Mixed views on market selldown

Volatile market: A punter watching trading boards at a private stock market gallery in Kuala Lumpur. The FBM KLCI closed 24.23 points up yesterday after falling 40.62 points Tuesday. — AP

Volatile market: A punter watching trading boards at a private stock market gallery in Kuala Lumpur. The FBM KLCI closed 24.23 points up yesterday after falling 40.62 points Tuesday. — AP

PETALING JAYA: Some research houses have labelled the global equity sell-off as only temporary because there are no apparent risks to global economic growth.

However, some other analysts are more reserved on the sell-down market action in the United States and at home on Bursa Malaysia.

“We foresee the FBM KLCI steadily regaining momentum from the last few days’ 3.1% sell-off as the general election draws near (expected in the second quarter of 2018),” UOBKayHian Research said.

“However, the recovery would be more measured as the last few days’ manifestation of market volatility has raised risk aversion,” it added.

The FBM KLCI moved up 1.34% or 24.23 points at its close yesterday to 1,836.68.

Some 3.32 billion shares worth RM3.5bil changed hands and market breadth was positive with 625 gainers against 460 losers.

A total of 361 counters were unchanged while 399 counters were untraded.

The upward move locally followed the quick recovery in sentiment overseas after the Dow Jones Industrial Average rebounded strongly by 2.33% or 567.02 points to end at 24,912.77.

The S&P 500 added 1.74% or 46.20 points to end the previous trading session at 2,695.14, while the Nasdaq rose 2.13% or 148.36 to 7,115.88 points.

Dealers said trading sentiment in the local market would largely hinge on what happens overseas in the days ahead, whether the recovery sustains or if global markets succumb to even more selling.

For Bursa Malaysia, recovery in sentiment was seen at the close in all component stocks except for Genting Bhd (falling 15 sen to RM9.04), Sime Darby Bhd (falling four sen to RM2.80), Hap Seng Consolidated Bhd (falling three sen to RM9.02) and Petronas Chemicals Group Bhd (falling one sen to RM7.99).

As in the recent past, small-cap oil and gas stocks such as Sumatec Resources Bhd , Sapura Energy Bhd and Hibiscus Petroleum Bhd hogged the active list.

UOBKayHian said in its report that the sell-off was a healthy market correction, given that the economy was humming along fine and there was no dried-up liquidity in the financial markets.

It highlighted that there was a handful of opportunities that it had identified.

“From the list of the recently sold-down stocks, we identify trading opportunities in buy-rated stocks: Ann Joo Resources Bhd , British American Tobacco (M) Bhd , Protasco Bhd and Yong Tai Bhd as well as hold-rated trading favourites Inari Amertron Bhd and Malaysian Resources Corp Bhd (MRCB),” UOBKayHian.

“These companies feature reasonably compelling re-rating catalysts in the first half. Among the large caps, the moderately sold-down CIMB Group Holdings Bhd and Genting Malaysia Bhd appeal the most,” it added.

CIMB Research is more cautious on the market’s immediate outlook, noting that from a technical perspective, it sees the FBM KLCI undergoing a short-term correction following the break of its uptrend channel support a couple of days ago.

“The said correction created two gap-down movements in just two trading days. These gaps would now act as resistance should any rebound take place in the near term,” CIMB Research said.

“We expect this consolidation to continue for a while longer, lasting at least another week. A key level to watch is 1,774, as anything below this level would substantially reduce the odds of a strong rally in 2018. While a move below 1,708 would eliminate all bullish alternatives and confirm that the longer-term bear market that began in 2014 has resumed,” it added.

CIMB Research also said that this sell-down may offer opportunities to accumulate stocks at more attractive valuations.

“Companies from our top-pick list that have fallen the most over the past two days are YTL Corp Bhd (falling 9%), MRCB (falling 8.5%), AirAsia Bhd (falling 6.7%), Unisem (M) Bhd (falling 6.5%) and RHB Bank Bhd (falling 6%),” it said.

CIMB Research also noted that the market was currently trading at the 2018 forecast price-to-earnings ratio (PER) of 16.4 times, which is a tad higher than its historical three-year average PER, with its top-three picks being Axiata Group Bhd , Dialog Group Bhd and Malaysia Airports Holdings Bhd .