PETALING JAYA: The year 2018 has turned out to be a tumultuous year for the local equity market.
Hampered by political changes on the domestic front and growing uncertainties in the external economic environment such as rising US interest rates and US-China trade tensions as well as volatile oil prices, what started as an upward trend for shares on Bursa Malaysia during the first half of the year eventually turned bearish towards the second half of the year.
The benchmark FBM KLCI ended up losing 5.91% through 2018 to end at 1,690.58 points yesterday, the index’s worst annual performance in ten years.
Other markets were hit harder.
Despite the decline, Malaysia’s stock market was the second best performer in Asia-Pacific after Indonesia, as most equity markets in the region performed worst.
Stocks on Bursa Malaysia began 2018 in a bullish mood, pushing the FBM KLCI to hit an all-time high of 1,895.18 points on April 19.
But the market took a turn for the worse from May onwards amid a confluence of daunting domestic and external factors weighing down on investor sentiments.
On the domestic front, sentiment was affected by policy uncertainties following the unexpected victory of Pakatan Harapan (PH) over the incumbent Barisan Nasional in the 14th general election (GE14) on May 9.
Externally, sentiment towards emerging markets as a whole was affected by rising US interest rates, growing trade tensions between the US and China, as well as slowing growth in China.
In addition, weak commodity prices were also a drag on Malaysia’s equity market performance.
With pressure rising from multiple sides, the index fell sharply to 1,719.28 on May 30.
The local bourse rebounded shortly before falling below the key 1,700-point level by mid-June. After a short-lived optimism in the third quarter, the FBM KLCI took another dive, falling to its two-year low of 1,635.31 points on Dec 18.
Thanks to year-end window-dressing activities, the index managed to recover and end at 1,690.58 points yesterday.
This, however, was 106.23 points lower compared with 1,796.81 points on the last trading day of 2017.
Since becoming the government of the day in May, the PH coalition has brought with it changes in several policies that affected the local equity market.
This included the abolition of the goods and services tax (GST) on June 1 and reintroduction of the sales and service tax (SST) on Sept 1.
During the transition, the two-month tax holiday was a boon to the businesses of consumer and automobile stocks.
However, the PH rule also brought with it changes/delay/cancellation of some mega infrastructure projects, which adversely affected construction stocks.
There was also pressure on telecommunications company (telcos) to provide cheaper access to broadband services in the country and that badly affected telco stocks.
In addition, there was also a review on the role of government-linked companies (GLCs) and remuneration paid to their top executives. In fact, several GLCs saw changes at the helm.
Overall, GLCs and stocks that were perceived to be closely linked to the previous ruling party had seen major declines since GE14.
Meanwhile, this year alone saw the US Federal Reserve raising interest rates four times by 25 basis points each to end 2018 at 2.25%–2.5%.
Higher interest rates in the US was a major culprit to capital outflow from emerging markets.
For Malaysia, specifically, between Jan 2 and Dec 28, a total of RM11.7bil had flowed out from its equity market.
As such, according to MIDF Research, the country was set to record its largest annual foreign net outflow since 2015.
This compared with a total foreign net inflow of RM10.3bil to the Malaysian equity market in 2017.
In 2017, the ringgit depreciated 2.2% against the US dollar to be quoted at 4.1372 against the greenback yesterday.
Besides rising US interest rates, the local equity market also had to contend with investor concerns over how the unresolved trade tensions between the US and China as well as the slowing economic growth in China could affect Malaysia’s economy, and the performance of listed companies in the country.
In addition to these factors, the downward pressure on global commodity prices had been reflected in the poor performances of oil and gas and plantation stocks on Bursa Malaysia in 2018.
Among the performance of FBM KLCI constituents, telco stocks, namely Telekom Malaysia Bhd (TM), Axiata Group Bhd , DiGi.Com Bhd and Maxis Bhd were the biggest losers of 2018 due to policy changes as intensifying competition within the industry.
Genting Bhd and Genting Malaysia Bhd , on the other hand, were hit with a serious of bad luck towards the end of the year following the group’s dispute with Disney regarding the Fox theme park as well as lawsuit with US-based casino operator Wynn Resorts Holdings LLC.
As for the underperformance of plantation stocks such as Sime Darby Plantation Bhd, Kuala Lumpur Kepong Bhd and IOI Corp Bhd , the reasons were low yields and weak commodity prices.
Overall, GLCs such as CIMB Group Holdings Bhd , Tenaga Nasional Bhd and Malayan Banking Bhd (Maybank) had also underperformed.
On the flipside, glove makers such as Top Glove Corp Bhd and Hartalega Holdings Bhd continued to do well, while consumer counter Nestle (M) Bhd registered a stellar performance in 2018.