By Lawrence Yong
A potential cutback in the US and Japan’s economic stimulus packages, which has erased much of the year’s gains in Asian stock markets, could have a similar knock-on effect on the Malaysian stock market, which has just started to recover after the 13th General Election.
Investors were grappling with the US Federal Reserve’s implicit intent to cutback its US$85 billion (RM266.3 billion) per month bond buying programme. Meanwhile, the World Bank cut its GDP forecast as emerging-market economies led by China slowed and Japan’s central bank held off new economic measures.
Regional bourses suffered a sell-off, amid concerns over the reversal of foreign flows back to the US in anticipation that US interest rates may rise. Japan, Hong Kong and Singapore stocks were the worst hit. In comparison, Malaysia’s market proved a little more resilient but only because it has been trading range bound, analysts said.
The benchmark FBM KLCI index which had been striving towards the 1,800 levels last week, stammered again on Thursday. The index loss 32 points, or 1.8% to 1,742 levels, the lowest in about a month.
“There is nothing good to say,” Mercury Securities head of research Edmund Tham said. “It’s external factors this time but this puts a cap on the market’s upside …it could drag on for awhile until a more clearer direction emerges.”
For most of this year, the FBM KLCI, which tracks the top 30 companies in Malaysia by market cap, has been a laggard. After surging to record highs in the first week of the year, it stayed rooted in negative regions for nearly four months as Malaysia’s political landscape evolved, ahead of the most fiercely contested national elections ever on May 5. The market rallied briefly after news that the Barisan Nasional, which has ruled the country for 56 years, had been returned to power.
Addressing the Invest Malaysia 2013 summit, Prime Minister Najib Abdul Razak said the rally reflected relief after a period of political instability. He was optimistic about Malaysia’s economic growth for 2013.
But analysts said that fundamentals may not be driving the Malaysian stock market.
“Our market didn’t go up as much, so it’s not falling as much as well,” one head of research at a local investment bank said. “But we can’t buck the trend. If money is flowing out of the region, Malaysia will not be spared.”
For the week ended June 5, global fund flows continued to exit the equities market with outflows totalling US$6.2 billion against the previous week’s outflow of US$2.8 billion, a report from Singapore brokers Maybank KimEng noted.
In Asia ex-Japan, funds outflow spiked to US$1.8 billion with the financial sector contributing to 45% of total outflows – making it the single worst week of outflows since August 2011, the broker said. North Asian markets contributed significantly to the exit, in particular China and Hong Kong, which recorded outflows of US$825 million and US$414 million, respectively.
Market consensus had earlier expected the KLCI to end the year in the higher 1,780 to 1,850 range. Analysts said that the outlook was now more murky.
In an equity strategy note published Thursday, MIDF Research’s analyst Syed Muhammed Kifni had argued that the FBM KLCI index has risen to match the fund’s forecast, until recently.
“Having said the above, an abrupt boost to the liquidity momentum is a wild-card that may upset even the best laid out fundamental arguments,” MIDF Research noted, adding that “we reckon the liquidity momentum going forward is pointing down rather than upward.”
TA Securities meanwhile said that with fund managers expected to either pull out or be sidelined, more play could emerge on second liner stocks.
“Blue chips should consolidate lower to rebuild support, while rotational plays on lower liners turn more selective with profit-taking dominating on recent strong gainers,” TA Securities noted.
Mid- to small-caps such as Eti Tech Corp, Malton and Luster Industries were among the most active stocks on Thursday. The FBM KLCI index fall was meanwhile led by heavyweights such as Maybank, Nestle, Genting and Petronas Chemicals.
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