PETALING JAYA: Incessant political squabbles are raising the Malaysian stock market’s risk premium and experts say the continuation of such noises will weigh down any upside in the market.
With Prime Minister Tan Sri Muhyiddin Yassin insisting yesterday that he will not resign unless his fate is tested in a no-confidence vote to be tabled in September, this means political uncertainties will prolong for at least another month.
The announcement by the Prime Minister came at a time when market sentiment was already suffering from the threat of high Covid-19 cases, the extremely long movement restriction period and weak economic conditions.
In addition, foreign funds have been dumping local stocks, with net selling of RM5.54bil until July 30.
Yesterday, the FBM KLCI hit its lowest level since January this year at 1,483.73 points, raising concerns of a further decline in the coming weeks. By 5pm, the index had partially recouped its earlier loss for the day and closed at 1,491.33, down 8.93 points or 0.6%. Across the bourse, market breadth was negative with 685 decliners against 333 gainers. A total of 411 counters were unchanged.
The FBM KLCI, which is the barometer of the Malaysian equities market, has declined by nearly 136 points since the start of 2021.
Experts said the market has, to an extent, priced in political uncertainties. Fund manager Danny Wong told StarBiz that short-term volatility would remain as Parliament would only reconvene in September. “But at least, there is a solution now for the political uncertainty via the no-confidence vote,” he said.
Wong, who is also the chief executive officer (CEO) of Areca Capital Sdn Bhd, said the FBM KLCI’s valuation remained attractive, trading at below the 10-year average in terms of price-to-earnings and price-to-book value ratios.
“Continued vaccination progress and the reopening of the economic sectors will be the biggest catalysts for the economy and market sentiment,” he added.
A bank-backed analyst said the news about 11 Umno members of Parliament withdrawing support for the Prime Minister has upped the political risk premium. In fact, he said the political uncertainty factor has been high in the market since Perikatan Nasional took over the administration last year.
“If the ruling government collapses, the market may fall due to a knee-jerk reaction, but the plunge would not be much. In the short term, the market will be choppy. I see strong support at the 1,400 to 1,450-point level, and resistance at the 1,500 to 1,550-point level,” he said. For now, the robust vaccine rollout offered “hope” for the market, he added.
With more Malaysians inoculated and in turn, easing the movement restrictions, the analyst expects the market downside to be cushioned. “Just look at the United States, the United Kingdom and India, once Covid-19 cases fell from the peak, their stock markets rebounded. The same may happen in Malaysia,” he said.
Meanwhile, EquitiesTracker Holdings Bhd CEO Alvin Vong expects the economy and the stock market to return to “some form of normalcy” within the next one or two months, once more states progress into the next phases of the National Recovery Plan.
With recovery in market sentiment, he said offline-based retail players, such as food and beverage and fashion that depend on foot-traffic, will bounce back strongly.
“We should look towards reopening the economy. Moving forward, perhaps, the government should not look at the daily Covid-19 cases as a metric, but instead look at the utilisation of hospital beds and the intensive care units,” he suggested.
EquitiesTracker chief market strategist Benny Lee said investors typically looked for positive economic prospects and clear policy direction from the government. “The corporate earnings are expected to improve only towards the end of the year. For now, support to corporate earnings will come from export-oriented companies such as the semiconductor players that have been doing well,” he said.
According to Lee, while banking players’ earnings have been stable, the stock prices have been declining over the past several months, signalling the weak sentiment among investors. Banking stocks provide significant weightage on the 30-stock FBM KLCI. “As for the glove stocks, the consolidation will continue and the three glove stocks on the FBM KLCI will not provide much support for the index,” he added.