Market down on elections?

PETALING JAYA: With the general election just around the corner, the stock market is already reacting ahead of the dissolution of Parliament expected at the end of the month with voting to take place in April.

Typically the stock market sees a selldown once Parliament has been dissolved. This time around, investors might just be heaving a sigh of relief as the FBM KLCI has already been pummelled by the guessing game of when the elections will be held.

Malaysia is still a political market, and most investors have been on the sidelines over the past few months, not wanting to take aggressive positions until the general election has been called.

Affin Hwang Asset Management Bhd managing director Teng Chee Wai (pic) reckons that the market has already priced in all the negativities surrounding the elections and external factors such as trade wars and interest rate hikes by the US Federal Reserve.

AFFIN Hwang Asset MD Teng Chee Wai

AFFIN Hwang Asset MD Teng Chee Wai

“In the last two weeks, the Malaysian market has seen some heavy selling,” he said, adding that an election rally is a “myth”. Historically, the market has rallied eight months prior to the actual election.

“At the end of the day, we have to look at the fundamentals, and this is the corporate earnings. The Asian region posted the best corporate earnings in 2017 after four years of negative revision,” he said.

Teng added: “When even fundamental stocks like WCT Holdings Bhd is trading at year’s low despite good financial results, this must be a sentiment issue rather than a structural one.”

It has indeed been a mini-carnage on Bursa Malaysia over the past two weeks and one stock signifies the selling pressure seen on the stock exchange.

Sapura Energy Bhd , a one-time darling oil and gas stock, has fallen 42.25% year to date.

It was in November last year when Tan Sri Mokhzani Mahathir sold his entire remaining 10.1% stake or 605 million shares in the oil and gas company for roughly RM1.42 a share. The shares were placed out to funds.

The stock closed yesterday 4 sen lower at 41 sen.

Then there is also refining stock Heng Yuan Bhd which has lost almost half its value in the first three months of this year. The stock is down 46.99% to RM8.64 with a current market cap of RM2.59bil.

“I think everyone wants the elections to be over and done with. Markets aren’t going anywhere until it is over, and even then, it will need some time for sentiment to recover,” said one research head.

The selldown this year is most prevalent among tech stocks, with the tech index down 13.88% since the start of the year. The FBM Small Cap Index is down 7.16% on a year to date (YTD) basis.

Meanwhile, the blue chips are holding up better with the FBM Emas Index still up 1.05% or 139.14 points on a YTD basis.

The FBM KLCI closed down 6.97 points yesterday to 1,857.06 points on volume of 2.32 billion shares traded. On a YTD basis, the index is still up 3.41%.

Looking ahead, Teng pointed out that the Asian market would continue to see positive corporate earnings that will underpin and buoy the market this year.

“The last leg in this current market condition is if the revision in corporate earnings starts to decline,” he said.

Teng expected that the market would be more volatile this year following a rally in 2017.

“Historical data shows that every time there is a good year, the following year will be a volatile one, and this is because the market is transitioning to enter into a new market cycle-phase,” he said.

However, Teng noted that Malaysian corporate earnings growth has been lagging other Asean countries.

Meanwhile on the ringgit, Teng said that the local currency is currently trading at a more appropriate level, thanks to the policy by Bank Negara in 2016.

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