Bursa Malaysia undergoing a healthy pullback, say analysts


The profit-taking activity on Bursa Malaysia is a healthy pullback from the recent rally, according to analysts, and enables a more sustainable uptrend momentum ahead.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fell for the third consecutive day, closing down six points at 1,816, after hitting a year-todate high of 1,840 on Tuesday.

Trading volumes eased to 4.08 billion shares worth RM3.04 billion in a bearish market, with 781 counters down and 265 counters up in market, action yesterday, compared to 6.9 billion shares worth RM4.6 billion traded on Monday.

Rakuten Trade Sdn Bhd research VP Vincent Lau (picture) said the market remains in a bullish trend and there will be “intermittent pullback”.

“Lower volume pullback is good and presents a buying opportunity that is expected to linger until the dissolution of the Parliament,” Lau told The Malaysian Reserve (TMR).

The benchmark FBM KLCI has chalked up 107 points in 13 market days, measured from the low of 1,732 on Dec 19 last year to a high of 1,840.35 on Jan 9 this year.

Analysts believe the profit taking correction could persist for the next few days to neutralise the overbought momentum and the peaking volume.

“The market is taking a breather, and the current weakness appears as a buying opportunity for investors. The current weakness could reverse and the bullish uptrend resume,” Lau said, adding that he is optimistic the market rally has legs to run further.

AmInvestment Bank Bhd executive VP and head of equity markets Gan Kim Khoon generally agrees with Lau’s viewpoint.

“Yes, it is healthy,” Gan told TMR when asked if the third day of decline is deemed as positive.

The FBM KLCI is up 1.1% so far this year, trading at 16.3 times 2018 price-earnings (PE) multiple, the fourth-highest PE after the Philippines Composite Index (19.1 times), Jakarta Composite Index (16.5 times) and Thailand SET Index (16.5 times), as contrasted to a year ago whereby the local benchmark index traded with the second- highest PE ratio.

JF Apex Securities Bhd said the local equity market has traded at a premium to regional peers due to its defensive nature, as ownership by government-linked investment funds is relatively high in KLCI component stocks.

In its recent market outlook strategy report, JF Apex noted the FBM KLCI uptrend was mainly backed by foreign fund inflows as the market plays “catch up” to regional bourses after lagging them in terms of returns last year.

“It is a strong start for 2018 and in line with the strong rallies in the ringgit and crude oil prices,” it noted in a report recently.

The research house added that the positive momentum will be short lived as it expects profit-taking to take hold as we come closer to the 14th General Election (GE14), which is widely anticipated to be held in March or April this year.

“Based on our study, we found that pre- and post-election movement in the stock market is inconclusive, in contrast to general perception that market would trend upwards ahead of the election.

“However, we might see some thematic plays on certain government-linked companies or politically-linked stocks prior to election, as the market anticipates policy continuation with Barisan Nasional to be given another mandate in the upcoming GE amid a divided Opposition front,” it said.

In terms of fundamentals, JF Apex believes the current market valuation is fairly priced, with the FBM KLCI currently trading at 16 times-17 times 2018 PE, which is at the range of +0.5 and +1 standard deviation above its historical mean PE of 15.2 times.

“At this junction, we deem the current valuation as fully valued in the absence of any strong positive catalyst, while immediate market outlook remains uncertain,” it added.

On a technical outlook, the firm’s study shows that the recent rally stemming from the year-end window dressing could face a downward correction.

However, the uptrend can be sustained if the immediate support at 1,800 points manages to hold, it said.