Since end of last year, I have consistently hearing people make a lot of money from stock market, newbies enter into stock market, even those don't know any but just want to get a piece of it. The market rally is strong and unstoppable since early September last year. A lot of mid and small caps price have grown many times.
Now, based on these information given, can we tell is it the time to cash out our money from stock market?
Well, the information above are definitely not sufficient to confirm the Bear is coming. There are 3 basic major indicators to look at to see whether the market is overbought.
The first indicator is the Price Per Earning Ratio (PER). Althought KLCI index is currently at the history high, is is priced at 17.1x as of closing last week, which is slightly above the median of 15x or 16.6x based on past 10 years history PER. And if you see the past history of 10 years, the bears normally took over when the index PER is priced after 19-20x and above. So it is telling us that KLCI index is now running slightly more expensive than fair value. But I reckoned that it is quite reasonable after factored in the population growth, inflation and improved quality of the 30 top cap companies.
The second indicator will be the total KLCI trading value (total volume x transacted price). If it is at the maximum point, the trading value normally is at the peak as well. However as of last week statistics, it is still trading at a normal value for the past 6 to 8 months.
The final indicator will be the GDP and inflation growth. The GDP has just started to recover in year 2010 and it is contracting of 0.9% from 2012 to 2013. The forecast GDP by analysts for 2014 is 5%, which will slightly 0.3% improve. With this kind of minimal GDP growth and high inflation era, I don't see any possible sign that the bubble will burst any time soon.
In conclusion, I don't foresee there is any bear coming soon, even grandma and amateurs are started to enter stock market to get a piece of profit. It's just started anyway and perhaps it is at the second stage of peak bull run. There should be another stage to go.
Despite we can still comfortably put our money in stock market for investment, we foresee the low and middle class people will be suffering the most, as most of their active income will be stuck at paying house and car loan or rental, as well as coping with high cost living and necessity, i.e. electricity, petrol, foods, toll, etc. I'm pity on the low and middle class old parents too, where the children are not afford to take care of themselves not even mention taking care of their parents in terms of finance!
But one thing I would like to remind everyone of us. Just be remember, no one will pity us or can help us, but ourselves. We have to fight our own way out!
All the best, Malaysians!
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Appreciable post. Describing how a KLSE Malaysia market turns bearish from being moderate?..