External factors, political risk to fuel volatility on Bursa

by RAHIMI YUNUS / pic by MUHD AMIN NAHARUL

TRADING on Bursa Malaysia is expected to remain volatile due to external factors and heightened political risk despite relief from the aversion of the state of emergency.

Maybank Investment Bank Bhd senior chartist Nik Ihsan Raja Abdullah said the impact of the uncertainty stemming from the state of emergency matters had largely been priced in last Friday, but the US presidential election next month and delay in vaccine developments remain a concern.

“Selling pressure from the state of emergency rumours had started last Friday. Yesterday’s reaction is related to a healthy correction in rubber glove-related stocks and sustaining interests in technology.

“I think Malaysian markets are facing external factors as the US election draws near and some hiccup in vaccine development, creating a sort of jittery,” Nik Ihsan told The Malaysian Reserve (TMR).

The FTSE Bursa Malaysia KLCI (FBM KLCI) fell marginally 0.03 point yesterday to close at 1,494.64 points after hitting a low of 1,482 points in intraday trade.

The benchmark index opened higher at 1,495.56 points as investors reacted positively to the Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah move to reject a state of an emergency proposal from the government on the weekend.

The FTSE ML ACE Index fell 383 points or 3.6% yesterday with other indices in the red except for the plantation and technology indices.

Regardless, Nik Ihsan said there’s plenty of interest in technology stocks.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said plantation counters in the benchmark FBM KLCI such as Sime Darby Plantation Bhd, Kuala Lumpur Kepong Bhd and IOI Corp Bhd helped to propel the plantation index higher by 1.54% yesterday.

Adam said the technology index rose marginally by 0.07% as a result of investors may still be focusing on the work-from-home narrative following the rise in Covid-19 infections in Malaysia and worldwide.

Meanwhile, oil counters pose a downward pressure on Bursa Malaysia yesterday.

Petronas Dagangan Bhd recorded the biggest loss falling by 2.39%, while other oil and gas counters such as Dialog Group Bhd lost 0.54% which dragged the Bursa Malaysia Energy Index by -1.4, making it the biggest laggard among sectors on the stock exchange, Adam told TMR.

Oanda Corp senior market analyst for the Asia Pacific Jeffrey Halley said no state of emergency has temporarily reduced political risk and was modestly supportive of equity markets and raised hope for the upcoming budget to be passed without any incident.

He said markets could see more volatility throughout the week as investors would want to reduce risk exposure ahead of the US election.

“I expect elevated market volatility all of this week, increasing into Friday as the US election draws closer. I expect to see investors reducing risk over the course of the week and very little chance a stimulus agreement will be finalised this week. That will add to concerns,” Halley told TMR.

Rakuten Trade Sdn Bhd research VP Vincent Lau said sentiments have improved following the aversion of the state of emergency but he concurred with Halley that the US election would be a major cause of concern.

Bursa Malaysia Bhd, he said, is expected to post good numbers for its third quarter result due today, driven by higher average daily trading volumes.

Lau said volumes traded have improved again post the Conditional Movement Control Order.

Adam said trading participation in terms of average value traded on a month-to-date basis as of Oct 22, 2020, for retail investors inched up higher to 40.1% from 38.1% in September 2020, signalling retail investors still have the appetite to invest on Bursa despite the current political situation in Malaysia.