Wednesday, 24 November 2021

Black November: Pessimism Prevails


So far this November has not been a good month to most stock market investors.

This is the month when most quarterly financial results will be released, and we know that most results will not be very good.

We have stricter MCO 3.0 lockdown in June & July, and then the Covid-19 new cases surged to peak in August.

Currently there is worry about Covid-19 wave number four after everyone is free to travel across state borders.

New cases stay mostly above 5,000 per day despite close to 80% of the population have been vaccinated.

I sense that the whole stock market is full of pessimism in November. 

The share price response to good financial results was rather muted while a bit of bad results could be punished heavily.

What should be our strategy in such a period of time? 

Sell and stay away OR buy and stay away? 

Shouldn't we buy low and sell high in the stock market?

If we want to bet on the recovery of investors' confidence soon, which stocks should we buy?

The best sector with best earnings now is no doubt the plantation sector.

CPO price was around RM4,000/T in Q3 and it is around RM5,000/T now in Q4. 

Nevertheless, why it seems like not many people are interested in plantation stocks? Those plantation companies will earn more in Q4!

Because of pessimism, people will have this in their mind: The high CPO price will not sustain at high level anyway, it will drop next year and plantation stocks might be like gloves stocks.

Besides CPO price, Brent crude oil price at USD80/barrel now is also at its highest level in 6 years.

However, investors think that no upstream oil companies want to increase their activity and there are no contracts to the mid-stream players.

Or perhaps oil & gas is already regarded as a sunset industry? Can you imagine Malaysia without Petronas?

The earnings reported by Hibiscus, Armada & Petronas related companies are good, but investors seem to buy and sell based only on the crude oil price.

Because of pessimism, people will have this in their mind: The high crude oil price will not sustain at high level anyway, it will drop next year and oil & gas stocks might be like gloves stocks.

So far the Q3 results of companies in the steel sectors are still good despite being affected by lockdown.

Even though steel price of China has dropped 25% since the steep rise in the first half of 2021, it's still at its highest level since 2018.

Investors have been dumping steel stocks because there might be no further growth going into year 2022.

Because of pessimism, people will have this in their mind: The high steel price will not sustain at high level anyway, it will drop next year and steel stocks might be like gloves stocks. 

Another sector that enjoys a great 2021 is the logistics sector.

The container freight rate and dry bulk freight rate have been on a steep uptrend until mid October when it started to fall.

BDI plunged a massive 50% in one month's time, mainly caused by China's softer steel and coal demand.

However, the BDI is still at 10-year high at 2,700 points.

Because of pessimism, people will have this in their mind: The high freight rate will not sustain at high level anyway, it will drop next year and logistics stocks might be like gloves stocks. 

After the lesson learned from gloves stocks, investors are much more careful and pessimistic now.

So it's all gloves' fault!

How about property sector? 

Err.. HOC will end this year. Those who want to buy a property might have already bought it and not many people will want to buy next year...

How about construction sector?

Err.. Not many mega projects and the government seems to have tight budget. New property launch might not be aplenty. Construction material cost seems to get higher and it might eat into its margin...

How about manufacturing sector?

Err.. Raw material and freight cost seems to escalate. There are so many foreign workers going back to their home countries. Have we brought in enough to replace them?

How about consumer sector?

Err.. People seem to tighten up their pockets in difficult time, and we are talking about the possibility of wave no.4...

How about the renewable energy sector?

Err.. The solar hype seems to be over. Those who successfully bided for the LSS4 projects are being punished. Higher cost is a problem to those EPCC contractors...

How about poultry sector?

Err.. Even though selling price has improved, corn and soybean price are still more than 50% higher than average of 2015 to 2020.

How about aviation sector?

Err.. An exciting recovery sector but the balance sheet is like shit. If 2022 is something like 2021, can they survive another year like that?

How about gaming sector?

Err.. Online gambling are rampant and not controlled, how many people still prefer to go up the hill to gamble? Certain people want to ban gambling as well...

How about financial service sector?

Err.. Expected lower property loan application and higher rejection rate going into next year. Low interest rate environment is expected to continue for a while. Cukai Makmur pulak...

How about technology sector?

This looks like an ultimate choice, but still Err.. semiconductor is cyclical, will recent sudden explosive rise in demand post Covid-19 result in oversupply and thus sudden drop in demand?

As most tech-related stocks are at high PE valuation, will their share price suffer in a big way if profit doesn't meet expectation? Just like...

OK. If we are always pessimistic like that, then better put all the money in FD and don't invest in the stock market. Isn't it?

No one will know exactly when the stock market will turn optimistic. It might be next month, 6 months later or even one year later.

One thing for sure is, it will surely turn optimistic again.

If I give you a choice, buy shares at lower price or buy at higher price, which one will you choose?

The choice is obvious as long as we don't choose a wrong stock.


  1. Local fund houses are the most pessimisstic one while retailers always positive. Thats why retailers are net buyer post budget..local fund are net sellers

    1. It looks like foreign funds are selling too...

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  3. This Nov reminds me about what happened in Nov'18. In Nov'18 quarterly result announcement, if a stock's earning was good, it was not rewarded with higher stock price (mostly); if earnings was below-expectation, it was punished with gap down price. And, if a stock reported loss, its stock price "lau-sai" until "mother-also-cannot-recognise".
    The situation in this Nov'21 is not as bad as in Nov'18, but both have some kinds of similarity. Well, this can be explained as pessimistic market sentiment like what u mentioned. There is a quote saying, "a bull market is born out of pessimism". So yes, I think now is the time to pick up some stocks..but gradually as this pessimism may last a bit longer.
    I can recall that Oct-Dec'18 was a very bad period for stocks. But, the market turned bullish in early 2019. I lost a lot in 2018, but the subsequent year, 2019, was my best profitable year so far.

    1. I was not involved in stock market in 2018, so I didn't experience the pessimism at that time. Retrospectively when I calculate my portfolio return during that time, Oct18 was my worst ever monthly loss at -12.6% (besides Mac20). Year 2018 was my heaviest loss at -29%. I wonder if I can avoid this if I was active in the stock market, seems like it's inevitable. This month my portfolio will be worse than Oct18.

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