If you go to our national statistics website at www.statistics.gov.my/ you will find a host of economic indicators. There you will find external trade figures, manufacturing statistics, consumer price indices etc. etc. I will not go into them here as there are more than enough websites out there which can explain to you what they all mean (I like www.investopedia.com) plus it would be boring for you to read and me to write.

What I’d like to talk about, which is something I have been looking into for the past week, is how to use these indicators to benefit your trading performance. However it’s important to realise that this is not a magic tool to tell you when to buy and sell. It’s a bit like technical analysis - helpful and yet confusing and deadly. In short it’s a great addition to your trading armour.
To begin with it’s important to realise that indicators are used predominantly by 3 types of people: 1) Government officials, 2) Business leaders and 3) Investors- each for different reasons.

Business leaders use it to provide information about the health of the national economy - how much people are spending, how expensive things are becoming, how competitive we are etc. this will help in their business decisions such as how much inventory to stock up on, whether to make things more or less expensive, whether to spend or save and so on.

Government officials use it to set domestic, trade and fiscal policies.

Investors like us use it for a variety of things depending on what we are investing in. A currency trader might use inflation and employment figures to determine how much interest rates will go up or down, which directly impact the movement of a currency. Fundamental traders (like us) use it to determine how the fortunes of their company will be impacted. For example if you know that palm oil prices are going up, that’s got to be a good thing for the palm oil company. If manufacturing is up, that’s got to be good if your company supplies raw materials and products to manufacturers.

Let me give you a concrete example. Last month vehicle sales were down by 13%. Over the year they have decreased by 17%. This is the 15th straight month that vehicle sales have fallen in Malaysia. This has had an impact on the bottom lines of companies like Orient, Tan Chong, Eon, MBMR etc. But before you rush out and sell you car company shares I have to inform you of another dimension to this analysis. Just because the environment is getting worse does not mean a) that your company is definitely going to suffer and b) that things won’t turn around. So if you look at some of these companies you will see an interesting phenomenon. All the ones which are increasing their revenes in this environment are being rewarded amply. This is because they have been given bonuses points for being able to grow.

Hope this example helps show how economic statistics can help shape your investment decision and help you come up with your own analysis of how things are really going down using cold hard facts, and not newspaper or research reports.