THE local stock market has ended the third quarter on a positive note, closing 6% higher yesterday in active trade and raising hopes the next three months would see the KLSE Composite Index (CI) rising to around the 800-point level.
Although the market has seen some profit-taking on oil and gas and water-related stocks over the past week, the CI has nonetheless risen 13.5% in the first nine months this year.
“It has been a good quarter, characterised by plays on the oil and gas plus water stocks,'' said the head of research of a local stockbrokerage.
Leading stock market indices around the world, led by the Dow Jones Industrial Average, have risen sharply in the year to date. Asian markets, too, are up for the first three quarters and have generally outperformed the KLSE, with the biggest winner being Bangkok's SET Index, which has risen a stunning 65%.
Although the CI's rise in the third quarter was less than the 9% gain it made in the second, the value of shares traded during the past quarter was the most robust since the heady dotcom bubble days of early 2000.
But while the CI has made respectable gains, the best performing index has been that of the Mesdaq market, which was up about 40% for the quarter.
The index of the KLSE second board, on which a number of oil and gas counters are listed, added on 12% in the same period.
The third quarter started off with a bang after the CI broke through a key resistance level at the end of June. The index breached the 700-point barrier on July 2 and quickly shot up to 730 on July 7.
The market then entered a near month-long consolidation phase which left some wondering whether the rally up to that point was just another mirage or a real recovery.
All such doubts were cast aside when the uptrend resumed on July 29. The CI reached its year's high of 756 on Sept 5.
The rally in the third quarter erased the depressing mood the KLSE was in for nearly the first five months of the year as it grappled with the effects of the war in Iraq and SARS.
The conclusion of the war in Iraq lifted markets in the United States and Europe as investors sensed there were no real obstacles on the immediate horizon to a resumption of economic growth, and Asia joined in the party once the prognosis on the SARS outbreak turned positive.
The KLSE started to rally after the unveiling of the government's economic package on May 21, with property stocks getting an immediate lift from the measures announced.
The liquidity-fuelled rally soon lifted the entire market, and by the time the second quarter ended, small-cap stocks and second liners had also recorded impressive gains over the six-month period.
“The timing of the rally in the second quarter was not a surprise. But the heights that it reached during the third quarter was unforeseen,'' said an analyst with a local brokerage.
The third quarter's star performers, which also had a fantastic second quarter, were the oil and gas stocks.
Shares in such companies as Petra Perdana Bhd, SCOMI GROUP BHD and Crest Petroleum Bhd were considered celebrity stocks by the end of the third quarter after recording spectacular gains of 172%, 298% and 144% respectively.
News of a new oil discovery by Murphy Oil and expectations of exploration and production work drove the entire group of stocks to record highs.
Oil and gas stocks were given a further boost after Prime Minister Datuk Seri Dr Mahathir Mohamad an- nounced in his Budget 2004 speech that the government would look into setting up a consortium of companies to explore marginal oilfields.
That announcement led to a feeding frenzy among speculators, which sent not only Petra, Scomi and Crest to stratospheric levels, but also the entire segment of oil and gas-related companies, even the marginal ones.
Amid the attention-grabbing rally in oil and gas stocks, the Mesdaq market, too, went on a super-bull run bar none. The fledgling index rose 36% in August after gaining 16% in July. It, however, fell 11% in September.
Stocks such as Symphony House Bhd, AKN Messaging Technologies Bhd and MCM Technologies Bhd all put on gains that were the envy of other companies, except for the major oil and gas firms.
Investors were attracted to such companies on the back of a rally on the tech-heavy Nasdaq market in the United States, lack of stale bulls, and the low priced shares on the Mesdaq market. Not to be undone were the water stocks, which analysts felt offered a more realistic story than oil and gas counters.
This group of stocks quietly but consistently went up in August, and once news broke that Puncak Niaga Holdings Bhd had secured the water privatisation projects in Selangor and the Federal Territory, investors shifted their attention to other water-related companies towards the end of the third quarter in the hope that they would also get a slice of the huge water privatisation pie.
The award of the privatisation project to Puncak Niaga was seen as a signal to kick start some of the privatisation plans outlined in the National Water Resources Master Plan, which has a long-term horizon of up to 2050 and a total budget of RM51.9bil.
While the three groups of stocks had performed above many people's expectations, analysts also were lifted by the earnings reporting season in August, when the majority of listed companies did not surprise the market with poor results.
Among the stocks that took off was Malaysia International Shipping Corp (MISC), which went on a tear after the release of its results, which showed a dramatic improvement. The stock reached its all-time high of RM9.90 during the quarter.
Those warrants have outperformed the most bullish of expectations before their issuance and are now closely watched as a proxy for the three heavyweight stocks.
But while the third quarter has re-ignited the KL market, not everyone is throwing caution to the wind.
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