RM27bil seen flowing into KLSE in next few months


THE KLSE could be in the initial stages of its long-awaited bull run as latent funds of as much as RM27bil, according to one research house, are poised to be injected into the market over the next few months. 

Some analysts have forecast the KLSE Composite Index (CI) could gain over 100 points to hit 780 or more by year's end, while even those less sanguine said the local stock market had recovered from the worst scenario and could only get better. 

Speculation had been rife recently that Valuecap Sdn Bhd, believed to have used only RM1bil of its total RM10bil earmarked for investment in the KLSE, could be on the lookout for selected counters. In addition, some analysts believe market sentiment is right for both local and foreign funds to increase their weightage on Malaysian equities. 

CIMB Securities head of equities Toh Hoon Chew said he expected a consequent appreciation in the CI of some 20%–30% within the next three months. “The CI may now be in the early stages of its traditional trading run-up,” he said. 

Toh said retail investors previously sitting on the sidelines could also become the “new liquidity driver”, as recent events such as the cut in fixed deposit rates may spur their return to the market. 

“They may start to shift part of their RM66bil sitting in demand and savings deposits into equities, especially given the increasing affordability,” he said, pointing to the reduction in board lots on the KLSE from 1,000 to 100 shares. 

CIMB Securities, in a recently released research note, estimated that retail investors could provide RM3.3bil of new liquidity to the market. A further RM9.5bil is expected from domestic funds with their increased exposure to equities, while RM6.1bil could be injected by foreign funds. Together with Valuecap’s RM9bil, the securities firm said, the KLSE could expect a total liquidity inflow of some RM27.9bil by year's end. 

The potential liquidity inflow to the KLSE comes at an opportune time. Analysts said the general sense of optimism on the KLSE recently had not been due to any single factor but was fuelled by a combination of events, ranging from last month’s well-received economic package to positive sentiments in the regional markets. 

The end of the Iraq war and abating Severe Acute Respiratory Syndrome (SARS) situation in many countries in Asia had also cheered the KLSE, to which investors returned in droves over the past fortnight, pushing the CI up nearly 40 points since mid-May to 671.84 yesterday. 

TA Securities head of research C.K. Ngu said that despite some recent profit-taking, he expected the market rally to continue for some time yet. “I think it will go a lot further,” he said, adding that although he was not aware whether Valuecap was an active player in the market, “the speculation certainly helps it.” TA Securities has targeted the CI to reach 780 points by the end of the year. 

OSK Research assistant general manager Pankaj Kumar said the recent bullish sentiments on the KLSE had been driven in part by investor interest having shifted back into equities from bonds. He said the KLSE had moved in tandem with the regional markets as many uncertainties such as SARS had started to evaporate. 

“It was quite dramatic,” he said of the recent rise in the CI. “We haven’t seen anything like this for quite a while.” 

Pankaj said that fundamentally the economy appeared to have turned around while the confidence level was improving, as evident in several positive corporate developments, including the recent spate of merger and acquisition activities in Malaysia. 

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