PETALING JAYA: Foreign investors have been snapping up Malaysian equities, but this could not save the blue chips and penny stocks from a lacklustre performance since late October.

       Amid a disappointing third-quarter economic growth and investors’ rejection of some of the Budget 2022 tax measures, the FBM KLCI and the FBM Small Cap Index had declined by 5.1% and 4.2% respectively over the last four weeks.

       Analysts said the low expectations for the third-quarter corporate earnings, which were clouded by Covid-19 movement restrictions, had also weakened market sentiment.

       Many sectors are expected to be impacted in the third quarter, although plantation and technology would likely be among the outperformers.

       For now, investors are adopting a wait-and-see approach amid the uncertainties in the market.

       MIDF Research head of research Imran Yassin Mohd Yusof pointed out that foreign and retail investors have been supporting the domestic market. “This is not as surprising given that Malaysia is in the recovery phase, following the prolonged lockdown,” he said.

       Kenanga Investment Bank Bhd head of research Koh Huat Soon recommends investors to be forward-looking as corporate earnings are expected to rebound in the final three months of 2021.

       Meanwhile, MIDF Research has a 2021 year-end target for FBM KLCI at 1,650 points from 1,525.13 points as of yesterday.

       This means the market could reverse its decline as concerns subside, supported by an improved economic and corporate performance.

       Koh told StarBiz that the current market sentiment may have been affected by concerns over earnings recovery for next year.

       “The introduction of Cukai Makmur or prosperity tax under Budget 2022 has created downside risk on earnings.

       “Prior to Budget 2022, we were expecting single-digit pedestrian growth for FBM KLCI earnings in 2022. But with Cukai Makmur, this may turn out to be a contraction instead,” he said.

       Earlier this month, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said that not more than 250 companies would be impacted by Cukai Makmur.

       Cukai Makmur is a one-off tax that will only be applicable to super-profitable companies with chargeable income of above RM100mil for the tax assessment year of 2022. For the first RM100mil, companies will be subjected to the existing income tax rate of 24%, while the remaining chargeable income will be subject to a tax rate of 33%.

       Koh added that the budget measure to remove the RM200 stamp duty cap on contract notes, alongside an increased stamp duty rate to 0.15%, had affected market sentiment.

       “The removal would have an impact on the vibrancy and the volume of the stock market,” he said.

       The fact that domestic institutional funds have remained net sellers, despite the net buying by foreign investors, had also softened market sentiment, Koh said.

       Net foreign fund flows had remained positive for six consecutive weeks, with a net inflow of RM560.78mil in the week ended Nov 12.

       In the same period, local institutional investors were net sellers, except for a week in between. For the week ended Nov 12, net selling by these investors was RM544.49mil.

       MIDF Research head of research Imran Yassin Mohd Yusof pointed out that foreign and retail investors have been supporting the domestic market.

       “This is not as surprising given that Malaysia is in the recovery phase, following the prolonged lockdown,” he said.

       Looking ahead, Imran said the improvement in Malaysia’s gross domestic product (GDP) in the coming quarters could be one of the catalysts for the stock market.

       “The fact is our FBM KLCI closed higher last Friday despite the release of third-quarter GDP, which registered a contraction. We expect the third-quarter GDP to be the trough,” he said.

       The country’s economy shrank 4.5% year-on-year in the third quarter of 2021, which was markedly worse than the median forecast for a 1.3% contraction from a Reuters survey of economists.

       The earnings of corporate Malaysia are likely to improve from the fourth quarter of 2021 due to the relaxation of restrictions and the recovery next year, according to Imran.

       “As for specific sectors, we are positive on commodities-linked such as plantation and oil and gas, given that commodity prices have been robustly high recently.

       “We expect that this will lead to improvement in earnings.

       “We are positive on recovery linked sectors such as automotive and banking.

       “Lastly, we are positive on the technology sector as we believe that the technology sector will continue to see strong demand,” he said.