Rotational play reason for ACE Market correction

Correction in the subsegment is expected as a lot of stocks in the market are largely of a speculative nature


ROTATIONAL play into value stocks was the main reason for the underperformance of the ACE Market in the past month, which has seen the FTSE Bursa Malaysia ACE Index (FBM ACE) fall by some 2,800 points or 25% as the Covid-19 infection numbers rise again.

The benchmark FBM ACE closed at 8,592 points yesterday compared to 11,310 points on Feb 22, while the benchmark FBM KLCI rose to 1,607 at close yesterday from 1,570 on Feb 22.

Aberdeen Standard Islamic Investment (M) Sdn Bhd CEO Gerald Ambrose believes the correction in the subsegment was to be expected as a lot of stocks in the market are largely of a speculative nature.

“Uncertainty about Malaysia’s exit from the Conditional Movement Control Order is clouding these sentiment-driven markets. “Retail investors have been net buyers of the equity market for a long time (offsetting institutional net selling), so we can infer retail is switching more into value plays,” he told The Malaysian Reserve (TMR).

iFAST Capital Sdn Bhd fixed-income analyst Ganageaswaran Arumugam said the main reason for the big drawdown in the FBM ACE can be attributed to the fall from grace of the biggest constituent of the index, which is Focus Dynamics Group Bhd.

He said the stock experienced a mind-boggling 400% price rally in 2020 despite no fundamental reason.

“Since February 2021, its share price has fallen 80% in value as there was little support for the stock.

“FBM ACE is not reflective of retail participation in the overall equity market in Malaysia. A better indicator would be the local retail participation in the overall Malaysia equity market as indicated by Bursa Malaysia,” he told TMR.

From what iFast Capital has observed, the local retail participation remained strong as reflected in the RM85 billion value transacted in March 2021, said Ganageaswaran.

“To provide a point of comparison, local institutions only transacted RM60 billion in value in the same month,” he added.

Ganageaswaran said it appears the ACE Market is in a consolidation stage, plagued by the rising Covid-19 cases, political uncertainty, sideways trading and the wait for the next catalyst.

iFAST Capital assistant portfolio manager Jerry Lee Chee Yeong said the unprecedented stimulus from central banks and governments globally has seen some of the liquidities flow into equity markets, including retail money into the ACE Market.

“The high-risk segment in ACE Market with a strong growth element was the biggest beneficiary.

“However, since early this year, we started to notice a rotation of funds from the growth segment to the value sector, which has been severely affected by the pandemic,” he told TMR.

Before looking into the recent pullback, one should take note the FBM ACE had rallied by some 250% from March 2020 to the recent peak in February, said Lee.

“Even taking into account the recent pullback, FBM ACE was still up by more than 150% since March 2020’s bottom. Year-to-date, retailers are still the net buyers in Malaysia equity,” he added.