Volatile first-half for KL market

  • Business
  • Thursday, 01 Jul 2004

By Kathy Fong

SHARE prices on the KL market have had a roller-coaster ride in the first half of the year. 

The rally on Bursa Malaysia, which lifted the KL Composite Index to a nearly four-year high of 919 points, lost steam when a slew of external uncertainties took centrestage in early May and dampened the bullish sentiment. 

The optimistic view on the global and domestic economies evaporated, replaced by fears that rising energy costs following high crude oil prices would cripple economic expansion. 

In addition, the Chinese government's move to cool its overheating economy and the impending US interest rate hike shooked investors' confidence about the prospects of the global economy. 

These uncertainties triggered a change in the direction of the global investment fund flow.  

Many investment funds, particularly hedge funds, switched out of equity markets amid worries that a slowdown in the global economy would put a dent on corporate earnings.  

Hedge funds, which have a shorter investment horizon, were believed to have cashed out of the equity markets and into the crude oil market, which helped to accelerate an already strong surge in crude oil prices. 

The KL market, which had seen a large inflow of foreign funds earlier this year, succumbed to fierce selling as the funds moved out of the region to fulfil the redemption back home.  

The intensive selling wiped out all the earlier gains of the KLCI. 

The benchmark index plunged to a low of 769 on May 17.  

It had lost 57 points or nearly 7% in the period between May 5 and 17. 

The external uncertainties also prompted local institutional investors, who had been sitting on pile of profit after the rally in February and March, to unload their investment.  

And retail investors followed suit when they saw share prices falling sharply.  

Indeed, certain local fund managers had begun taking profit after the KLCI hit the year's peak - based on the view that the local bourse was due for a correction after a 10-month upward surge of the CI. 

Furthermore, the widely expected post-election rally in late March did not materialise plus the absence of domestic leads to whet investors’ appetite also encouraged them to pocket some profits. 

Nonetheless, the KLCI recovered some lost ground after the sell-down and the benchmark index managed to stay near the 820-level for most of last month.  

Analysts noticed selective bargain hunting on heavyweight blue chips, particularly Telekom Malaysia Bhd that had delivered stellar financial results for the first quarter ended March 31. 

The announcement of the Government's intention to revamp government-linked companies raised hope that the efficiency of this group of companies would improve and would later filter down to their bottom lines. 

However, the recovery on Bursa Malaysia was not broad-based as reflected by the performance of the Second Board Index and Mesdaq Index.  

The Second Board Index has lost nearly 17% and the Mesdaq Index 18.5% year-to-date, while the CI has gained 3.3%.  

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