Selangor Journal
The Malaysian, Indonesian and Thai bourses aim to enhance cross-border cooperation and seize opportunities to harmonise ESG measures and infrastructure. — Picture by BERNAMA

Local equities facing pressure from various directions

KUALA LUMPUR, Sept 26 — The exponential gains of the glove stocks, which benefited from the health crisis, have put the Malaysian stock market on a strong footing and propelled it to become one of Asia’s most resilient bourses.

But pressure has been creeping in from every corner.

The stock market has experienced a pullback in recent weeks due to rising concerns surrounding the local market.

Bloomberg data revealed that foreign selling in Malaysian stocks accelerated last week, with outflows topping US$5 billion so far this year — the fastest pace since 2015.

While healthcare-related stocks have remained the favourites for both local and foreign retail investors, finance counters have experienced a setback with a decline on a week-on-week basis.

Retail investors cashing out

There are two types of investors in the equity market: institutional investors (government linked, pension fund, trust fund) and retail or individual investors.

While institutional investors are very likely to provide support for the local market during a downturn for long-term gains, retail investors are more likely to invest for short-term gains.

According to data for Monday to Thursday, RM217.9 million in retail outflow was recorded while foreign fund outflow stood at RM225.6 million.

Heavy selling was witnessed on ACE market counters on Thursday and Friday as a local political move sent shock waves throughout the country.

However, on Friday, selected counters rebounded to raise the benchmark FTSE Bursa Malaysia KLCI by 8.34 points to 1,509.14. The rebound, mainly driven by Hartalega and Top Glove, came despite 19 counters ending in the red.

An analyst said in the coming weeks, several key aspects needed to be monitored as the local bourse was expected to be under continuous volatile situations.

“With the blanket loan repayment moratorium ending this September 30, banking stocks are expected to undergo a downturn amid concerns over rising non-performing loans in line with the global banks’ performance.

“This will also lead to cashing out by retail investors, especially on small and mid-sized capital stocks,” she said.

She added that local political stability also played an important role in bolstering investors’ confidence on the market, especially for Malaysian Government Securities.

“Stability in the local market is important as any unfavourable news would cap the gains in the capital market,” she said.

Overall market performance

On the FBM KLCI, the local bourse is now facing an immediate resistance at 1,520 with a support level seen at 1,480.

“The relative strength index (RSI) has shown an oversold position on the FBM KLCI stocks despite glove counters having been the key driver to the index,” she said.

She added that local banking stocks, led by banking giant Maybank which saw its market capitalisation shrink to RM79.58 billion, experienced a series of steady declines since Covid-19 shook the global market, in line with foreign banking stocks.

“However, compared with foreign banks, local financial institutions are insulated from extreme shocks due to their strong financial position,” she noted.

As for the healthcare-related counters, they continue to attract strong interest from both domestic and foreign investors as Covid-19 concerns remain high and vaccine optimism is neutralised due to the vaccines being at a trial phase.

On energy-related counters, she said they remained volatile as oil prices stayed low on weaker demand.

“The outlook for the transportation and aviation sector remains cloudy as it is now placed under an unknown timeline, which is when global borders would be reopened post-Covid-19,” she said.

At Friday’s close, the benchmark Brent crude stood at US$41.90 (RM174.79) per barrel.

Moving forward

Just as global markets will continue to be influenced by Covid-19 developments — from infection cases to vaccine development — the local bourse will follow suit.

Besides Covid-19, the ongoing Washington-Beijing technology war will continue to put pressure on tech stocks as the local benchmark index tracks the movement of NASDAQ.

The upcoming US elections have kept investors on their toes as well. Emerging markets are also anxiously waiting to see the next economic direction to be taken by the White House.

On the domestic front, FTSE Russell’s decision to retain Malaysia on its watch list has provided a short-term breathing space for attracting investors.

However, the market is likely to remain volatile until after the Budget 2021 is tabled on Nov 6 and after the political uncertainty regarding a possible early election is put to rest.

— Bernama

 

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