KLCI dragged down by poor corporate earnings, foreign outflows

Sentiment on the market is dragged down by the performance of selected counters like BAT, Nestlé, PetDag, Carlsberg and F&N


Lacklustre corporate earnings, foreign outflows and an overall lack of market catalysts have pushed the Malaysian’s stock exchange’s benchmark below the key 1,700 psychological level.

The FTSE Bursa Malaysia KLCI (FBM KLCI) extended losses for the fifth consecutive trading day, losing 6.77 points to close at 1,693.99 yesterday despite major regional markets rising on expectations of a trade deal between China and the US on the horizon.

The local benchmark was down 30.59 points or 1.8% since closing at 1,724.58 points on Monday last week.

Sentiment on the market was dragged down by the performance of selected counters like British American Tobacco (M) Bhd (BAT), Nestlé (M) Bhd, Petronas Dagangan Bhd (PetDag), Carlsberg Brewery Malaysia Bhd and Fraser & Neave Holdings Bhd (F&N).

Rakuten Trade Sdn Bhd head of research Kenny Yee Shen Phin said the decline was largely earnings- driven after an underwhelming financial year close to 2018 for many listed companies.

“The fourth-quarter (4Q) corporate results were less than inspiring and many analysts have toned down their earnings growth expectations as a result,” he told The Malaysian Reserve (TMR).

“At the moment, our year-end target is for the FBM KLCI to reach 1,760 and this will largely be earnings- driven.”

He said the consensus among research firms is for lower earnings growth in 2019 and any upside surprises in terms of corporate earnings will be a welcome relief for the market.

According to MIDF Amanah Investment Bank Bhd, the aggregate reported earnings of the FBM KLCI 30 constituents totalled RM11.58 billion in the 4Q of 2018 (4Q18) — down 22.4% year-on-year (YoY).

The bank made 40 downward and 37 upward target price adjustments and 20 changes to stock recommendations — 15 downgrades and six upgrades.

Affin Hwang Investment Bank Bhd said 4Q18 earnings numbers were among the worst seen in recent years as huge misses in the telecommunications, transport and utilities sectors dragged the market’s earnings per share growth into negative territory for 2018.

Oanda Corp senior market analyst Jeffrey Halley said the dismal 4Q18 corporate earnings among large-cap stocks made Malaysia a less attractive destination for foreign investors.

“It may simply be a case that traders feel there is better value to be had elsewhere in Asia-Pacific markets on the US-China trade deal recovery story than Malaysia at the moment,” he told TMR.

“A poorly performing corporate sector, along with poor price action globally last week combined to limit gains (yesterday).”

It is not a coincidence the FBM KLCI slump comes amid the recovery observed across most regional and emerging markets (EMs) on reports that the US and China are closing in on a trade deal.

Foreign funds disposed of a net RM447.7 million worth of Malaysian equities over the course of last week — the largest amount disposed of in nine weeks, according to MIDF.

The recent Semenyih by-election, which went in favour of Opposition party Barisan Nasional, is creating concerns over the current administration’s ability to enact policy changes to address fiscal pressures.

“The government needs to get its house in order on the fiscal side as a priority and avoid the temptation to indulge in vote-buying subsidies in the economy,” Halley said.

“I believe Malaysia is still suffering the overhang of the incompetence and poor administration of the previous government and this will take some time to get in order.”

The country also experienced signs of deflation for the first time since the 2009 global financial crisis when its Consumer Price Index declined 0.7% YoY in January 2019.

Halley said deflationary pressures in the short term will not spook investors unless it becomes entrenched in the local economy.

A local equities analyst said investors are adopting a wait-and-see attitude amid the largely muted market sentiment.

“There have been a lack of any meaningful catalysts or major market moving news in recent months (to spark buying interest among investors),” the analyst with a local brokerage told TMR.

“The recent by-election results have also created political uncertainty over the future government direction in Malaysia.”

The analyst said the issuance of the ¥200 billion (RM8 billion) Samurai bond by the federal government scheduled for this month could provide this much needed catalyst.