PETALING JAYA: Liquidity in the Malaysian stock market has plunged to a fraction of what it used to be at the height of the market rally back in 2020.
To be precise, the volume of securities traded on Bursa Malaysia is normalising to pre-Covid-19 levels as investor aggressiveness continues to wane.
With no major catalysts in sight until the next results season in February, investors seem to have a more “contained” expectation of what the market is able to offer.
In addition, the heavy net selling by local institutional funds and foreign investors for the most part of 2021, amounting to RM8.99bil and RM3.15bil, respectively, has battered sentiment.
The monthly volume traded in December 2021 shrunk to 65.19 billion units, as compared to the record-high 275.49 billion units in August 2020. This represents a decline of over 76%.
Similarly, the monthly value traded in December 2021 fell to RM44.8bil, down by over 67% from the all-time-high of RM136.92bil in August 2020.
As inflation rears its ugly head again and the government is unlikely to announce any major stimulus, market sentiment remains soft amid the developments surrounding the Omicron variant of Covid-19.
The first trading week of 2022 has been unexciting for the local stock market, with the FBM KLCI declining three out of four trading days. Yesterday, the index closed at 1,533.36 points, down by 14.59 points or 0.94%.
Kenanga Investment Bank Bhd head of research Koh Huat Soon and Areca Capital CEO Danny Wong felt that the drop in the main index was mainly due to the adjustments by the funds, post year-end window-dressing activities.
“Not counting Dec 31, considering the window-dressing, the current level of the FBM KLCI is not far off from the Dec 30 closing of 1,543.61 points.
“In terms of risk-reward at the current level, I see more upside for the market than downside. The market is also attractively priced, at 15.3 times of the FBM KLCI’s earnings per share. This is close to the 10-year mean,” Koh told StarBiz.
Koh said the upcoming results season for the fourth quarter of 2021 would be a catalyst for market sentiment, although he thinks that there is “no high expectation” among investors.
“I believe the market is more eager for the earnings guidance from the companies’ management for the year 2022. This will tell us what to expect,” he said.
Meanwhile, Areca Capital’s Wong said the upcoming corporate earnings announcement was the only major catalyst for the Malaysian stock market at the moment.
“There are not many positive catalysts from the external side. The bond tapering by the United States’ Federal Reserve may be faster-than-expected and we do not have much good news from China and Hong Kong,” he said.
Wong expects the fourth-quarter earnings season to be positive, although the recent floods in Malaysia and the spread of the Omicron variant may adversely affect companies’ performance.
He believes that the recovery in corporate earnings would rebuild market sentiment, and in turn, spur greater market participation among investors, especially by local institutions and foreign funds.
“Not only that, the developed foreign markets have already run up significantly. So, naturally, investors would look for laggards, and this includes markets like Malaysia and Hong Kong,” he said.
Last year, Malaysia was the second worst-performing market in Asia, after Hong Kong.
The FBM KLCI lost about 3.7% through 2021, while Hong Kong’s Hang Seng Index plunged by 14.1%.
Within Asean, the Malaysian stock market is counted as the worst performer in 2021.
The negative returns generated by the 30-stock FBM KLCI were due mainly to the decline in the share prices of glove, energy and palm oil companies.
In general, sentiment towards the Malaysian stock market was dampened due to a series of negative developments in 2021.
These included the reimposition of lockdowns due to rising Covid-19 cases; political uncertainties that eventually resulted in the changing of the Prime Minister; forced labour allegations against certain manufacturers, including glove players; and the announcement of higher taxes during the tabling of Budget 2022.
As for 2022, analysts are generally sanguine on the market outlook.
Kenanga’s Koh said the Finance Ministry’s decision to extend the tax exemption on foreign sourced incomes till Dec 31, 2026 and reinstating the cap on stamp duties for stock market transactions, albeit at a higher level than before, had provided a sigh of relief for market participants.
Under Budget 2022, the government had proposed to increase the stamp duty rate to 0.15% from 0.1% for stock trading, as well as to remove the RM200 stamp duty cap for such trades.
It also proposed the withdrawal of the tax exemption on foreign sourced incomes for corporates in Budget 2022.
However, the Finance Ministry later made a U-turn on both measures, following criticism from industry players, including the operator of the Malaysian stock exchange.
The ministry said the stamp duty cap for the trading of shares would be reinstated at RM1,000, with a rate of 0.15%.
It added that stamp duty amounts exceeding RM1,000 would be remitted, and that the remittance would apply to all contract notes from Jan 1, 2022 until Dec 31, 2026.
Meanwhile, the tax exemption on foreign sourced incomes of individuals and dividend income from corporates was extended for five years from Jan 1, 2022 to Dec 31, 2026.
Looking ahead, Koh said he does not count on foreign investors to support the Malaysian stock market “big time” in 2022.
“Amid the tightening of interest rates in the US, we may see an outflow of funds from the emerging markets,” he added.