May Strategy: Sell in May Go Away??

Sell in May Go Away?? That's what happens in Wall Street for the past year. There is certainly some sign of economy stabilizing at the moment. The contraction is slowing down and it starts to recover. However, the condition now is far away from the so-called “Green Shots”.

The recent April US ISM manufacturing index shows good improvement with index showing 40.1%, up 3.8% from previous reading of 36.3%. The production activity has increased and the export and import also showing sign of recovery.
This is good news, but there is still a huge gap from 40.1 % to 60%, where it indicates growing sign and out of contraction zone.

The market has certainly very bullish at the moment. There is always a correction after a huge rally. The best strategy is to accumulate stock when the market is in pessimist mode.

What sector to watch out during correction?

Avoid:
i) Property sector – With unemployment rate continue to go up, it is very unlikely the property sector to recover in anytime soon. Property business will under pressure in coming 2 quarters, whereby they have to mark down their investment property value, which required by FRS (Property Revaluation). REIT also facing pressure with rental and tenancy problem at the moment

ii) Marine sector – Ship building business is definitely slowing down with global ship supply over demand at the moment. I expect the ship building order cancellation will continue go up, with more new ships coming in this year. With current crude oil hovering around US$50 per barrel, it is very unlikely the offshore exploration activity will continue and growing. Oil rig and AHTS builder will have a tough time in 2009!

iii) Steel sector – The recent spike of buying order is believed to be temporary effect, due to China stimulus package. The key for recovery is when the overall economy is back on track. So far, we still have a long way to go before we can see burgeoning order of steel bar.

Accumulate:
i) Hospitality REIT - This is a very defensive sector. The demand is in-elastic. With the recent Swine Flu scare shooting down into everyone spine, there is a good reason to believe that this sector is going to perform better in this tough time. However, my advice is to avoid Hospitality REIT, where the business is focusing on providing luxury service. Hospitality REIT with focus on mid-income group segment in Singapore and Malaysia will be a good buy.

ii) Utility sector – Power Utility business in US will be the biggest beneficiary of the recent Obama’s government stimulus plan. Another good example in M’sia is YTL Power, where the business is very resilient in downtime. YTL Power has decent dividend yield of over 5% every year at current price of $2.

iii) Finance sector- Bank and finance business is always very attractive and finger licking good. You don’t to miss a chance to have one of the most profitable businesses in your portfolio. This finance sector mess is definitely once in a life time good chance to buy finance and bank stock at very cheap price.