Will the Tiger roar?




IN three days, we will be ushering in the Year of the Tiger, the third animal zodiac sign under the twelve animal zodiacs derived from the Great Race. Based on the Chinese calendar, this year is the year 4720 and it is a Yang year.

Just like any other year, the Year of the Tiger too will have a significant influence not only on those who are born in the same animal zodiac but also on the other eleven Chinese zodiac animal signs.

In addition, there are five elements of the Chinese zodiac derived from the Five Elements Theory and they are Fire, Water, Earth, Wood, and Metal. According to the website www.chinesezodiac.org, the year 2022 is a year of all types of extremes. It further adds “there will be expansion through aggression and conflict in the world”.

Furthermore, since the year is under the Water element, it is a year where “we must make all kinds of changes in our lives. However as the Water element also represents wealth, the new Chinese year will also bring abundance and prosperity”.

Economic-wise, in the past, the Malaysian economy has seen mixed results in Tiger years. In 2010, the last year of the Tiger, the economy expanded by 7.4% but in 1998, the picture was one of gloom and doom as Malaysia suffered greatly due to the Asian Financial Crisis and the economy took a deep dive with a contraction of 7.4%.

The year 1986 too was not a great year as the economy expanded by a mere 1.2% as the economy then was just picking up the pieces from the 1985 recession.

Hence, the past three Tiger years have not been smooth sailing as far as the economy is concerned. However, the scenario is rather different for markets.

The chart summarises the four best performing Chinese zodiacs for the past three 12-year cycles of the Lunar New Year and ranked by average performance, the Year of the Rooster was the best performer, as the FBM KLCI gained on average 28.7%, mainly driven by the spectacular bull run of 1993, followed by the Year of the Rabbit, with an average gain of 21.4%.

This was mostly driven by one of the best rallies in the history of the stock exchange when the FBM KLCI gained 77.1% in the 1993 Year of the Rooster and 67.8% in the 1999 Year of the Rabbit.

The third prize goes to the Year of the Tiger, which has witnessed positive returns in all past three Tiger years, including the mere 0.2% gain in the 1998 Year of the Tiger.

The 1986 and 2010 Year of the Tiger were spectacular too for markets as the FBM KLCI advanced 35.7% and 22.2%, which are among the top ten best performing years of the exchange in the past 36 years.

Despite a bad start to the calendar year 2022, most global markets’ performance in the Year of the Ox was positive, supported by liquidity factors and expansion in price-earnings multiple valuations.

However, it was not the case for the local 30-stock index as the FBM KLCI, which started the Year of the Ox at 1,599 points, was last seen at 1,516 points as of Thursday’s close – one and a half trading days to end the Year of the Ox.

During the Chinese calendar year, the FBM KLCI raced to a high of 1,640 points by early March 2021 but fell to a low of 1,480 points by the middle of December 2021. As of Thursday’s market close, the Year of the Ox, as measured by the FBM KLCI, gave investors a negative return of 5.2%.

The question on everyone’s mind is how would the Year of the Tiger be for our market? Where would the market be when we usher in the Year of the Rabbit on January 22, 2023?

As far as the economy is concerned, Malaysia’s fourt quarter 2021 gross domestic product (GDP) will likely show that the economy has rebounded in the final quarter, and with that, the nation’s GDP will likely post a growth of 3.5% for 2021.

As the economic engine is running full throttle and there is zero likelihood that the government will again embark on any form of lockdowns, the 5.5%-6.5% GDP growth for this year is well within reach. Even the consensus agrees to this view with a median estimate at about 5.8%.

Index wise, the FBM KLCI is seen to have a fair value of about 1,645 points for this year based on a poll of 12 broking firms, with a range of between 1,550 points to as high as 1,730 points.

However, as mentioned in this column a few weeks ago, the year 2022 is a challenging one and it will likely be a year of two halves. Hence, despite the current upside of 8.5% to the index target for the year, there is potentially greater downside risk first before the market can resume its uptrend, likely from the second half of 2022 onwards.

Key event risk is of course how the United States Federal Reserve (Fed) will navigate the year in fighting inflation as the market remains jittery as to not only the number of hikes, which the market is now pencilling as many as four more hikes after the March measured move, while worries of potential quantitative tightening too is hurting investors’ sentiment.

Hence, until the path and trend are known and well communicated, the market is expected to remain choppy.

We have seen some spectacular individual stock performance over the past year stocks whereby little or no coverage was carried out by the investment fraternity before the run-up.

As the coming year is the Year of the Tiger, what would be the hidden gems, like a crouching tiger, that one could potentially see to be unleashed this year? Well, that is left for the market analyst to uncover them and for investors to be convinced of its storyline.

A tiger by the tail

While the Year of the Tiger is starting with a relatively low market confidence level after the recent selling pressure brought about by the sell-off in the technology sector and growth stocks, the market should be able to find its footing soon enough, especially after the Fed is able to guide the market with much better clarity.

After all, yes inflation is running wild everywhere but it will ease off as we enter the second half of the year and there will be less pressure for the Fed to be aggressive in its policy stance.

After all, even inflation expectations, judging by the five-year and 10-year US breakeven inflation rate, have dropped 11basis points (bps) and 16bps to 2.76% and 2.40% since the start of the year, although the five-year and 10-year benchmark US treasuries have risen by 41bps and 30bps to 1.67% and 1.81%, respectively.

While recent selling pressure has brought stock prices lower and for some well off the highs we saw in 2021, whether it provides a buying opportunity or should investors reduce their market exposure due to perceived over-valuation, especially within the technology sector, is akin to catching a tiger by the tail.

Wishing all readers and investors a Gong Xi Fa Cai – may the year bring joy, happiness, an abundance of wealth, and good health.

Pankaj C Kumar is a long-time investment analyst. The views expressed here are the writer’s own.

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