Today

Brexit it is.

UK's referendum to leave the European Union has won a majority vote shocking financial markets.

I woke up to the news that polls had just been closed in the UK and the GBP/USD had strengthened past 1.50/USD. Gold was in a losing streak all night. Traders worldwide were restlessly trading through the entire vote regardless of the time zone they are in.

2 weeks prior to the referendum vote, financial markets that were previously complacent with the referendum were suddenly shaken by polls that indicated a close tie between the Bremain and Brexit camps. Financial markets world wide took a tank, bond yields dropped and a surged in safe haven assets was seen. However, a week prior to the referendum, bookies polls indicated that the chances of a Bremain was 92%, markets suddenly became complacent again and there was a retreat from safe haven assets up until the first few hours of vote count.

I had a straddle of FBMKLCI warrants in hand, a relatively small percentage of my portfolio. Retrospectively I had taken the position simply because I was frustrated of missing out of the puts while they rallied during the fear prior to the vote.

Several hours had past through the vote and the leave campaign had unexpectedly taken the lead. The pound took a beating, plunging from 1.50/usd down to 1.40/usd before plunging down further to intraday lows during the day. Safe haven assets, bonds worldwide and gold were rallying. A sell-off in the oil market and equity markets worldwide was evident, clearly this was a risk-off situation.

The Nikkei 225 was leading the plunge in Asia, down close to 10% or approximately 1200 points. Movements across the markets were tragic and were of the largest magnitudes since the financial crisis, some not even seen in decades. European indices dropped 8%-10%, banks in particular were bashed down with italian banks down 27.8% in the next 2-3 days. Even the US banks took a hit overnight! The KLCI however, seemed to be supported well with an intraday low of -26 points during the day coming close to 1610 and eventually bouncing up during the session to -15 points and closing with -5 points at 4.50pm sharp.

The immediate implications of Brexit to me was simple, the first thing that will take a hit would be the GBP. If it dives deep enough and remains low for a considerable period of time, property investors/speculators in the city of London would be anxious causing a significant threat to the growing housing bubble. Further foreign direct investments will be affected with investments delayed due to political uncertainty and the instability of the pound. With a trade deficit of 7% in the UK and lacklustre inflation worldwide, the BoE can do little to support both the currency and housing market at the same time. I believe both the EU and UK was about to take a big hit and was convinced that the market was clear on that.

Both M and I have been waiting patiently for a potential 'needle' to burst the global financial bubble, this seemed to us to be the possible spark of the next financial crisis. I decided to take on a relatively large position in out-of-the-money put warrants. The KLCI was around 1620 the following Monday morning and I had accumulated approximately 12% of FBMKLCI-H43 (strike 1600 expiry in a month) at RM0.03, 3% of FBMKLCI-H53 (strike 1570, expiry in 2 months) and 15% of FBMKLCI-HW (Strike 1700, expriy in a month). The set of warrants accumulated are considered fairly aggressive, in line with my view that the markets would continue to tank following a steep fall from the referendum vote last Friday. An aggregate of 30% of my portfolio was parked in these puts with the remaining in cash. I have not had an equity position lasting more than a week in my portfolio for 3 months due to my bearish outlook of global markets.

The KLCI remained fairly stable in the next few days. Global markets dipped slightly further on Monday with the bulk of the damage inflicted on banking and housing related stocks in Europe. On Asia's front, the strengthening Japanese Yen against the dollar have passed 100/dollar, effectively wiping out the efforts of Abe's and BOJ's stimulus over the past 3 years. Global markets rallied on the third day of the referendum (Tuesday), which to me was a clear case of relief rally and unfortunately it has seen a follow through on Wednesday, of which I decided to close bulk of my position in the puts. By this time around, I would have wiped off 25% of the 72% profits I have accumulated during the year. Painful as it seems, the trade is not over and I will not allow unnecessary emotions affect my judgement. Central banks worldwide have reiterated again and again that they will intervene if necessary. Perhaps this provided some comfort to equity players.

What I could have done better it seems, would be to take up a smaller position after what seemed to be a huge move in the market (10% plunge) considering a technical rebound is lurking around the corner. A larger position can always be accumulated during a rebound or a clear-cut follow through plunge after the rebound which by then prices of puts would be considerably lower. Also, while Asian markets were all trading side ways with fairly neutral RSI's, markets in Europe and US were close to being oversold. Despite KLCI's neutral RSI and the fairly bearish backdrop, the KLCI closed above resistance of 1640 today and I suspect it will be testing the SMA50 line at 1648 tomorrow. Global markets continue to rebound sharply at approximately 2% each on the fourth day erasing approximately half the losses from Brexit with a sense of calmness, however safe haven assets have been climbing tirelessly. As unusual as it seems, I fear that markets can be irrational longer than I can stay liquid and I was not about to expose myself to losses that could wipe out the fruit of my labor for the past 36 months.

I think the markets are divided with both risk-on and risk-off approach apparent in multiple markets. One of them is wrong. As for my next move, if no reversal is seen in the markets and no significant news surfaces that will change the trend, I will close off all positions and take some more time to reflect and obtain more knowledge prior to my next trade.

The young (irritable) trader - investor wannabe

Having done 2 internships over the last 6 months, I finally settled down with a book on investments written in lay man terms for the mass public. The author, Mr. Fong SiLing (better known as 冷眼) would then kick start my journey, an endless one I suspect, of tracing global financial markets. Little did I know the thrill I was in for, the intellectual satisfaction through placing the right trades/investments after thorough analysis and study, as well as the constant process of being humbled by the markets.

I placed my first trade in November 2014 on a relatively small non-banking financial institution called the Malaysia Building Society Berhad. My thought process back then was fairly simple, with meager knowledge on assessing investments, I concluded that the P/E ratio of the company was low (simply because it was below 10 times) and due to its strong growth over the past 3 years it must be a great investment!

Little did I know that investing by merely studying historical data was like driving by solely staring at the rear view mirror. Accidents are bound to happen. I also naively decided that I should buy on an ex-dividend day which did not result in any good.

For the coming weeks, I was extremely miserable watching my investments fall initially by 5 cents (purchased at RM2.84) all the way to 40 cents. Being caught by surprise by an upcoming rights issue which I would have known if I have read the announcements, I finally closed my position with a small lost of 4 cents. It was a big deal to me back then, my first realized loss on a position.

MBSB have turned up time and again in my investing/trading career. This is one that I would hope to document in the future.