Dun luv you anymore

The KLCI came down 16 points or 1.44% yesterday despite a big gain in the US markets overnight. At the close the index stood at 1,105 well below the support level of 200 day ema which was 1,115. The major reason for the drop yesterday was the sell down of plantation counters. Oh no, remember plantation and oil and gas sectors were the main two sectors actively promoted by research analysts for the last few years? A quick look at the closing figures of the plantation index shows a big drop of 6.6% Out of 42 counters in this sector, 1 was up, 36 were down, 3 were unchanged while 2 were untraded. The plantation related stocks namely Sime(Trading), IOI, KLK, PPBoil(Consumer) and Tradewinds dropped between 2% to 9%. Out of 40 worse performers in Bursa today, 18 counters(or 45%) were from the plantation sectors.

What actually sparked this plantation "bashing"? According to research analysts, it is mainly attributable to the worries of planters' future profits due to:-

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1) expected softening of crude oil and crude palm oil in the coming months

2) continuing build up of crude palm oil stock pile (June 2.03 MT, May 1.9 MT) due to slower demand, change in bio fuel policies and expected increased harvest due to maturing of more newly planted trees and

3) increasing operational cost and windfall tax on profits

Also a worry was the high valuation accorded to plantation stocks as compared to the overall average (average PER 15x as compared to market's average of 11x).

I tend to agree with others that the selling yesterday was mainly sparked off by CIMB's latest research report which call for an UNDERWEIGHT on this sector. Brokerage/research houses which turned bearish recently were HLG, Aseambankers and Standard Chartered. The fact that plantation stocks are widely held by big funds exacerbated the situation further. Below is part of the said CIMB report.

We are turning negative on the plantation sector for the first time in three years. Given the rising regulatory risks and slowing earnings momentum, we can no longer justify the large sector P/E premium and downgrade it from OVERWEIGHT to UNDERWEIGHT. We cut forecasts for all the planters under coverage by 2-20% to account for higher operating costs and changes in windfall tax. We also slash target prices by 12-39% to account for a lower target P/E and weaker earnings prospects. In Malaysia, we downgrade IOI Corp and KLK to UNDERPERFORM while Hap Seng Plantations and Asiatic are cut to NEUTRAL. Sime Darby remains an OUTPERFORM. In Singapore, we have cut Wilmar and Golden Agri to NEUTRAL and Indofood Agri to UNDERPERFORM. In Indonesia, we have cut London Sumatra and Bakrie Sumatra to UNDERPERFORM and reduced Sampoerna Agro to NEUTRAL while maintaining an UNDERPERFORM on Astra Agro.

MyTake: Although CIMB's UNDERWEIGHT call has its rationale, the manner and timing it has changed its stance is too sudden. Imagine you are very Bullish all this while and suddenly zapped, the next thing you know, you have turned very Bearish. Imagine, if you are lovingly married for the last 3 years to your sweetheart and suddenly the very next moment you wanted to divorce her and chase her out immediately. There must be a hint whenever a change of heart comes in isn't it, or is it not? Oh you hide it so well then! Can't CIMB "hint" first by going Neutral earlier and then Underweight? This will save a lot of investors who rely on the recommendation from getting into "trouble" unexpectedly. Furthermore, the windfall tax and inflationary effects, parabolic rise of crude oil and crude palm oil etc are not new as it was the issues months back, why only downgrade now when the market has fallen almost 30% from this year's peak? Did market sentiment play a major role here? Anyway, consider this study mentioned previously by Schroders Singapore, over 200 years -average commodities bull cycle lasted 20 years. Energy bull started 6 years ago while agriculture bull just started 2 years ago. So commodities would probably slowed down for a while before continuing its relentless long journey to the north again latter.

* Bursa's CIO Yew Kim Keong has resigned from the stock exchange taking reponsibility for the hardware failure in the trading system of Bursa on July 3. What about the CEO?

* MIER has cut its forecast of Malaysia's economic growth to 4.6% from 5.4% for 2008 due to higher fuel prices, slowing down of global economy and current political situation of the country.

* Bloomberg: Pakistan's investors stormed out of The Karachi Stock Exchange last Thursday and smashed windows and cursed regulators after the benchmark index fell for the 15th day, the worst losing streak in at least 18 years. I thought they are on a holiday there!

* WSJ on selective short selling rules. "By singling out "speculators" policy makers (in the US) reinforce a message that the free market is a wonderful thing as long as it isn't going against you" How true!

* Bloomberg: Qantas, 3rd largest airline in Asia, will cuts 1,500 jobs(4%) and retires 22 planes to combat higher jet fuel price. This decision is similar to other airlines like America Airlines, Delta Airlines and Scandinavian Airlines. Industry wide losses for 2008 is expected to be more than USD6b. However, planes builders have it good. Airbus and Boeing have bulging order books till 2013 due to backlogs and no cancellation of orders.

* Malaysiakini: Please google search "caanan banana" and relate it to Zimbabwe, PM-DPM, Mugabe- Mahathir's good friend, sodomy and Anwar. A coincidence? You be the judge....