KUALA LUMPUR: The benchmark FBM KLCI continues to hold on to its gains at around 1,600 points despite less-than-encouraging global sentiment due to talks of potential interest rate hikes and the possibility of a Russian-Ukraine war.
Analysts said Bursa Malaysia appeared to be resilient despite all these negatives which have likely already been priced into stock prices.
The FBM KLCI closed at 1,603.20 points yesterday with a gain of 3.59 points from the previous day’s close.
Total shares that changed hands were 3.38 billion valued at RM2.86bil. A total of 464 counters gained, 464 counters saw a loss while another 431 remained unchanged.
“Actually the FBM KLCI at the 1,600-point level is considered very low, as other markets have been going up and ours has still not really gone up.
“The talk of global interest rate hikes have been going on for a while and this has likely been priced in,” Rakuten Trade head of equity sales Vincent Lau told StarBiz.
“As for any potential war that will ultimately involve the United States and Russia in Ukraine, we don’t foresee this war happening. They are probably drumming this up wanting to sell oil at higher prices as both the US and Russia are oil-producing countries,” Lau added.
At press time, Brent Crude oil prices held steady at US$92.14 (RM385.63) as the broader global risk assets priced in a cooling off of Russia-Ukraine tensions.
Brent Crude fell by around 3% in the previous session overnight after Russia announced some pullback of its troops near Ukraine, even though the US maintained that an all-out war is still a possibility at this juncture.
The stronger oil and commodity complex also benefits the local bourse, as the Malaysian economy is by and large supported by the oil and gas, and palm oil industries.
“Locally, there are several factors going for Malaysia at this moment – foreign funds are coming back. While Malaysia is predominantly a commodity play, the electrical and electronics exports industries are doing well also,” Lau said.
“We also have improving corporate earnings that would help support valuations. The market is considered to be rising from a low base – as foreigners have been net selling for the past few years but net buying from January 2022 up till now,” he added.
Lau noted that the FBM KLCI used to trade at a plus-one standard deviation (SD) or plus-two SD premiums to its peers but it was now below this level.
“The market is coming back, and the downside is not that much. I don’t think all the good news has been factored in as well with regard to a potential reopening of borders, while the bad news such as interest rate hikes have already been priced in,” he said.
According to CEIC Data, the FBM KLCI recorded a monthly average price-to-earnings ratio (PER) of 21.76 times in February 2022. The PER gauge reached an all-time high of 27.61 times in April 2021.
Hong Leong Investment Bank Research in its report yesterday said the recent rebound in the FBM KLCI was due to a proposal to reopen the borders by the National Security Council (NSC).
However, the proposal has yet to be accepted by the government when the Prime Minister Datuk Seri Ismail Sabri Yaakob reportedly said that the Cabinet had yet to discuss the NSC’s proposal.
“With the FBM KLCI hitting our 1,600 target, we feel the risk-to-reward profile has turned less attractive. We continue to advocate a trading-oriented approach for 2022, which is to sell on strength at above the 1,600-point level and buy on weakness at 1,500 or less,” HLIB Research said.