October is one of the feared months in the stock market. This is because in the past, a few events have given October a bad name, such as The Bank Panic of 1907, The Stock Market Crash of 1929 and Black Monday 1987. All these events happened in October. Fortunately, in the first half of October this year, the global stock markets seemed to have fared well. This is especially so after Beijing agreed to boost purchase of U.S. farm goods.
Again, this is one of the very positive news among the bad news. The Brexit uncertainty, Hong Kong chaos, slower China economy, inverted yield curve, potential global recession, and not forgetting the many other bad news of trade wars in the last few months. Investors are unlikely to get overexcited by Trump’s ‘greatest and biggest deal ever’. Nonetheless, I believe it is more likely that the US Bull Run would continue for a couple of reasons:
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- The three main US indexes, namely the Dow Jones, S&P 500 and Nasdaq are trending up and close to their new highs.
- The Federal Reserve has adopted a more dovish stance, which is good for the stock market.
- The US unemployment rate has reduced to 3.5% in September 2019, which is the lowest in 50 years.
- Historically, the market rallied more than 15% on average in the 18 months following the yield curve inversion. A recession hits in 22 months after the inversion. The yield curve inverted in August 2019 and has gone back to normal.
- US markets tend to be the most bullish on the 3rd and 4th term of the Presidential term, which is in 2019 and 2020.
- Negative news dominates the headlines. An interesting phenomenon is that the bull market always climbs amid worries. The more bad news and the more pessimistic investors are, the bull is more likely to continue. This has happened in the last few years, from the echoes of subprime crisis after 2009, the Europe sovereign debt crisis, followed by the US debt ceiling. None of those years were peaceful, yet the bull has been climbing until now.
In the short term, especially following the budget announcement and the good progress of trade talks between US and China, I’m seeing a higher possibility of a market honeymoon in the next few weeks. So, are we expecting a better portfolio performance? Let’s have a look at our portfolio on 14th October 2019:
The portfolio above has showed a gain of 247% since November 2015, a 20% improvement compared to a month ago. In this month, we received 0.5 cents dividend from JHM and 1 cent from KGB, amounting to RM1800. Transaction wise, we switched KIPREIT to a new counter.
Bought SCICOM (0099)
SCICOM (MSC) Bhd is a provider of global outsourced solutions to international corporate clients, domestic conglomerates and governments. Their scope of solutions includes Business Process Outsourcing (BPO), E-Commerce, Gov-Tech, education and digital. There are seven highlights of SCICOM:
- The Return of Equity (ROE) ranged between 30%-40% from 2014-2018, which shows that the company was very productive.
- While its net profits in FY2019 reduced substantially, its revenues have seemed to have improved four quarters continuously.
- According to SCICOM’s FY2019 Q4 report, the Group has increased its BPO business client base by 22%, and the contribution to the Group’s revenue and profitability from these clients is expected to increase in the financial year of 2020.
- SCICOM also pointed out its Outsourcing division is expected to secure some major contracts during the FY2020.
- In the Gov-tech division, the Group indicated confidence to be shortlisted in the several tenders from both local and international governments.
- The company has strong cash flow and zero debt. In addition, the company has been paying generous dividends in the last five to ten years. Based on the current price, its dividend yield is 6%.
- Technically, the price chart has showed a bottoming up and formed a gradual uptrend.
With its fundamentals showed in sync with technical, we bought 50000 shares of SCICOM at 0.915. Our new cash level is now at RM51,881.
So will the Bull continue to run? Given the above rationales, I believe it is likely. With good stock selection criteria plus favourable macro, I trust that your chance of winning is higher. May the force be with you!