Air Industry turbulence

Air disaster's have a way of changing the lookout of an airline.  From the Edge:

KUALA LUMPUR: Low-cost carrier AirAsia Bhd, whose share price dropped by as much as 12.9% yesterday on news that one of its planes had gone missing on its way to Singapore from Surabaya, Indonesia, may experience some weakness in the near term, said aviation analysts.

As at press time, the Indonesia AirAsia plane had yet to be found, which disappeared after its pilot failed to get permission to fly higher to avoid the bad weather on Sunday. The plane, an Airbus 320-200, was carrying 162 passengers and crew. 

Malaysia hasn't had a very good year in the aviation industry.  A concentration of air disasters in one country has never been seen before in history and is unprecedented.

Will Air Asia be alright?  I think they will be but they will suffer.  It goes without saying that this disaster will thoroughly trash the stock.  For one, Air Asia Indonesia faces two sources of customer drain, the risk adverse which won't fly with an airline that has had disasters and the prospect of a nation angry at them (Indonesia).

It may not even be right, but that's probably what is going to happen.  While Air Asia is dominant in Asia, it is not the only alternative in the low cost carrier industry.  People will jump to other airlines no matter how illogical or petty their grievance is.

The air disaster will do major damage to Air Asia's brand name. The one advantage Air Asia has is its brand name and if that brand is tarred, the chances to do well in the future drop drastically.  Everyone of their competitors are probably chomping at the bit at this moment

FCPO and FKLI technical update

Since the recent bottom near 1700 the market has rebounded quite strongly.  The rebound may have legs as an uptrend seems to be developing, The next major selling spot would be near 1850 by the looks of the charts.  It actually isn't that far away.  

FCPO has rebounded quite nicely and looks to continue its upward trajectory.  If you aren't sure why the market has rebounded, we can look to two things, the market has sold off extremely hard over the last two months, breaking a lot of technical areas and stops.  After all the selling, we are having a little rally.  The rally isn't just due to  short covering but fundamentals.



If you've never seen what a flooded palm oil palm oil plantation, you can look at this.

It's not exactly a little flood.  You need a boat to go harvest the palm oil fruit.  The rains are right now causing massive floods.  There is no way palm oil plantations can get a lot of the crop.

Felda Global Ventures, can things get any worse?

The palm oil industry in Malaysia isn't as free a market as one might think.  For instance.  Many producers have an unusual calmness when it comes to their product.  They think it's as good as money.  They won't bother sourcing for buyers because, there will always be one guy to buy it, Felda.

They know no real hardships because sourcing for buyers and refiners is a pricey endeavour.  In the US, sourcing for buyers in commodities is hard, but rewarding.  It teaches the farmers that no one can be relied on except for themselves and the work they do in not only crop production, but customer relationships.  

Sourcing for buyers is hard work, but a reality of a free market product.  Palm oil is a free market product outside of Malaysia.  In Malaysia, it is not.  Too bad, because efficiencies are lost and job opportunities foregone because of this entitlement attitude.  

Because Felda is a government entitiy, it will not use its infrastructure as leverage in negotiating lower prices from the local producers, which is why conflict of interest exists and why investors should be wary.

From Alliance Bank research:

 Upstream plantations’ 3Q14 PBT grew 32% y-o-y to RM146.4m. This was in line with increases in FFB and CPO output, which expanded by 3% and 13% y-o-y to 1,340k MT and 909k MT, respectively.

However, realised ASP eased y-o-y to RM2,317/MT (vs. RM2,341 in 3Q13). This was however offset by a weak downstream segment, which booked pretax loss of RM117.2m for the quarter (including RM52.0m unrealized loss on commodity contracts in Canada and RM50.7m loss due to negative domestic refining margins)

DRB Hicom

DRB Hicom is one of those stocks which has greatly disappointed.  It has tried for years to turn Proton around, but to no avail.  I think they did not realize the task of titanic proportions it takes to make this company positive.

Some of the hype with its new car may be deserved, but does one car model make a company?  I don't think so.  Proton will need to come out with hit after hit in order for the DRB Hicom to recover.  Even if they do come out with hit after hit, the process takes massive amounts of time and capital.  We're talking about years AFTER the first hit comes out.

For example, assuming the average new model design process takes 2 years, to get 3 hits, we are talking 6 years to get 3 hit models out there.  Most investors would say okay, call me in 6 years and rightly so.

For those of you willing to plough your hard earned money in DRB Hicom, here you go.  The stock has just hit a major support point at RM 1.49.  I think the support is strong, but the stock will fundamentally get wrecked for the next few years.

KLCI and FCPO technical update

The FKLI tested a failed down trend line by a big chunk.  So far it has rebounded quite meaningfully compared to the test, leading me to believe the market has found a temporary bottom.  Overnight markets are also helping.  Such is the life of an FKLI long trader.  It seems everyone is ready to sell overseas markets to the point they've sold too much.  When the US markets do better, the FKLI does better by a big chunk as well.

FCPO is trading in a holiday range.  I don't know what to make of it.  It's not exactly strong or weak, just muddling through.  The whole Russia issue doesn't seem to be going away.  FYI Russia buys a fair amount of palm oil, about 300 thousand tonnes a year.  I imagine palm oil is affected by the threat of capital controls to stem a severely weakened Ruble.

Air Asia Technical Analysis

Air Asia has received a lot of press lately as a company that would have a lot to gain as oil price trades in the 50s.  Personally, I think the stock has a lot going for itself.  The domestic low cost airline is a mature industry with clear and predictable volumes compared to the volatile demand Air Asia X is facing.  If they have an under capacity problem, it shouldn't be that severe and should easily be solved.  Finally, a weakening Ringgit does wonders for the tourist industry and should help contribute to Air Asia's bottom line.

But I do have a caveat.  The airline hardly pays a dividend.  At roughly 1.5% it's not a lot to go on.  So I wouldn't hold my breath on the company.  Airlines are notoriously bad on returns to shareholders.




Technically speaking, two uptrend lines have been violated pretty hard, so there probably will be a lot of resistance.  Maybe I'd prefer a buy lower at RM1.8 a share given the risk profile of this counter.   The price appears to be muddling around at the moment.

Long term FKLI chart and how trend lines work

I remember mentioning in a previous post about a long term trend line near 1700.  Here it is.  This trendline signifies a breakout from the FKLI previous decade high.  As you can see we have gone lower than the trend line. 

Trend lines are usually set by people who have clout in the market.  Sometimes these trades by big players don't pan out and thus the big player has to re-evaluate his position and is praying for the market to come back to his original trend line so he can cut his remaining position at a positive number.

Trend lines are more like guides than hard fast market rules.  Sometimes the market does dip below the trend line, but buyers push the market up to its trend line and beyond.  Hopefully it turns out this way but of course it all depends.  The lower it dips below the trend line, the more of a failure that trend line is.  I would be extremely concerned if the market dipped near 1600.  That point is a lot further than the big player who pushed the market higher would want.

Magnum Technical Analysis

Magnum stock is one I've always liked and personally purchase their products from time to time.  The stock pays consistent dividends.  The company plies its trade in the gaming industry and has reached a market size which enables it to compete with the big boy, Berjaya Sports Toto.  It's latest 4D jackpot is within the 20 million Ringgit prize pool which is a testament to its market strength.

Any time I get a chance to buy a stock like this on a discount, I'll take it any day.  There are only a few things which have always been recession resilient, alcohol, taxes, cigarettes, death industry, and gaming.  Of course most of these industries face the risk of government meddling, but assuming status quo, buy these industries on the cheap.

Gaming tends to also have a problem with over expansion world wide, but in the case of Malaysia I doubt it will ever experience that scenario, given the conservative religious majority.  Restrictions on new entrants and a resilient industry is a winner in my books.  The price of course is the major issue which leads me to some price analysis.

The stock is on an uptrend with a breakout in 2012.  It is now approaching that particular trend line sent at the start of 2012.  For me, a buy below 2.25 would be the best, but I would consider putting in a purchase at the trend line.

KLCI/FKLI and FCPO Technical Analysis

It's been a quiet weekend.  Not much news only that industrial production has expanded which is good, but the market has been bad regardless. 

The FKLI has stopped its downtrend with the rally a few days ago, buyers can take note of a breakout trend line at 1711, as well as a couple of failed trend lines to provide upside fuel.  At the moment the market is trading in line with regional markets which is somewhat good news in that the selling is getting exhausted for now.  Our market tends to follow regional cues when prices are in line with other markets.  Of course if other markets take a nosedive, we will likely follow.



FCPO has stopped its downtrend lower for a few days now.  But it's tough going for CPO at the moment as Friday saw some selling on a day which is usually quiet.  It may be a bad omen that sellers are willing to sell on a day people are supposed to be off.

The country which benefits the most from falling crude oil is....

Lower crude prices does kind of result in lower petrol prices due to the government now moving petrol prices to a managed float.  But the other side of the coin is the weakening currency.

Moving from 80 USD to 70 USD dollar crude oil is a 12.5 percent discount.  The ringgit has also moved from 3.3 to 3.5 which means crude in Ringgit terms is going from 264 to 245 which is a 7.5 percent discount.  So while the nation does benefit in terms of lower cost of petrol to some extend its not as much.

So which country gets the biggest affect in lowest crude oil...ding ding ding.  The USA.  They capture the full effect of a fall in crude oil price which is 12.5 percent.  Business should definitely be good there.

IJM Corp Technical Analysis

IJM is one of those interesting conglomerates who has been outperforming the market as of late.  Wait a minute, a conglomerate that is outperforming the market?  I didn't know there was such a thing!  Jokes aside,  IJM has been doing quite stellar lately.  It could have fooled me as I thought it was a punter type of stock when I looked at it.

A closer look at the stock reveals two trend lines.  Although its history as a company has been volatile, the stock does seem to have found its footing as of late.  Perhaps its fortunes have been related to its property division which is doing quite well compared to others.  It's order book is strong as well for huge infrastructure projects.

I would have liked to see more consolidation in the stock, but sentiment has been incredibly bullish.  I'd fancy a buy lower near RM 4-5 a share.

Ringgit to USD hits 3.50

From the edge daily

The ringgit is leading a retreat among Asia’s emerging-market currencies as oil prices slide and strategists predict Malaysia’s worsening current account will lead to further losses.

BNP Paribas SA, Macquarie Group Ltd., Malayan Banking Bhd. ( Financial Dashboard) and Skandinaviska Enskilda Banken AB are all in the process of cutting ringgit estimates, with the French lender saying Malaysia is set for the first deficit in its broadest measure of trade since 1997

I mentioned earlier in previous posts that the market collapse the last few weeks was due to oil price weakness. Now we see analysts who are late to the party.  The budget deficit was something I mentioned earlier, but the trade deficit is what is really hitting the market.  I'm not sure what Malaysia can do to stem a weakening currency.

The central government could raise rates, which would be detrimental to companies.  On the other hand they could lower rates which would spur capital investment and economic activity which in the long run is good for the currency.  In the short run though the currency would take a hit.  I advocate plan c.  Keep rates where they are.  Let the currency fall where it will.  Keep it simple.  Keep rates normal.

I suspect though that because the country doesn't want to have a trade deficit, the country will raise rates to bring imports in line with exports.

What will be the central bank's next move?  Zeti has received accolades as a central bank chairwoman.  For me, I don't think its deserving, as she largely has done nothing over the last few years.   I would say if she saw this coming, she could have

1) Lowered interest rates when the currency was strong.  Doing so would raise the economic output and build more foreign reserves.

2) With the lower rates already factored in and crude oil thus putting pressure on the currency, she now can raise rates without an extreme effect on the economy, For example starting from a lower base rate of 1.5 percent to a rise of 2 percent would put the economy on decent footing than a 3.5 percent to 4 percent increase in interest rate hike.

KLCI and FCPO tech analysis with some failed trend lines

Lets take a look at FKLI.  If I was a betting man, I'd suggest the FKLI may be due for a short term rally or slow down in price.  We are approaching failed trend line at the bottom.

In FCPO I can't really discern much from the failed trend lines.  but despite the helter skelter trading sessions over the last few days we still are in a downtrend according to daily time frame.  RM 2,190 looks like top side resistance for now.

Don't erase your trend lines, KLCI outlook

I'm beginning to wonder if trendlines are some arbitrary pricing action manipulated by big players.  The reason being that a lot of trendlines that fail to materialize to a downtrend or uptrend are still valid after they've been proven invalid.  That's a mouthful.

A failed trend down in October for palm oil has simply just been flat out wrong.  Nevertheless, all that selling has seemed to be a large position as the seller who started that downtrend swiftly reversed his position at where the downtrend would be just yesterday.

It's as if the seller said...okay guys I know i'm wrong at this time but I've got a backup sellers behind me that should push the market down.  If it gets back to my area, i'm gonna take a load off.

Boy was that load big!

The FKLI pretty much lives and dies by the price of oil.  They simply get tons of money from the commodity and with Malaysia on a spending spree as well as oil at such a low price, the Ringgit is not so hot.



Fret not though, all is not lost!  We still have hope in the last remaining trend line at near 1710.  This breakout was inspired by infinite QE.  Of course the failed trend line at 1790 will be the resistance.  I won't be erasing the failed trendline just yet.

Telekom Malaysia technical analysis

TM is a Tough stock to analyze.  At first, we have the downtrend.  Yes I know the downtrend was sparked by a split from TM to Axiata.  Nevertheless whether there is a corporate exercise or stock splits, The technical levels more or less stay the same.

In my opinion, TM bears some similar characteristics to punter stocks.  On the previous Tropicana post, I describe punter stocks as one that kicks all the way up and all the way down.  More or less since the de-merger of Axiata and TM, the stock has been punted up.  I have no idea whether it will be punted down or not but we shall see.

It's Long term uptrend line has barely been tested and when it has, very rarely has there been consolidation.  So, it fits the defnition of a punter stock.  But since this is one of the great stocks in Malaysia, we'll give it the benefit of the doubt in that it's really in an uptrend, not a huge range.

In that case we will look for purple trend line to be tested hopefully some time in the future.

FCPO and FKLI/KLCI Technical Analysis update

The FKLI  is trying to test the long term trend line at 1790.  The next few months will be crucial.  If the market still breaks significantly lower, the uptrend will need some time to form again.

FCPO has started a new downtrend.  The support at RM2,193 was handily broken.  At the moment, it is not certain just how low FCPO will go, but by all accounts most palm oil producers will have a difficult future.

In a previous post I was speculating perhaps FCPO was forming a breakout by staying above the RM 2,040 mark.  That turned out to be totally wrong.  Instead RM 2,193 gave out like a rusty old car on a rainy morning.  And we are at RM 2,100.