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Wednesday, August 09, 2006

Recession Coming ?

Yesterday, U.S. Federal Reserve has finally decided to pause its interest rate hike after consecutively 17 rate increases in the past 2 years. Numbers have showed U.S. economic growth slowdowns rapidly and cooling happens in the property market. The U.S. Fed blames this as the laggered effects of interest rate hikes coupled with rising energy price.

Many economists have already louded that the recent years of economic growth in U.S. is only artificially supported by over-heated housing market and heavy consumer debt from home equity. Burst in property price will inevitably lead to recession. Judging from latest U.S. economic data, some has even predicted that the coming recession will be a sharp and hard one.

As Malaysia ecomomy is still highly depended on external demand, especially from U.S., we are likely to be dragged into the same boat as U.S. The implementation of projects under 9MP will only help to cushion the impact, but unable to reverse the trend. Reseach house such as RHB has earlier published a report on anticipation of economic downturn for Malaysia in Y2006-2007.

In the past 2 recessions of my life at 1987 and 1997, I hardly recall if they bear any significant meaning to me except hearing grumbling from parents and their friends of how hard was life then. If there really happen to be a recession soon, it will be my ever first "true" experience.

As there is a chinese wisdom saying "risk is an opportunity", I will make my fullest preparation to turn it into a great investment opportunity when the market has over-sold. It is much easier to pick an average stock that will outperforms when market recovers than to pick an excellent stock that perfoms in a stagnant market.

As such, I will accelerate my pace to correct my share exposure in next few weeks, in line with the economy development. I will likely dispose YTLPWR-w first follow suit by Tanjong. They are actually good counters but my strategy is follow both the fundamental and also the big picture of market timing.

Below I put the chart of KLCI from 2005 to now for everyone to ponder. Composite index has been fluctuating at range 850 - 970. To me, we have never had a real bullish market. What will be the next course, a quick bull follows with sharp drop or the market will start tumbling down from now? Regardless what is the case, I've decided to take the precaution earlier. Better safe than sorry...

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