AmInvestment Bank: Bursa Malaysia may stage major comeback

PETALING JAYA: Bursa Malaysia may be the underdog among key Asian stock markets at the moment, but the stock exchange could stage a major comeback over the next seven months.

AmInvestment Bank Research analyst Joshua Ng expects the FBM KLCI to hit 1,820 points by end-2019, potentially rising by over 13% from the current level of 1,601.09 points on May 13.

“We are unperturbed by the recent weakness in the local market amidst a slew of domestic and global headwinds. We believe the worst is over for the (Malaysian) market.

“We maintain our end-2019 FBM KLCI target of 1,820 points, which was initially (in December 2018) based on 18.5 times our earnings forecast, but has since risen to about 19 times as we trim our 2019 earnings growth projection to 2.7% from 4%,” said Ng in a note.

The FBM KLCI, which is made up of Bursa Malaysia’s 30 largest stocks by market capitalisation, is the only laggard among Asia’s key stock markets year-to-date, as it has fallen by 5.29% since January.

Meanwhile, the MSCI Malaysia index has also fallen by 4% year-to-date, in comparison to the MSCI Emerging Markets index that has grown 7% in the same period.

For context, the MSCI Malaysia index measures the performance of the large- and mid-cap segments of the Malaysian market. With 44 constituents, the index covers about 85% of the Malaysian equity universe .

The setback in US-China trade negotiations, the overnight policy rate cut by Bank Negara and the net selling by foreign investors for the past seven consecutive weeks are among the key factors that have bogged down the performance of Bursa Malaysia in recent weeks.

Yesterday, the benchmark index slipped briefly below the psychological level of 1,600 points in the afternoon session, but recovered slightly thereafter and closed at 1,601.09 points.

Despite the ongoing concerns in the local market, Ng said that “all is not lost” as Bursa Malaysia is expected to be buoyed by four major positive catalysts, moving forward.

The catalysts are the proposed merger between telco giants Celcom Axiata Bhd and Bhd, Pakatan Harapan’s landslide victory in the Sandakan by-election, investor expectations that a full-blown trade war between the US and China will be avoided, and the revival of the initial public offering market in Malaysia.

“The proposed merger between telco giants Axiata and Digi has been very well received by the market, as reflected in the sharp appreciation in the share prices of both companies after the news.

“Both Axiata and Digi are component stocks of the FBM KLCI, carrying a weightage of 4% and 3.4%, respectively.

“In addition, by swapping its 37% stake in Axiata into a smaller 16% stake in the enlarged merged entity (which should command better share liquidity), it allows Khazanah Nasional Bhd to pursue its exit from the telco sector with less disruption to the overall market.

“Investors now also hold the view that a full-blown US-China trade war will be avoided, as Beijing decides to stay the course with regards to the trade negotiations despite repeated provocations from President Donald Trump,” stated Ng.

In a separate report, MIDF Research said that foreign investors sold RM450.9mil net of local equities from May 6 to May 10, the largest weekly foreign net outflow in nine weeks.

The net foreign fund outflow last week effectively extended the selling streak on Bursa Malaysia to the seventh week.

In total, the country has seen a net foreign fund outflow of RM3.28bil since January this year to May 10.

However, Bursa Malaysia was not the only market to be affected in the Asian region.

“There was an exodus of foreign funds from Asian markets last week, bringing the eight-week foreign net buying streak to an end.

“Based on the provisional aggregate data for the seven Asian exchanges that we track, investors classified as ‘foreign’ sold US$1.77bil net last week, an amount lower than the US$4.43bil net inflow seen in the week before,” said MIDF Research.

MIDF Research said that participation among foreign investors in Bursa Malaysia experienced a slowdown last week.

“Foreign investors recorded a 4.7% weekly decline in the average daily traded value last week, but still remained at healthy levels of above RM1bil at RM1.18bil,” it said.

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