Following the recent IMF downgrade outlook on global growth, world indexes took a heavy hit. It was then exacerbated by high speculation for incoming rise in interest rate as the QE tapering ended at October 2014. Spot gold rises up as equity markets went bearish.
The ripple effect took a toll on FBMKLCI as well. Although it still range between 1800~1900, most of the smaller caps underwent a heavy sell down. My current holdings took a bad beating unfortunately - Supermax, TLIB, Huayang.
Market sentiment has changed in an instant with a few bearish statements from IMF/Federals people. Fortunately, the recent Fed minutes indicated that they will be cautiously raising interest rate and will put a hold till next year. KLCI closed green after the heavy one-day gain rally in DJIA.
Moving to the upcoming Budget 2015, I'll be placing my bet on property/construction sector with my wish lists being:
1) extended 50% exemption in stamp duty for first time buyers of houses worth RM400k.
2) some form of incentive to build affordable homes.
3) perhaps some PR1MA kind of program targeted at first-home buyers
4) zero-rated GST for properties worth RM400k highlighted by The Real Estate And Housing Developers' Association Malaysia (REHDA).
The recent subsidy rationalization and upcoming GST 2015 have already gave a bleak outlook for Malaysia in FY15. I just hope there will not be another hike in RGPT.
Taken from MIDF research report, government had introduced tax exemptions on the disposal of real property from 1 April 2007 to 31 December 2009 to jump start for property sector. Coupled with the reduction in financing costs, property investment became an increasingly attractive investment asset while pent up demand also fueled new property purchases. The real property gains tax (RPGT) was later re-introduced in 2010 at a punitive rate of 5% vs the 0-30% under the Real Property Gains Tax Act 1976. Since then, the RPGT rate has been broadened and increased to limit speculative purchases.
Figure 1.0 - Recent RPGT rate announced in Budget 2014.
If all is well, I should expect to see further returns for property related counters. The current small-cap companies will be Huayang/Eco World/Tambun Indah will benefit from as their core business focuses on affordable and small & medium houses.
That said, I believe they will be able to sustain healthy market demand to complement project sales and quarter results. Budget 2015 will be officially announced by the prime minister at 4:00 PM (GMT+8).
Aside to Supermax, the heavy sell down by EPF has marred SUPERMX and further upside was limited. If you folllow SUPERMX closely, every spike due to Ebola concern has been pushed down severely due to EPF constant disposal. I've entered my position during the period where glove sectors were going through big sell off due to oversupply/low demand concerns. On the bright side, EPF has ceased to be a substantial shareholders. But we do however, need to keep in mind that their holdings are still at the range of 31 million which can easily overshadow overall retail investors holdings.
I will be aiming for their upcoming quarter report next year to exit my position with expectation that the production lines for SUPERMX will be up and running smoothly.
Good night.
- Ben Lim
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