Malaysian equities rebound as investors acclimatise to new govt

Regional markets recover from earlier sell-down as investors bargain hunt amid subsiding concerns over US-China trade war

By MARK RAO / Pic By MUHD AMIN NAHARUL

Malaysian equities have recovered from the post-election lows and are looking to end the year strongly as investors are buying ahead of expectations of fiscal and policy clarity from the new ruling government.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said investors are positioning ahead, and factoring in recent and upcoming developments which should provide greater clarity on the current administration’s policy direction.

“Prime Minister (PM) Tun Dr Mahathir Mohamad’s recent visit to Japan and his scheduled trip to China, as well as the passing of the Sales and Services Tax (SST) and upcoming tabling of the 2019 budget should provide clarity to investors.

“Investors are looking at the overall direction taken by the current government and are buying on that,” he told The Malaysian Reserve (TMR).

He added that the recent appointments at key government agencies and investee companies cleared up the uncertainty surrounding the future leadership of these entities.

Dr Mahathir’s trip to Japan is part of efforts to strengthen bilateral cooperation between the two countries, while the Malaysian PM’s visit to China on Aug 17 is expected to include renegotiations for better terms for several Chinese-backed investments undertaken by the previous administration.

Meanwhile, Malaysia’s central bank (Bank Negara Malaysia), strategic investment fund (Khazanah Nasional Bhd) and pilgrim fund (Lembaga Tabung Haji) have all undergone personnel changes.

The change in power, following the conclusion of the 14th General Election on May 9, saw foreign investors dumping RM2.48 billion of local equities the week after — the highest outflow noted by Bursa Malaysia Bhd in four years. Change in fiscal policies, the suspension of multibillion ringgit projects and re-investigation into the controversial 1Malaysia Development Bhd continued to keep investors at bay.

Coupled with prolonged trade tensions between the US and China, the FTSE Bursa Malaysia KLCI (FBM KLCI) fell to a 12-month low of 1,663.86 on July 6, which was a decline of 9.9% or 182.65 points from May 8 — a day before polling day.

Tracking the performance of the top 30 listed companies, the composite index has since recovered and closed at a fresh high of 1,804.95 yesterday. The gains were not limited to the index-linked stocks as the market capitalisation of all counters traded on the local bourse rose from RM1.79 trillion in May to RM1.88 trillion in August (month-to-date).

Chia said investors have also “shrugged off” trade war fears to a certain degree, while the Washington-Beijing led tariffs could benefit Malaysia as China looks to cheaper trade alternatives.

“The higher cost of doing trade with the US could push China to increase trade, investments and outsourcing to alternative markets such as Malaysia,” he said.

CIMB Investment Bank Bhd head of Malaysia research and regional head of agribusiness research Ivy Ng said regional markets have recovered from the earlier sell-down as investors are bargain hunting amid subsiding concerns over a trade war.

“The FBM KLCI recovery is likely being fuelled by this bargain hunting coupled with easing concerns on global trade conditions,” Ng told TMR.

She added that the passing of SST, which will come on stream on Sept 1, will help the current government recover some of the lost revenue following the zero-rating of the Goods and Services Tax (GST) on June 1.

“This puts the government on track to recoup some of the lost revenue from the GST-free period, but there will still be a gap between the SST collection and what would have been collected from GST.

“The government will have to work on determining how to cover the revenue gap for 2019. This will be indicated when the 2019 budget is tabled this year,” she said.

Ng added that the investment bank’s technical analysis for the FBM KLCI puts resistance levels at 1,810 and 1,820, while support levels are seen at 1,785 and 1,800.