‘January effect’ will not likely kick in on bearish influences


INVESTORS who intend to sell off their low-priced shares bought for the “January effect” will not gain as much as the seasonal market tendency is not expected to kick in this year.

Bank Islam Malaysia Bhd (BIMB) economist Adam Mohamed Rahim said the likelihood of the calendar effect to occur in the local stock market is slim as short-selling activities, particularly by the glove counters, have signalled a bearish view.

“The January effect is not likely to kick in this year amid a confluence of negative factors, while the year started with a sell-off in rubber glove counters, especially with the ban on short-selling lifted.

“The short-selling activities portray a bearish view among investors,” he told The Malaysian Reserve.

He said bearish sentiments are also attributed to the country’s other market movers, such as the economic progress and the Covid-19 developments in Malaysia and globally. “The sentiment is being further weighed down by the discontinuation of the Kuala Lumpur-Singa- pore high-speed rail project, which has dampened sentiment in the construction counters.

“Adding salt to the wound, the number of daily Covid-19 cases remains elevated at above 1,000 cases per day, which is worrying. Any re-imposition of tighter movement restrictions will pose downward pressure on economic growth,” Adam said.

In comparison to other Asian peers, the FTSE Bursa Malaysia (FBM) KLCI has been performing poorly as it retreated to a level near 1,600 points when the market opened after the New Year’s break, while other regional markets continued to climb, Adam added.

Malacca Securities Sdn Bhd head of research Loui Low believes the resumption of the regulated short-selling (RSS) activities may have limited the upside potential of the calendar effect in the near term.

“The January effect may not be strong as short-term players may take profit after strong gains. The resumption of RSS activities may have limited the upside potential in the near term,” he said.

However, Low added that the impact of RSS is visible and trading should return to normalcy until the intraday short-selling (IDSS) comes into effect in March.

Bursa Malaysia has lifted the temporary suspension of RSS on Jan 1 this year after reviewing other market management measures and market volatility arising from the Covid-19 pandemic.

However, the local bourse extended the suspension on IDSS and IDSS by proprietary day traders until Feb 28, 2021.

Both market experts opined the local benchmark is expected to trend within 1,580 to 1,650 in the first quarter of 2021 (1Q21).

Adam expects the FBM KLCI to trade within a range of 1,580 to 1,620 points in January with the possibility to trend higher in February and March at around 1,620 to 1,650 points should GDP growth for 4Q20 show a productive number.

“Data of Malaysia’s trade performance for December 2020 will be released by end-January 2021. From there, the economic growth can be gauged before the release of the GDP growth on Feb 11, 2021.

“Any worse than expected decline in Malaysia’s GDP in 2020 could perhaps affect the sentiment on market growth trajectory, especially in the wake of the new strain of Covid-19,” he said.

The local benchmark lost 16.38 points yesterday to close at 1,591.97 points, dragged by top decliners CIMB Group Holdings Bhd, Genting Bhd, Public Bank Bhd, Nestlé (M) Bhd, Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd.