Malaysian stocks to continue rising, but don’t get too comfortable, says analyst

Upward momentum currently led by buying by local funds, in view of many stocks having reached highly oversold levels, says analyst


The upswing in the Malaysian stock market is expected to continue although an industry expert advises caution against excessive optimism in the face of weak catalysts, a global trade spat and rising interest rates.

Malaysia’s benchmark index, the FTSE Bursa Malaysia KLCI (FBM KLCI), closed 6.17 points, or 0.35%, higher at 1,759.24 yesterday, continuing a nine-day winning streak.

Turnover stood at 3.49 billion shares valued at RM3.02 billion, with gainers outpacing losers 640 to 323, while 419 counters were unchanged.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said selected regional markets have performed well of late partly because of improved valuations, especially in Singapore, Malaysia, Thailand and to some degree, Indonesia.

“Not all regional stocks are actually up — the rebound was mostly in South-East Asian markets. Whether it’s sustainable for Malaysia is still an open possibility, but don’t get too carried away as it may not last,” he told The Malaysian Reserve.

According to Pong, the upward momentum is currently led by buying on the part of local funds, in view of many stocks having reached highly oversold levels.

“The selling has lost momentum — it seems to have exhausted itself for the moment, but doesn’t mean it won’t return. Local funds feel many stocks are very badly beaten down and valuations look attractive, so they’ve been buying quite aggressively. I don’t think foreigners want to stand in the way of local funds buying, so they’ve also turned net buyers,” he said.

He opined the market set-up is “very similar” to what was seen during the downtrend in the mid- 2014 after coming off a fresh peak.

Back then, he said, the market staged a rebound led by local funds bidding up the FBM KLCI, which in turn caused foreign investors to follow suit.

“Usually, the bounce gains traction when foreigners reverse into net buyers after local funds have gone long in the market. Foreign buying then can go on for about one to three weeks, before they stop buying and start selling again.

The index fell even lower than before. So, don’t assume the net buying now is going to carry the market all the way to a new high,” he said.

The threat of a US-China trade war continues to hang in the balance, with China’s latest move was to fix weak links in the domestic economy and establish friendships with other trading partners.

Another factor driving fund flows is the expectations that the US Federal Reserve (Fed) will raise interest rates twice more this year.

Fed chairman Jerome Powell said recently the US economic growth was solid in the first half of the year and poised for several more years of growth, which boosted investor confidence of corporate America’s earnings prospects.