Analysts are now looking at reforms that could lead to a rerating of the market
By DASHVEENJIT KAUR / Pic By TMR
Bursa Malaysia endured the first week under the new government surprisingly better than expected, closing in positive territory on most days, supported by local buying.
Analysts are now looking at reforms announced by the government that could lead to a rerating of the market at a time of heightened risk in emerging markets (EMs).
Fundsupermart anticipates a higher volatility in the local equity market in the short term.
“Although it would be extremely difficult to predict the severity of the market sell-off, especially by foreign investors, in our view, we do not foresee any significant impact on the local equity market.
“This is backed by the expectation that the current solid economic fundamentals will remain unchanged and Pakatan Harapan’s victory might bring upon fresh policies, to ensure a more prudent government spending and more transparency, which will eventually result in a stronger economy,” its analyst Jerry Lee Chee Yeong noted.
He added that the current efficiency in the new government in setting up the Cabinet and forming the special advisory council would help restore market confidence and be a positive factor for the country’s growth over the mid-to long-term perspective.
“Any panic selling in the local equity market is likely to present investors with excellent buying opportunities,” Lee said.
Re-opening after a three-day break that ushered in a new government, the local benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) saw higher volatility as the market experienced a “relief rally” last Mon- day with the FBM KLCI ending up 3.91 points, or 0.21%, to 1,850.42 after testing a low of 1,797 points in early trading.
Turnover surged to 6.58 billion shares valued at RM7.31 billion.
By last Tuesday, the market had begun to stabilise with the exception of counters linked to the previous government that saw their prices came under selling pressure.
Profit-taking by foreign funds worried of rising risk factors in EMs saw the FBM KLCI fell by about 10 points last Tuesday.
Investors moved money into consumer counters like Nestlé (M) Bhd and Fraser & Neave Holdings Bhd on anticipation they would benefit from policy changes.
Stocks that stood to be hit by the Pakatan Harapan manifesto like toll operators and names like George Kent (M) Bhd, Gabungan AQRS Bhd, MyEG Services Bhd and Excel Force MSC Bhd saw heavy selling.
The prices of the four counters hit limit down over the first two days, leading the exchange to then enforce proprietary day trader and intra-day short-selling activities on the all four counters.
Interest in small caps that had been oversold since the start of the year was seen picking up with the FTSE ML Small Cap Index rising some 200 points to 14,755 points last week.
Last Thursday, Bank Negara Malaysia announced Malaysia’s annual economic growth slowed to 5.4% in the first quarter of 2018 after the Ministry of Finance announced the Goods and Services Tax would be zero-rated from June 1 onwards.
As of the fourth trading day of last week, foreign funds stepped up their pressure on the local bourse with net selling surging to RM2.2 billion.
The last trading day of last week under the new government saw the index ending unchanged at 1,854.50 as volatility eased further.
Shares of MyEG Services and George Kent, which had been battered over the past four trading days, managed to stage a mild rebound early last Friday as the former undertook share buybacks, while the latter announced plans to do so.
Both George Kent and MyEG saw a total of RM7.4 billion wiped off from their market capitalisation last week.
“The short-term trend for FBM KLCI has turned side- ways rangebound as the key index was closing below the 15- and 20-day simple moving averages (SMA), but above the five- and 10-day SMA, while the medium-term trend remained sideways range-bound with an upward bias,” a chartist with a local brokerage said, adding that the long-term trend remained up.