FSM Buzz  
The Bears in the Past and How Investors can Position for Market Uncertainty March 2, 2018
In this article, we would like to share with our investors what are the strategies that they can adopt especially when such incidents repeat in the future.
Author : Jerry Lee Chee Yeong

Lessons From The Recent Sell-off

Ever since the strong rally for the global equities markets that has started in late 2016, investors have been investing comfortably and enjoying handsome returns throughout the year of 2017. With all the good things that happened over the past 1 year, most of the investors would have gotten used to the environment of low volatility and impressive returns from the equity market.

Nevertheless, the sell-off in the US equity market, with the S&P 500 and the Dow Jones Industrial Average Index plunging more than 10% from their respective peaks has led to several new headlines mentioning that the US equity market has entered into a technical correction with the definition of 10% drop from its recent peak. Consequently, we believe that, more often than not, this type of headline is the main factor that causes the negative superlatives to pile up rapidly especially among the retailers. In this article, we would like to share with our investors what are the strategies that they can adopt especially when such incidents repeat in the future.

How Drastic The Recent Sell-off Is?

Apart from the US equity market, we also noticed a drastic drop from other equity markets around the globe. Among all, China, Japan and Hong Kong were the top losers, with the respective indices falling -12.5%, -12.3% and -11.1% from their recent peaks to the bottoms. On the contrary, Malaysia equity market showed the strongest resiliency, with the FBMKLCI index dropping only -3.1% from the peak.

Table 1: Performance of the respective indices from its recent peak to bottom

Besides looking at the countries’ indices, let’s review the performance of the funds that listed on our platform. On average, the equity funds listed on our platform posted losses of more than -5.7% over the 2 weeks period, from 26th January 2018 to 9th February 2018. Among our recommended equity funds, the Commodities Equity top the bottom performing list, with losses exceeding 10% over the same period. Apart from the commodity fund, funds with Asia ex Japan exposure such as Affin Hwang Select Asia (Ex Japan) Opportunity Fund (-9.3%), CIMB Islamic Asia Pacific Equity Fund – MYR (-7.9%), CIMB – Principal Asia Pacific Dynamic Income Fund – MYR (-7.3%) and Pheim Asia Ex-Japan Islamic Fund (-6.6%) also posted high single digit losses over the two-week period.

Table 2: Bottom 10 performing recommended funds

How Long Can The Correction Last?

Historically, the US equity market as represented by S&P 500 has posted losses of more than 10% from its previous peak for 7 times since 1995. On average, these corrections lasted for 9.5 months, ranging from 1.5 months to the longest of 30 months.

Table 3: Average Duration for Correction in US Market

On the domestic front, the local equity market corrected for 11 times with drawdown of more than 10% since 1995. As compared to the US market, on average, the corrections in the local equity market lasted relatively shorter (7.4 months), ranging from 2 months to the longest of 18 months.

Table 4: Average Duration for Correction in Malaysia Market

How Should Investors React If Such Incident Repeats?

Although we have enjoyed a very good year with low volatility in the equity market last year, we would like to reiterate that we do not expect the low volatility environment to repeat this year. In other words, we do expect more fluctuations in the global equities market, where investors need to be more disciplined in order to ride through the market fluctuations.

Investors should not try to time the market but to stay invested at all time as most of us might be affected by the emotion of fear and greed when the market fluctuates. As such, it is necessary for investors to ensure that have a portfolio with a proper combination of equities and bonds that suit their risk profile, especially after the strong rally in the global equity market last year which might have lifted the equity allocation in one portfolio way off from the intended allocation.

Besides that, although the dollar cost averaging strategy is a widely recommended investment strategy especially for unit trust investment, investors should adopt such strategy with proper planning in order to maximise the effect. As mentioned above, usually the correction in the market would take about 7 to 9 months’ time, hence, investors should allocate their capital into a few portions and invest into the market gradually.


At this juncture, Asia ex-Japan equities remain as our favoured region due to its attractive valuation and the expectation of strong earnings growth that would lift the upside potential moving forward. As such, for investors who are looking for investment opportunity, they can consider CIMB-Principal Asia Pacific Dynamic Income Fund – MYR, where the fund has shown a strong recovery after the recent correction and is currently down about 2.3% from its recent peak. For investors who do not have the luxury of time to study and analyse each individual market and fund, they can consider our FSM Managed Portfolio, an all-in-one online advisory service that builds, monitors and maintains investors portfolio.

This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Fundsupermart.com. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.