PETALING JAYA: After a good rally since April this year, the local stock market is seeing some reversals as investors take some profits before the loan moratorium comes to an end this month.
The market started the week in the red as investors sold off positions mainly in gloves and personal protection equipment (PPE) manufacturer-related counters.
Yesterday afternoon, the FBM KLCI fell just below the 1,500-point benchmark before it rebounded to close at 1,519.32 points.
Market experts anticipated that the local stock market would remain lacklustre in the coming months due to uncertainties over the impact the end of the moratorium will bring.
“We believe there could be multiple factors that are driving the market downwards, and not one definitive reason. Externally, we saw corrections in the US markets which could have had an influence on our market.
“In addition to this, we believe that investors could be taking this opportunity to embark on some profit-taking activities, especially in the glove counters, given the significant rally. Retail investors could also be taking profits ahead of the end of the loan moratorium, ” MIDF head of research Imran Yassin Md Yusof told StarBiz.
The banking sector, he said, could be under pressure as investors could be cautious over the lack of visibility in terms of asset quality and provisioning post-loan moratorium.
“In the short term, we believe that downward pressure on the market could remain, at least until there is a clear indication of what will unfold after the moratorium ends.
“Nevertheless, we believe the market will start to rebound should the economic recovery gather pace, ” Imran said.
The bull run of Bursa Malaysia, which began in late-March, has been largely fuelled by the rally in glove stocks, which rode on the demand for medical equipment due to the Covid-19 pandemic.
Some quarters argued that the rally could ease as a Covid-19 vaccine appears on the horizon, which will be dragged to the benchmark index FBM KLCI.
“The rubber glove and PPE sectors are badly impacted by news of a vaccine in China.
“The numerous announcements by 10 to 20 small mid-cap companies that they will be jumping onto the rubber glove manufacturing bandwagon has heightened concerns of an oversupply of rubber gloves in 2021/22, thereby leading to a collapse in spot price and average selling prices (ASPs), ” said former investment banker Ian Yoong.
However, he said the recent correction in glove stocks could be a buying opportunity as the rubber gloves’ order books were 12 to 15 months long.
“The rubber glove sector is a safe haven for investors when expectations of the sector are low.
“I expect a mild rally in January. It will be more of a technical rebound, ” Yoong said.
On the outlook of the FBM KLCI, Rakuten Trade Research vice-president Vincent Lau (pic below) said there is an immediate support at 1,500 points.
Interestingly, he reckoned that the end of the loan moratorium and investors exiting the market were overplayed at this juncture.
He described the current pullback in the market as “a healthy correction” and necessary for the market to move further.
In addition, Lau said the government has hinted that it was ready to put in more stimulus, if needed.
Last week, Prime Minister Tan Sri Muhyiddin Yassin said the government was prepared to implement additional economic stimulus packages or other initiatives if needed, and if the government’s financial situation allowed.
In general, Yoong said the market confidence was dampened by the end of the moratorium at the end of this month.
“The general perception is that many retail investors are exiting the stock market to service bank loans. A confluence of negative ideas. These are mainly perceptions, ” he said.