Making predictions

The last time I wrote in this blog, KLCI was some 200 points higher, BN holds more than 2/3rd majority in Parliament, and power-lady Rafidah Aziz was still in MITI. Two months ago none of us would have thought all this could happen now. And judging from how things have turned out, two months from now things could be entirely different. My entire work career revolves around making predictions on future market levels and stock prices. We all pretend to be experts. When things go wrong we defend ourselves by going back to the preconditions in the fine prints of our reports. It all makes sense in hindsight, although we may seem very confident when we first made those recommendations.

Some brokers have cut KLCI targets on the back of `higher risk premium' and `political uncertainty' that essentially removed 2-3x P/E multiples to the target KLCI. But earnings are irritatingly sticky, and so far consensus are still looking at high teens growth, after perhaps a couple of percentage points cut to account for these `political risks'. I dont blame them as I would have done the same. The rally in the KLCI was predominantly sentiment- or liquidity-driven to start with, so its not unnatural to use the same excuse for a market slump. The irony is, the `uncertainty' story is not just limited to Malaysian politics. Back in the US, there is still intense debate whether the economy is in recession or not. The book runners are still taking bets. My bet is... well, it doesnt really matter what I think because anyone can be right, or wrong depending on what comes out in the end.