Recovery play gains strength on Bursa

PETALING JAYA: The recovery play on Bursa Malaysia has begun to pick up steam as local institutions and foreign investors appear to be making their way back to the once-battered stocks.

Looking into last week’s fund flow pattern, a key observation was that investors are switching into Covid-19 recovery play such as banks as well as transportation and energy players, as compared to Covid-19 pandemic play such as healthcare and technology.

As US-based Pfizer and Moderna announce high efficacy rates for their Covid-19 vaccines, confidence in economic recovery has improved and this has lifted investor interest in non-glove heavyweights that largely underperformed in the past several months.

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According to CGS-CIMB Research, foreign and local institutions have been selling healthcare stocks in favour of banks and consumer product stocks, among others.

However, on the contrary, retail investors have been selling banking stocks and were buying glove counters instead, following the correction in glove makers’ share prices.

“Local institutions were the largest net buyer of financial services (+RM445mil), utilities (+RM130mil) and consumer products (+RM173mil) and key sellers of healthcare (-RM197.5mil), industrials (-RM90mil) and plantations (-RM72mil) last week.

“Local retailers were the largest net buyer of healthcare (+RM661mil) and largest net seller of financial services (-RM487mil) last week. Foreigners were the largest net seller of the healthcare sector (-RM721mil) last week and deployed some of their proceeds into financial services (+RM378mil), telco and media (+RM60.5mil), plantation (+RM53.3mil) and industrial (+RM51.8mil), ” stated the research house.

The increased focus on the once-boring banking stocks have led to a sharp rise in share prices.

The country’s largest bank by market capitalisation, Malayan Banking Bhd (Maybank), has risen by nearly 18% since the start of November. Meanwhile, the second largest listed bank, Public Bank Bhd, has enjoyed a 26% jump in share price in the same period.

In comparison, share prices of all seven listed glove makers in Malaysia have been on the decline since mid-October.

Speaking with StarBiz, Rakuten Trade Research vice-president Vincent Lau (pic below) expects the recovery play on Bursa Malaysia to sustain, despite some pullback “along the way”.

He believes that there is more room for stocks such as those in the banking, gaming, aviation and other sectors to head north, especially next year.

“Vaccine related stocks would also rise, driven by positive newsflow.

“Despite the potential rise in vaccine-related stocks, I think glove stocks would also show some improvement moving forward, considering that the roll-out of Covid-19 vaccines is still up in the air, ” he said.

Apart from Covid-19 vaccine hopes, analysts say the expectations of an improved third quarter earnings season and continued positive data on economic recovery would fuel the market’s rebound.

In addition, the return of retail investors post-six month blanket loan moratorium as well as signs of institutional and foreign funds returning to participate more actively in the market are boosting market sentiment.

An analyst told StarBiz that foreign participation trend in local equities has been “mildly positive” thus far this month.

“Average foreign participation in November till 17th was about 14.8%. This compares with an average foreign participation in the entire October at about 14.5%, ” he said.

As a result of improved buying pressure in the market, Bursa Malaysia’s benchmark index, FBM KLCI, has managed to break the 1,600 point-level on Nov 17 and recouped the losses it made since August.

TA Securities Research pointed out that there is still upside bias for stocks given the robust buying momentum.

However, it cautioned that more profit-taking activities could take place, resulting in increased market volatility.

According to the research house, this would continue until the market’s overbought conditions neutralise. “Key upside hurdles for the index are the July peak of 1,618, and subsequently 1,650, then 1,680. Immediate supports are revised upwards to the rising 10-day, 100-day and 50-day moving averages at 1,554,1, 538 and 1,514, respectively, ” it said.

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