Bargain hunting emerges as analysts warn of liquidity crunch on Bursa

Investors speculate on counters linked to Advance Synergy and MUI which saw increase in volumes


THE prospects of a new government in place within the week attracted speculative interest in Bursa Malaysia but analysts warn the local market faces a liquidity crunch as institutional and foreign funds remain net sellers on the market.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) soared 20.69 points to 1,523.59 yesterday despite the political situation in the country remaining fluid following the resignation of Tan Sri Muhyiddin Yassin as prime minister (PM) on Monday.

The benchmark was driven higher by gains on counters like Tenaga Nasional Bhd, Hartalega Holdings Bhd, Petronas Dagangan Bhd, MISC Bhd, Press Metal Bhd and Nestlé (M) Bhd.

Rakuten Trade Sdn Bhd head of research Kenny Yee said investors were bargain hunting as index stocks are trading at low valuations despite the political risk factor.

“The valuations of almost all of the top 10 constituent stocks on FBM KLCI have been suppressed due to incessant selling by foreign funds. These stocks are trading below their historical price-to-earnings (PE) ratio,” he told The Malaysian Reserve (TMR).

Year-to-date (YTD), Bursa Malaysia has recorded a net foreign outflow of RM5.9 billion. In 2020, net foreign outflow hit a record high of RM24 billion.

Rakuten Trade Research VP Thong Pak Leng said yesterday’s price action on Bursa Malaysia could have been partly due to foreign investors as well.

“Banks should be the heavyweights. If foreign buying continues, then the FBM KLCI range will expand to 1,510-1,530 levels. Our year end KLCI target remains unchanged at 1,650,” he told TMR.

Investors also speculated on counters linked to Datuk Seri Anwar Ibrahim like Advance Synergy Bhd (ASB) and MUI Industries Bhd which saw substantial increase in volumes.

ASB was the most actively traded counter yesterday with 465.6 million shares exchanging hands as the stock rose 5 sen or 28.6% to 22.5 sen.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng remains positive on the local equity market as foreign holdings are at very low levels around 20.3% following three successive years of outflows from the equity market totalling more than RM40 billion.

“Most bad news we believe have been priced-in, as the economy has been caught in a stop-start mode for about one and a half years amidst the resurgence in cases, the discovery and spread of Delta variant alongside the recent political uncertainty.

“Malaysia’s valuations are at their multiple year lows, which are akin to crisis-level valuations. Our PE ratio is around 13.4 times while our price-to-book ratio is around 1.45 times, these are close to below two and 1.4 times standard deviation below the respective 5-year mean for both measures,” he said in a note.

Danny sees the vaccination progress as a bright spot as this will lead to the reopening of economic activities in the country.

What is clear from the point of view of analysts is the fact the Malaysian stock market is in dire need of liquidity following the exodus of foreign investors.

“Without the return of foreign investors, revving up the “engine” of the bourse can be an arduous feat. Bursa Malaysia seems to offer little in attracting foreign investors,” CGS-CIMB Futures Sdn Bhd stated in a note yesterday.

Analyst Ivy Ng Lee Fang stated that the benchmark FBM KLCI fell 3% or 48 points (from Feb 21-28, 2020) when the country was run by an interim PM.

“Political uncertainties will be negative for domestic sectors like banks, construction and property, as well as stocks with foreign shareholdings. Exporters (gloves, technology and plantations), as well as defensive sectors will be the least affected,” she said.

Foreign shareholdings of Malaysian equities fell a further 0.1% points month-onmonth to an all-time low of 20.2% as at endJuly 2021, due to persistent net selling by foreign investors.

The declining trend in foreign shareholdings started in May 2018, specifically after the 14th General Elections (GE14) on May 9, 2018, when the Pakatan Harapan (PH) won a simple majority in Parliament, heralding the first change in government in Malaysia’s history.

Since then, the foreign shareholding level has fallen 4% pts, from its peak of 24.2% in March 2018, to 20.2% in July 2021.

Foreign investors have been net sellers since July 2019. YTD up to Aug 13, foreign investors net sold RM6.3 billion worth of Malaysian equities.

According to historical figures, the market did relatively well post GE13 when Barisan Nasional retained power, gaining 5% in the first month after the results.

The small cap, property and construction sectors were the biggest gainers, one month post GE13.

Post GE14, PH’s surprise win caused the FBM KLCI to fall 4% in one month after the election with construction and transport sectors the biggest losers due to uncertainties on policy direction.

The market benchmark fell by 3.5% a week after the eighth PM took office last year as the country was negatively impacted by Covid-19.

The biggest losers were the energy sector related stocks (which was impacted by a fall in crude oil prices due to Covid-19) along with small cap, transport, technology and property sectors.

Hong Leong Investment Bank Bhd analyst Jeremy Goh stated that at this juncture, a policy continuation particularly on the vaccination rollout and economic reopening is the key concern.

“We expect market sentiment to remain soft until more clarity on the political situation surfaces. Our 2021 GDP forecast is 3.1% growth and year-end KLCI target at 1,580,” Jeremy stated.

The Malaysian political situation and the lack of clarity in a successor does not sit well with international credit agencies such as Fitch Solutions, which on Monday slashed Malaysia’s 2021 economic growth forecast to 0% from 4.9% previously.

The downgrade by Fitch Solutions came just three days after Bank Negara Malaysia downgraded its 2021 growth forecast to between 3% and 4%, from 6% to 7.5% earlier.

Moody’s Investor Service warned of a potential downgrade of Malaysian credit if the government is unable to reverse persistent rise in government debt due to further economic stimulus and lack of revenue that will widen the fiscal deficit.

“The coronavirus pandemic remains the key risk in Malaysia, as the elevated number of new infections and ongoing restrictions — although less stringent compared to the second quarter of 2020 — will continue to weigh on the economic recovery this year.

“This has the potential to materially weaken Malaysia’s credit profile,” said Moody’s Investors Service senior analyst and VP Christian Fang.

He added that Malaysia’s past track record of handling abrupt political changes could limit the impact on its macroeconomic policies and credit profile.