The KLSE and China's stock market

Not only does the Yi chart provide a good guide to the Malaysian stock market, it appears that the chart can also be applied to China’s stock market. It is none too surprising given that the Zhouyi originated in China more than 3,000 years ago.

2006 had been a good year of recovery for both the Malaysian and Chinese stock markets after floundering in the doldrums for a few years. Now both their stock markets considered part of the emerging markets are playing catch up to the Asian stock markets where the so called dragon economies are booming. China's stock markets are the top gainers in Asia this year followed by the KLSE. The Malaysian Ringgit also moves in line with the Chinese Yuan.

The Shanghai and Shenzhen stock markets of China soared to new records high last week like ‘flying dragons in the heavens’ notwithstanding prominent personalities issuing futile warnings to Chinese investors of a rising stock bubble. (Refer to The bull in China entry.)

After the new highs were recorded, her government tripled the stamp duty (a form of tax) on the value of shares transactions from 0.1% to 0.3% to temper the velocity of trades. The Shanghai market fell 6.5% following the surprise announcement.

On Monday June 4th China also advised her people to avoid speculative stocks and to invest in blue chips. Yet foreign funds took the opportunity to sell down her markets the same day and switched their funds to Hong Kong and other Asian countries. With heavy selling, the Shanghai market fell 8.26% while the Hang Seng went up higher. The sell down continued on Tuesday and the Shanghai stock market fell another 7.25% to 3,404.14 points before closing the morning off lows. However the market rebounded in the afternoon and closed the day 2.63% higher at 3,767.10 points! A quick turn around of 10% within the day. This indicates that China knows clearly what she has to do for her people, no matter what the analysts and experts think or say.

Probably these same analysts and experts have long forgotten that a majority of Chinese had to struggle to live on their minuscule USD 30 monthly pay, just twenty years ago. China had come a long way since and having enriched her people (particularly those living in the cities and urban areas), has just started to educate them on cardinal virtues (read Confucian ethics) and the ways of markets.

Meanwhile Malaysian investors may not quite notice the small rally that started on Monday May 28th until it gathered momentum last Thursday and Friday. A shortened May rally that overspills into the month of June is better than nothing.

One was rather quiet and did not want to mention that the warnings the previous week by the so called ShenXian cannot interfere with the ‘Flying Dragon in the heavens’.

From experience, most ‘ShenXian’ cannot disrupt the flow of the Yi chart and/or Yi prognostications with their words and actions unless their charisma is exceptionally strong. (Think our former Prime Minister Dr. Mahathir Mohammad and former US President Bill Clinton.) This aside note may prove useful to Yi aficionados in their studies.

The KLSE has drifted sideways and lower for almost two months after the highs reached in early April with liquidity quickly drying up. The GT shares (remember?) had gone up almost twenty fold in April from its record low reached in end 2005. One had bought back some GT shares at slightly higher prices than those sold before the April run up. Since it was time to sell shares in early April according to the Yi chart I sold the GT shares near its 7-years high.

The share price has fallen almost 20% from its recent peak when I bought back some before consulting the Zhouyi and was told off by the Oracle for using great power (the money to buy the shares) without asking what is right. The reason for the reprimand - the shares fell another 15% (making a total of 35%) over the next few weeks before starting to rebound last week. The GT shares took a mere three days to recover 29% from its recent lows.

Does this example not go to show that the KLSE is resilient and that investors may not have to wait too long for good low liner stocks, especially those double checked with the Zhouyi, to rebound or the market to continue its rally in a bull run? It also demonstrates the importance of taking profits which can disappear in a wisp of smoke – like those witnessed end February and in April 2007, and in the recent falls of the Chinese stock markets.

With the May rally straddling into June, I wish KLSE investors good luck! Do not forget to take your profits, if you are happy with the gains. Bulls also need to take breathers, at times.

Long may the KLSE and the Chinese bulls run in 2007!