SINCE 2014, the Malaysian stock market appears to be trapped in a curse, looking at how the main blue-chip and small-cap indices have struggled unsuccessfully to scale back to their previous record-high levels.
In contrast, the MSCI World Index and the MSCI Emerging Markets Index have soared to multiple new highs since 2014 with double-digit annual growth for many years.
For years, Bursa Malaysia has been affected by continued foreign fund outflows, especially since the 1Malaysia Development Bhd controversy, worsened by domestic political uncertainties.
New listings on the Main and Ace Markets have also reduced over the past decade. In 2019, prior to the pandemic, only 15 initial public offerings (IPOs) were done on both markets as compared to 29 listings in 2010.
Not only that, mega-IPOs in the past decade have largely failed to impress despite making headlines prior to listing. A classic case would be FGV Holdings Bhd, which was touted as the world’s second-largest IPO in 2012.
The stock has suffered a drastic fall since its listing and has never recovered to its 2012 levels. Currently, it is trading at less than one-third of its IPO price.
Bursa Malaysia has also fared unfavourably when it comes to the listing of foreign companies in the local market. While a handful of China-based companies have been listed in the past decades, many of them have underperformed.
Hence, it is not entirely surprising that the FBM KLCI has recorded negative growth for every year since 2014 with the exception of 2017 and 2020.
Analysts and market observers have constantly highlighted the need for fresh catalysts for the Malaysian stock market to break out of the current “curse”.
Interestingly, the prospects of a general election (GE), at least in the last two to three polls, have been instrumental in creating a rally and pushing up the FBM KLCI above the 1,800-point level.
A popular theory is that the stock market is an important fundraising avenue for election expenses, and hence, the market should rally ahead of the polls. Market chartist and observer Ridzuan Ibrahim says the FBM KLCI has rallied three to five months ahead of the past three GEs.
“Based on the previous trend, the FBM KLCI is capable of moving higher by between 200 and 400 points before each election, with the condition to remain above the 1500-point level as this is a strong support zone, ” he tells StarBizWeek.
The FBM KLCI first broke the 1,800-point level in July 2013, about three months after the 13th GE (GE13). However, it went on a downtrend since mid-2014 and only began to recover in 2017.
The FBM KLCI broke the 1,800-point level once again in January 2018 and just a few weeks ahead of GE14 in May 2018, the index closed at an all-time high of 1,895.18 points.
The momentum soon fizzled out as the former Pakatan Harapan (PH) government reversed or suspended the previous administration’s decisions on infrastructure spending.
The PH government’s internal struggle on whether Tun Dr Mahathir Mohamad would give way to Datuk Seri Anwar Ibrahim to become the next prime minister further affected investor confidence.
“Since 2018 until today, the FBM KLCI has basically not moved much and remained lacklustre, ” says Ridzuan.
Looking ahead, Ridzuan believes the FBM KLCI could see another run-up ahead of GE15 “sooner or later”.
“If GE15 is to be held early next year, we should see the index possibly making a move as early as August or September 2021.
“From current levels, there is another 200 points for the index to move towards 1,800 points or more, ” he says.
MIDF head of research Imran Yassin Md Yusof also says that a market rally is “certainly a possibility, ” considering the conventional wisdom that investors “get excited with the mere mention of a GE”.
“However, we believe that it might be different this time. We believe that the market will likely react after the polls, rather than in anticipation of the GE like in the past.
“This is due to the fact that the results of the past election have been surprising and judging by the current political scenario, there is a lot of uncertainty, ” he says.
Empirically, especially after 2008, Imran says the major price actions are generally manifested not before, but after the election results.
“Recall that the market staged a relief rally post-GE13 in 2013 and a selloff post-GE14 in 2018. We reckon the market is nowadays more concerned about the resultant stability, or otherwise, post-election and less on pre-election goodies and promises, ” he adds.
Looking ahead, Imran says a major risk that may cap the gains made by stocks on Bursa Malaysia would be a slower-than-expected progress for the vaccination programme.
Externally, another risk would be the action by the United States’ Federal Reserve to stave off inflation fears and calm the bond market, which may cause increased volatility akin to the taper tantrum episode seen in 2013.
Nevertheless, he believes that the stock market’s trajectory would remain on an upward path, as long as the underlying macroeconomic scene continues to be supported by growth.
The major catalysts will be better-than-expected economic recovery and achieving herd immunity faster, which will allow border reopening and economic activities to resume to some semblance of normalcy.
“However, we recognise that there will be bouts of volatility.
“Hence, in our opinion, any downward pressure in the markets present an opportunity to buy, ” states Imran.
MIDF Research has a baseline target of 1,700 points for the FBM KLCI by end-2021.
Ridzuan says the stronger performance of banking and glove stocks are key for the FBM KLCI to touch 1,800 points.
As of Feb 26, banks represented about 33% of the FBM KLCI weightage, while glovemakers held a 10% weightage.
“Foreign fund inflow is also important for the index. Without foreign fund inflows, it would be difficult for the FBM KLCI to post a new record high, ” he says.
Meanwhile, an analyst with a local investment bank says there is ample room to make Bursa Malaysia more vibrant and attractive to investors.
“Being able to attract new international companies to list in Malaysia is highly important. But for this to happen, we need strong liquidity in the local market, which can be achieved through the presence of foreign funds.
“Foreign investors will only come into Malaysia if domestic political uncertainties ease, apart from more liberalised local regulations. Unless we solve the core problems, attracting foreign funds will be an issue, ” says the analyst.