UNCERTAINTY will continue to be the order of the day in the stock market from now until at least November ahead of key events such as the US presidential elections, and closer to home, the tabling of Budget 2021 and the Sabah polls.
And all these on top of the ongoing Covid-19 pandemic.
Already, the local market has been in a correction mode after enjoying hefty gains since early this year.
Some observers say that besides the key events, the end of the loan moratorium – which put extra money in the pockets of some who used these funds to invest in the market – is also putting a damper on investor exuberance.
To be sure, the market’s barometer, the FBM KLCI has fallen more than 8% since its peak in July.
Before this, it had gained more than 33% since March which was also the start of the movement control order (MCO) period.
This was when retailers really started getting into the market, going by the surge in the number of share trading accounts opened then.
So, where do we go from here and what is the strategy?
According to Hong Leong Investment Bank head of retail research Ng Jun Sheng, during this period of wild swings, risk-averse investors should increase cash and hold less equities or focus on high dividend yielders, for example, Pecca Group Bhd, Taliworks Corp Bhd, Matrix Concepts Holdings Bhd, Berjaya Sports Toto Bhd, Astro Malaysia Holdings Bhd, Hup Seng Industries Bhd and selected REITs.
“Risk takers who look beyond current volatility with investment horizons of 12 months can look into old economy sectors or pandemic recovery proxies such as selected stocks within the banking, oil and gas, automotive, construction and property sectors, ” Ng says.
Aviation and hospitality sectors, he says, need to be avoided besides “reducing speculation” in times like these.
“Diehard traders, who still want to be involved in penny and lower liner stocks or even Ace Market stocks with investment horizons of a week or less, may choose to focus on Covid-19 beneficiaries such as personal protective equipment, technology and vaccine counters but they must be aware of the risks involved.”
Ng says that investors need to exercise discipline or to stop-loss when the tides are turning against them, given that retail participation has also fallen or normalised now and the overall market volume has plunged to an average daily value of RM5bil this month against over RM10bil just last month.
Still, Ng feels the level of buying frenzy, euphoria and multi-fold increases in share prices of second liners and penny stocks are not expected to dwindle soon as huge liquidity is being poured into the financial markets via expansionary fiscal and looser monetary policies.
Former fund manager and head of research at Equitiestracker Holdings Bhd Lim Tze Cheng believes some sectors will make a comeback once things get better economically, post-Covid-19.
“I am looking at the industrial sector, this will be the prime beneficiary once economic activities are on a better footing.
“A lot of companies in this sector have been overlooked during the recent irrational exuberance, ” Lim points out.
Another sector he is keen on is the consumer sector, which to him, “is also poised for recovery”.
The current market condition, he says, was a “return to reality” correction.
“The rally that we have seen in the stock market since March-April is mainly driven by the euphoria surrounding the bumper profits from the glove counters and the liquidity coming not only from the loan moratorium but also from punters and gamblers who are unable to put their money in their usual gambling channels.
“With all the expected future earnings by the glove players already “well-communicated” to the market, prices have run way ahead before the actual earnings delivery, ” he notes.
He believes the “easy money” earned from the glove sector has also resulted in a lot of small-cap firms with little fundamentals being played up.
“With the moratorium coming to an end, it’s no surprise that the market players have started to pull their money out, which is causing the “return to reality” correction.
“I don’t see it as a bear trend, it is a correction registered by the normalisation of glove counters.”
Like many, Lim cautions against investing based on hearsay, rumour or speculation.
“The reality is that being a retail investor, once any juicy numbers reach you, it’s usually already the end of the rally. Chances are, if you go in, you will be buying at the high end and allowing those who bought earlier to exit, ” he says.
“Your biggest protection towards your investment is to invest in companies with good fundamentals that you are familiar with.”
He says he would stay away from any Covid-19 related healthcare play.
“With nearly every ‘online investment guru’ who has surfaced since the MCO promoting this sector, it’s easy to understand why one should avoid it.”