14/03/2011 (Borneo Post Online) - In January, I spoke in a Bursa Malaysia seminar on the market forecast of regional indices and outlook of Malaysia markets. The contents covered the imminent threat of global inflation on food and energy prices. Other pointers highlighted to the audience were the necessity to hedge into Crude Palm Oil (CPO) while shaving the equity portfolio.
As the US currency continues to be weakened, inflation has been spiking up on global basis with higher commodity prices. Major emerging markets like Brazil, Russia, India and China have been raising interest rates to cool off the heat.

In China alone, the People’s Bank of China raised both banks’ reserves ratio to tighten credit as well as increasing both lending and deposit rates to reduce market liquidity aggressively since last December.

Since the beginning of the year, Tunisia and Egypt added the spark fire into global inflation crisis by igniting civil protests. Though the governments of these two countries have been toppled, the contagion spread of ‘yells for freedom’ has fanned into Northern Africa and Arab countries across the Red Sea.

Ranked as one of the top 10 oil exporting countries, Libya sinks into frantic protests with uproar for President Gaddafi to step down after ruling the country for 42 years.

No one knows who will be the next to be thrown off the Governments of dictatorship in Northern Africa and Arab world. But many automobile owners are worried they will soon be thrown off the driver seats if the gasoline prices surge unreasonable again to pre-crisis high.

After the Libya crisis, crude oil prices bypassed the US$100 benchmark again since this price was last seen only in September 2008. If we predict correctly on the spread of this civil unrest throughout the OPEC regions, the oil prices might hit the pre-crisis high at US$147 per barrel before the year-end.

On hindsight, officials from Nomura Holdings Inc recently said the crude oil prices may reach US$220 per barrel if Libya and Algeria halt exporting their oil in near future.

On the seminar, I highlighted an urgency to reduce equity holding in the wake of higher interest rates and mopping out of excessive liquidity as hot monies punt into Asia for a second year. Among my predictions, I forecast the Brazil Bovespa Index would decline to 56,000 regions from then 70,000 levels.

India Bombay Sensex Index would lose ground to 16,700 from then 20,500. China Shanghai SSE Index will consolidate in 2600 – 3000 regions. Thereafter, the indices traded lower at 64,300, 17,300 and 2700 regions respectively and moved into consolidation.    Many investors ponder if these could be the end of corrections. Perhaps, they are still in the midway of channeling trends of going down to our projected targets.

In the same event, we predicted Malaysia CPO would possibly make corrections at 3,330 levels before the bulls resume. The actual prices traded since then registered high at 3,967 and followed by correction down to 3,336. As CPO is a secondary market instrument to primary Crude products, we foresee a potential gain in it if the civil unrest broadens in Libya and neighboring countries.

For FBM KLCI, the index achieved all-time high 1,576 on 18 January and faced profit-taking amid downfall of global indices. Currently, the market is hovering at 1,500 regions with more fundamental leads to be triggered from bigger Asia markets like China, Hong Kong etc. In our opinion, it will be more realistic to see a correction moving into mid-year with downside target set at 1,350 regions. Theoretically, this will be in-line with the rest of the major markets making about 33 per cent retracement from the existing top.

Henceforth, we remain consistent in our opinions in reducing the acquisition of equity this year while expanding cautiously the investment in energies, commodities and precious metals. One of the most common practices to decide an exit in stock markets is when the particular counter devalues by 10-15 per cent from the price you bought. It is always good to minimise losses while you persistently hunt for long-ranged profits among invested instruments.

(Dar Wong is the Principal Consultant of APSRI. The expressions are solely his own. He can be reached at dar@pwforex.com)