FBM KLCI rally to be held back by protracted trade uncertainties

Despite the recent performance, research firms see further gains for the FBM KLCI capped at no more than 1,700 by year-end


THE upside for Malaysia’s equity market is limited as any sustained rally will be pegged back by global trade and growth uncertainties which the recent US-China truce failed to eliminate.

Malaysia’s benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) extended gains to close 11.49 points higher at 1,683.62 yesterday, coming off a near four-year low of 1,598.32 on May 24 this year.

The rise in the market benchmark was supported by improving capital inflows with foreign investors acquiring RM134.6 million net of local equities last month — the first foreign net inflow in five months, according to MIDF Amanah Investment Bank Bhd.

Despite the recent performance, research firms see further gains for the FBM KLCI capped at no more than 1,700 by year-end.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said the rebound in the FBM KLCI falls in line with the performance of regional equity markets, which are also moving higher.

“However, the expectation and reality on the ground is that we are unlikely to see a robust domestic market,” he said.

“The regional markets have been stuck in a rut, failing to outperform this year and emulate the US market,” he told The Malaysian Reserve (TMR).

“Investors remain hesitant and typically slid to safety in this scenario. Volatility is here to stay and will be centred on the same noises in the market, including the US-China trade and global growth.”

The performance of US equities is typically a barometer of risk and judging by the highs reached by the S&P 500 and Dow Jones Industrial Average, they should have translated into better gains for the Malaysian stock market which, however, failed to materialise.

The deferring of QSR Brands (M) Holdings Bhd’s initial public offering (IPO), a multibillion-ringgit listing touted as a catalyst to spur activity in a tepid market, points to a valuation gap between what companies hope to raise and what investors are willing to invest.

“Domestically, the market has not been attractive for larger IPOs or deals that move the needle,” Chia said.

“We have seen several listings on the secondary markets, but main market listings are expected to be quiet this year.”

Positive news flow on the domestic front did partially bolster the FBM KLCI, but the market sustaining a rally in the second half of the year (2H19) will be externally-driven,” Chia said.

Affin Hwang Investment revised its year-end target for the benchmark index downwards to 1,679, 4.62 points lower than yesterday’s closing.

JF Apex Securities Bhd head of research Lee Chung Cheng said the FBM KLCI is expected to trade sideways in 2H19 and end the year at 1,700, predominately driven by external factors including the US-China trade and US interest rates.

“Despite Washington and Beijing agreeing to a trade truce for the time being, it is impossible to gauge what US President Donald Trump is thinking. So, the external environment remains uncertain,” he told TMR.

The FBM EMAS Index, which tracks the performance of Malaysian mid-cap stocks, closed higher at 11,885.16, up 103.58 points from yesterday.

Notable movers for the day included Gamuda Bhd whose shares continued to appreciate to RM3.83 (up seven sen) after agreeing to sell its highway concessions to the federal government.

Other toll operators, namely IJM Corp Bhd, Ekovest Bhd and Taliworks Bhd ended the day in the green as well. Lingkaran Trans Kota Holdings Bhd, which Gamuda owns a 43.56% stake, closed flat at RM4.90.

Oil and gas counters, specifically service providers, attracted investor interest after Saudi Arabia and Russia, the largest oil producers, agreed to extend current production cuts for another six to nine months.

Meanwhile, the ringgit opened 0.2% stronger at RM4.12 against the US dollar before settling at the RM4.13 mark yesterday.

The local note, alongside a host of other emerging-market and risk-based currencies, gained from the respite in the US-China trade front and prospects of the US Federal Reserve lowering its key interest rate as early as this month.

Vanguard Markets Pte Ltd managing partner Stephen Innes said traders are getting “jittery” about the length of US dollar short positions and are, thus, gradually covering some of their risk.

This, thus, strengthened the US dollar and limited the gains noted by the ringgit and regional currencies.