Bull or bear?

WITH the chief executive officer of the Employees Provident Fund, Datuk Shahril Ridza Ridzuan, saying this week that the pension fund is “more cautious” on the global market next year and that “Malaysia would not be spared from the global market movements”, could the local market be heading for more than a correction in 2018?

While the short answer seems to be a yes, there are certain facts that support this.

For starters, the Malaysian market has been credited as the world’s longest-running bull market, having never fallen in bear territory since 2008.

After enjoying a relatively good run this year, the general election is looming and there is a lot of uncertainty hovering around the market now.

Realistically, the market could go either way post-election, but suffice to say riskaverse investors have started staying on the sidelines for a while.

Meanwhile, Goldman Sachs recently said that the probability of global stocks entering a bear market in the next 24 months currently stands at about 88%, going by historical data.

While the jury is still out on what would happen next year, Malaysia does have a few factors going for it.

For one, corporate earnings are expected to still grow on the back of a gross domestic product (GDP) growth in 2018. Generally, this should bode well for the market.

The consensus, however, is that GDP will moderate to an estimated 5.5% year-on-year, mostly due to the high base effect of this year.

Whatever the case, investors who exercise discipline and take a fundamental, long-term view on stocks should generally still do well.

Meanwhile, this is the season where fund managers “dress up” their portfolios in order to present good year-end performance reports to their clients.

To do this, they often sell off stocks that are loss-making and buy stocks that have done well or those expected to yield shortterm gains, in order to improve the overall look of their respective funds.

For investors who invest in such managed funds, the same principles of discipline and emphasis on fundamentals should keep them in good stead amid volatility.