PETALING JAYA: The bull has yet to make its giant leap, but with a new Prime Minister in place and the reopening of more economic sectors, it would seem the stock market has gotten a fresh lease of hope it badly needs.
The barometer of the stock market, the FBM KLCI, has been on a slight uptrend in the past two weeks after hitting the lowest level for the year at 1,489.80 points on Aug 6.
Interestingly, the FBM KLCI was among the only three key Asian indices that posted a gain last week, albeit a meagre one at 0.86%, apart from the stock exchange indices of the Philippines (4.95%) and Thailand (1.63%).
Not only that, after seven weeks of net outflow, foreign investors turned net buyers for the week ended Aug 20, despite a marginal inflow of RM6.71mil.
Whether the momentum will fizzle out soon depends on the strategies of the new government, amid its thin majority, to pull the country out of the health and economic crises.
Gan Eng Peng qtcht
For now, the market is avidly awaiting the formation of the new Cabinet.
Yesterday, the index inched up 4.4 points or 0.29% to 1,522.43 points. With this, the FBM KLCI has gained about 32.63 points or up 2.2% since Aug 6.
Across Bursa Malaysia, the sentiment was positive as 567 gainers trumped 403 decliners.
Affin Hwang Asset Management senior director of equities Gan Eng Peng told StarBiz that the appointment of the new Prime Minister had partially removed one of the two overhangs of the market – politics and Covid-19.
He said the market will gain more confidence from the formation of a new Cabinet and the passing of the motion of confidence in Parliament.
This is considering that the market had priced in many negatives previously.
“We also think the new administration will get to reap the benefits of our high vaccination rate with more reopening measures, which will earn political brownie points.
“If political issues can be removed, markets can refocus on the Covid-19 recovery and the subsequent economic growth that comes with it,” according to him.
Gan added that if Malaysia could get past the Covid-19 mobility reduction and reopens the economy, there will also be less withdrawal pressure on the funds of government-linked investment companies, and the subsequent pressure on markets.
Meanwhile, on foreign fund flows, he said they are unlikely to come back in a “meaningful way”, as Malaysia’s growth story versus the region is not compelling.
“The silver lining is that the selling pressure might abate, which goes towards alleviating the downward pressure we have seen,” stated Gan.
TA Securities Research also said that the appointment of Datuk Seri Ismail Sabri Yaakob as the ninth Prime Minister could provide temporary support for the equity market, while he proves his majority in a vote of confidence in Parliament.
It added that the opening up of more economic sectors with progress in vaccinations will augur well for the economy and corporate sector, which have taken severe beatings due to demand destruction and various bottlenecks along the supply chain due to business closures and movement restrictions.
“From a list of 102 companies that are being tracked, 33 companies had reported their results as at last Thursday, which showed 24% came below expectations, 58% within and 18% above.
“Most of the underperformers originated from the construction sector, while plantation companies outperformed.
“This is not surprising and is expected to be consistent when the result season is concluded this month.
“The nation’s political situation had placed many projects in a limbo and the Covid-19 restrictions have compounded the negative effects for the construction sector,” it said.
TA Securities Research expects that the earnings recovery post-lifting of movement restrictions completely, potentially by this November, could also induce the likely return of foreign interest in specific big cap stocks in the banking, plantations and gaming sectors.
However, larger net inflows could materialise next year with the emergence of a strong government after the 15th general election and the monetary tightening in the US, it said.
Over the past two weeks, despite the slight uptrend seen in the local bourse, the daily volume and value traded have remained relatively low.
Yesterday, the bourse’s volume of securities traded was recorded at 4.21 billion with a value of RM2.15bil.
The market is direly in need for more liquidity, and perhaps the improvement in domestic sentiment would bring back liquidity through a more aggressive involvement of the institutional and foreign investors.
UOB Kay Hian Malaysia Research believes that the market should be soon pricing in herd immunity against Covid-19 and the economic reopening.
“While there could be market jitters over past controversies and qualification issues (of Ismail Sabri), we do not expect the country’s business policies to deteriorate further and advise positioning for a market upturn as the country approaches “herd immunity” against Covid-19,” it said in a note yesterday.