Investors hoping for positive changes to drive the market higher

The local exchange’s market capitalisation has risen by some RM90b according to Bursa’s statistics 

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

THE appointment of the new leadership in Putrajaya was a risk-clearing event for the stock market as a leadership vacuum would have been a source of uncertainty. 

Fortunately, a protracted transition period was avoided and compensated with fresh inflows, said Apex Investment Services Bhd CEO Clement Chew. 

There was some RM964 million of net buying of Malaysia equities by foreigners for the week ended Aug 27 for example. 

“This was a reversal from many weeks of net selling. The improved sentiment was driven by a smooth transition to a new prime minister (PM). 

“For investors, the main thing is there is a PM in charge. The progress in vaccination rates was also helpful in boosting confidence,” he told The Malaysian Reserve (TMR). 

The local exchange’s market capitalisation has risen by some RM90 billion according to Bursa Malaysia’s statistics since the benchmark hit a low of 1,489 points on Aug 6. 

The FTSE Bursa Malaysia KLCI (FBM KLCI) has added some 114 points since to hit a high of 1,604 on Sept 1 before settling at 1,586.9 points on the day. 

Chew believes, to Malaysia’s credit, it can be considered politically stable, although the country has been led by three different PMs in the short period since 2018, nor was there any unrest or civil strife. 

“The people live in peace and harmony. Leadership transitions have taken place smoothly and in line with our Constitution. 

“Politicking may have increased in recent years. But the country has remained peaceful and stable. This stability is a big positive,” he added. 

Chew said stock market investors will now be hoping for positive changes, though it is not clear if the present government will deliver on investors’ expectations. 

“Our stock market has declined in six out of the last eight years. This is disappointing relative to other global markets. 

“The key to a sustainable rerating for our stock market is for meaningful and far-reaching reforms. Local and foreign investors will be hoping reforms will be a priority for the new leadership,” he reckoned. 

Chew said foreign direct investors think about the future in terms of decades with political stability and good government is fundamental to where they invest. 

He stressed foreign direct investments (FDIs) will not come purely due to factors like cheap land and labour or the ringgit being very competitive. 

“Our ability to attract FDIs will depend on offering an entire proposition. This includes political stability and a good and clean government. Our policies have to be consistent and we must have a rule of law to give investors confidence. It is not just about being cheaper than our neighbours,” he added. 

Malaysia once enjoyed the following of investors globally he recalls with our market’s weighting reached 20% in some of Morgan Stanley’s indices in the early 1990s. 

In the last 20 years, markets like China, Korea, India and Taiwan have gained ascendance. In contrast, Malaysia has fallen from grace with its performance trailing many of the regional markets for various reasons. 

“Our market was trading at a premium of 10% to 40% until the first half of 2020. Our 12 months forward price-to-earnings is now inexpensive at around 13-14 times. The benchmark FBM KLCI is trading at an 18% discount to Asian markets. Hopefully, as we transition to new leadership, it will enable our country to reset for the future. We have a chance. It depends on us,” he said. 

JF Apex Securities Bhd head of research Lee Chung Cheng said political stability is a very important factor especially for a small open economy like Malaysia which depends so much on exports and FDI. 

He said political stability is definitely under consideration of credit rating agencies besides other economic parameters such as a nation’s status of current account, budget deficit and level of national debt. 

“Investors will look at other Asean nations such as Vietnam, Indonesia and Philippines which are more appealing than Malaysia in respect of access to low skilled labour, lower cost of operations, favourable investment climate besides political stability and consistent government policies. 

“If we want to move up our industry value chain with high value-added goods, we need to compete with countries like Singapore, China and Taiwan,” he told TMR.