KLCI likely to retest 1,700 level as money flows into cyclicals


THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) is expected to cross the 1,700 point level on the back of positive Covid- 19 vaccine news that drives investor spirit, said Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.

He added that should the benchmark breach that level, the next resistance level would be at 1,733 points driven by expectations of a more positive outlook for the economy next year.

Bursa Malaysia ended lower yesterday with the benchmark FBM KLCI falling 21.84 points to 1,662.74 as trading volumes hit 11.88 billion securities with sustained interest in banking sector stocks.

“The Overnight Policy Rate may stick around at 1.75% in 2021, as Bank Negara Malaysia would be inclined to keep it steady in order to facilitate the recovery process. This, in turn, should preserve the bank’s net interest margin (NIM),” he told The Malaysian Reserve (TMR).

Mohd Afzanizam expects a better crude oil price outlook on expectations of higher demand driven by improvement in the global economy following the rollout of vaccines, as well as OPEC+ member countries gradually reducing the oil output cuts from 7.7 million barrels per day to 7.2 million barrels per day next year.

“The crude palm oil prices also seem quite constructive which would help the plantation counters. Despite all these, sustainability will always be a question mark.

“In particular, the timely rollout of Covid-19 vaccine and the efficacy of such vaccine are the main assumptions underpinning the positive sentiments,” he added.

If the turn of events takes a different direction, Mohd Afzanizam said, it could result in a severe correction in the markets.

AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said the global reflation trade is sprinkling year-end magic dust over a number of counters including commodities, oil and gas (O&G) and banks, as well as the beleaguered travel and leisure sector. This is without additional US stimulus.

“I think commodities should remain strong going into first counter and petrol prices will rise pro- viding a huge amount of relief to Malaysia’s O&G sector.

“The steeper yield curve but lower front end rates will be a boon to the banking sector which has been struggling due to loan loss provisions, and as the stimulus starts to defend its way through the economy, things should be good,” he told TMR.

He is concerned that too much optimism may hit the market at once which has all the hallmarks of retail investors buying everything again.

“I think markets will be high and 1,700 level is achievable, but there will be a few bumps on main street to overcome.

“Window dressing is a common theme, but I’m not sure just how prevalent it will be this year. But there are many signs of IPO and mergers and acquisitions activities globally.

“I think provided that central banks stay loose and governments continue to provide stimulus, markets can rise,” Innes concluded.

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Bursa Malaysia expected to break 1,700 psychological level