Consumer - The Next Jewel Sector to be Aimed

It had been a year after our Malaysia announced the implementation of GST since 1 April 2015. And consumers had started to get used to the GST, or in another word, they had to get used to the GST. When we got used, then slowly the consumer index will be uptrend, challenge previous high, breakout, continue to go uptrend, retraced, and the cycle goes on and on. If we look at our Consumer Index...

Consumer Index Daily Chart

The chart failed to beat the resistance of 610.89. And there is a reversal signal seen there, a hanging man, and the next day, it is a bearish engulfing. The RSI had been overbought after being bullish since May. Now the MACD is having a death cross. From the technical indicators, everything seems bearish. And when it is bearish, then we wait. When we compare the chart with previous few years, actually we can see quite a similar pattern for the Consumer Index. Let's look at the weekly chart. 

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Consumer Index Weekly Chart

There are 3 things that i draw. An oval area shaded with colour, an arrow with percentage, and a blue dotted rectangular box. Now, lets look at the oval area shaded with colour. In conclusion, starting from the end of the year, it will be going up until the Raya Holiday. After Raya Holiday, it will downtrend until the end of the year. After that, it will be uptrend again. And the cycle will continue and continue. The reason why it keeps going up from January till July is because of the consumer are spending more. Especially during the festive season, whereby people will consume food, buy furnitures and also buying daily livings.

In 2013, after January, it went up around 14% until the month of Hari Raya, which was in August (blue shaded oval in 2013). After August, it downtrended for 4 weeks, dropped 9% (refer to the blue dotted rectangular box). Same happens in 2014. it went up in February around 7% till Raya holiday in July. After August, it downtrended for 8 weeks, dropped around 9%.

For 2015, it was a different case. Since GST was implemented on 1 April, so, at the end of December 2014, consumers had been buying and keeping the stocks. Consumer index rallying up 12% until May. After May, it dropped but managed to climbed up because of Raya holiday (refer to the red shaded oval). After Raya, it downtrended for 3 weeks, dropped 10%. Post GST, the chart was moving slowly as the consumers were taking time to get used to GST. However, it climbed around 6%, hit the previous resistances at 2013, 2014 and 2015. Now it is heading down. I take the average from 2013, 2014 and 2015, so i assume that it will dropped 10% to around 550 before it rally up, and challenge the previous high and breakout!

Do notice there is a similar TA in the chart? Whenever there is downtrend, the bullish reversal will be either morning star (Jan 2014, Dec 2014, Aug 2015), bullish harami (May 2014, May 2016) or bullish engulfing (which happens most of the time). Whenever there is an uptrend, the bearish reversal will be evening star (May 2013, April 2015, August 2016), shooting star or hanging man.The patterns are quite clear. Hence we can catch or predict when is the reversal by using the weekly chart.

The reason why i think that the consumer index will break its all time high? The major reason would be the growing population.

Malaysia Population had been growing every year [1]

Malaysia population had been growing. In fact, the global population had been growing. When the population increases, there are more consumers, and the supply and demand will need to feed the consumers. Hence, it is a linear relationship between the population and the consumer. When there are more people, the food stocks, the furniture stocks, the poultry stocks, the electronics stocks, the pharmaceutical stocks, the clothing stocks all will be growing.

There are around 120 consumer stocks in our FBMKLCI. Top 3 companies with the biggest market cap are PPB (14%), NESTLE (13%) and BAT (10%). Consumer stock is also a recession-proof sector. Imagine, no matter how bad the economy is, everybody still needs to feed themselves with food. The only disadvantage is that there are too many competitors. So it is better for us to find consumer stocks with dividends.

PPB with market cap of RM18.97 Bil

BAT with market cap of RM18.53 Bil

NESTLE with market cap of RM14.22 Bil

These big giants are too expensive. Therefore we need to find other cheaper counters that might have same potential as these big giants. While the consumer index is still downtrend, we still have time to aim for our long term stocks. After we had identified, we wait for the Consumer Index's reversal signal, and that is the time we ride the wind!

Let's Ride the Wind and Gainvest

Gainvestor 10sai

28 July 2016
11.50pm

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Sources:

[1]: http://www.tradingeconomics.com/malaysia/population