| PANTECH GROUP HOLDINGS BHD | 17-May-18 | 02-Aug-18 | 43,000 | 0.580 | 24,940.0 | 0.560 | 24,080.0 | (860.0) | (3.4%) |
| KERJAYA PROSPEK GROUP BERHAD | 10-Jan-17 | 06-Sep-18 | 11,000 | 1.020 | 11,225.0 | 1.400 | 15,400.0 | 4,175.0 | 37.2% |
| LUXCHEM CORPORATION BHD | 25-Aug-17 | 06-Sep-18 | 16,500 | 0.717 | 11,825.0 | 0.655 | 10,807.5 | (1,017.5) | (8.6%) |
| HOCK SENG LEE BHD | 19-Apr-18 | 06-Sep-18 | 14,500 | 1.520 | 22,033.0 | 1.370 | 19,865.0 | (2,168.0) | (9.8%) |
| GENTING MALAYSIA BERHAD | 06-Sep-18 | 28-Nov-18 | 3,800 | 5.070 | 19,266.0 | 3.060 | 11,628.0 | (7,638.0) | (39.6%) |
| TOP GLOVE CORPORATION BHD | 06-Sep-18 | 06-Dec-18 | 3,600 | 5.500 | 19,800.0 | 6.030 | 21,708.0 | 1,908.0 | 9.6% |
| MAH SING GROUP BHD | 28-Jun-18 | 14-Jan-19 | 19,000 | 1.005 | 19,095.0 | 0.930 | 17,670.0 | (1,425.0) | (7.5%) |
A Note to Readers
It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.
Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.
Tong Kooi Ong
