Lacklustre trading outlook for Bursa despite strong 1Q20


INVESTOR interest in exchange operator, Bursa Malaysia Bhd, will remain weak in the coming months due to recession fears in the first half of 2020 (1H20) despite high trading values on the exchange in the first quarter of 2020 (1Q20).

Affin Hwang Capital Research stated in a note yesterday the lacklustre trading outlook will persist in 2020-2021 despite high trading values in the equity and derivatives markets on Bursa Malaysia year-to-date.

Based on Affin Hwang’s latest GDP growth forecast of -3.5% for 2020, it expects a sharp contraction in private consumption spending in 1H20.

Private consumption is expected to start to normalise in late 2020 as the near term is expected to see a rise in unemployment.

Bursa Malaysia’s overall trading value has increased in recent months due to high market volatility in 1Q20, which increased from 30% in January to 50% in March.

Affin Hwang said investor sentiment will remain cautious into 2021 as they come to terms with a recessionary year in 2020, with a potential increase in companies and individuals that face cashflow problems between 2020 and 2021.

“As our local exchange saw a spike in volatility throughout 1Q20, we expect Bursa will potentially see the average daily value of securities trading (on-market trades and direct business trades) coming in at RM2.5 billion (+3.7% year-on-year [YoY] and +20.4% quarter-on-quarter [QoQ]),” the research firm stated.

This is underpinned by a surge in volatility from 30% in January to 40% in February and to 50% in March, following the collapse of the Pakatan Harapan government — which was then replaced by the Perikatan Nasional government — amid the Covid-19 pandemic.

Total derivatives volume traded in 1Q20 is estimated to have increased by 73% YoY and 30% QoQ to 5.1 million contracts, led by strong interest in crude palm oil futures and the FTSE Bursa Malaysia KLCI futures. However, the spike in derivatives contract volumes in 1Q20 may not repeat in the coming quarters, Affin Hwang said.

The investment bank estimated Bursa Malaysia could see a net profit of RM53 million to RM55 million in 1Q20, which represents an increase between 13% and 17% YoY.

“As a result, we have tweaked our 2020E net profit estimates by +17.4% to account for the robust 1Q20 revenue, while for 2021-2022E, we make some minor adjustments of -3.2% to -4.4%,” it said.

Affin Hwang also maintained its ‘Sell’ rating on Bursa Malaysia and lowered its 12-month price target to RM3.40 from RM4.50 previously.