PETALING JAYA: The outlook for equities remains lacklustre on selling pressure over the short term as sentiment is weak amid uncertainties arising from aggressive US interest rate hikes, geopolitical tensions and potential slowdown in China’s economy.
“Investors are still in a risk-off mode, as there are just too many uncertainties in the current environment. Hence, we are seeing investors shunning equities to safer assets,” an analyst with a local brokerage told StarBiz.
“The uptick in FBM KLCI is a respite ahead of the key overnight policy rate (OPR) decision today and the upcoming gross domestic product data announcement on Friday which many expect to be encouraging,” he said, adding that investors would also be watching how first-quarter corporate earnings shape up in the coming weeks.
Bucking the regional trend, stocks on Bursa Malaysia rebounded to close in the positive territory after Monday’s sharp fall.
The FBM KLCI gained 5.4 points, or 0.35%, to close at 1,554.58 on volume of 2.75 billion shares worth RM2.26bil.
However, the overall market breadth was negative, with losers leading gainers at 640 to 331, while 444 counters were traded unchanged.
Hong Leong Investment Bank, in its note to clients, said the short-term outlook for the FBM KLCI has turned increasingly negative.
“Against an extraordinarily challenging and uncertain times, concerns of further net outflows by foreigners, and a historically tepid May reporting season, Bursa is likely to brace for an extended consolidation as investors are increasingly worried over the surging interest rates’ adverse impact on corporate earnings and economic growth,” the investment bank explained.
It pegged the FBM KLCI support level at 1,551 points, with immediate resistance at 1,565 points, and potential downside levels at between 1,520 points and 1,530 points.
Another analyst said despite the uninspiring outlook, any weakness would be seen as a buying opportunity.
As such, the analyst was optimistic that domestic institutional investors would step up buying and hence mitigate the selling pressure faced by shares on Bursa.
However, not all are dour on the prospects of stocks on Bursa.
CLSA recommended selective buying of Malaysia equities, noting the market offers an “attractive entry point.” The brokerage and investment group said episodes of an oversold ringgit had provided opportune tactical entry points into local equities.
“We take advantage of strong evidence of such an occurrence presently by committing to a 20% overweight stance on the market within a regional Asia-Pacific-excluding-Japan portfolio, albeit on a tactical basis only.”
Longer term, CLSA remained concerned about the country’s extended track record of delivering US dollar earnings growth at a rate of less than half compared with the emerging market (EM) average. This has resulted in Malaysia’s perennial structural underperformance, it explained in its recent report.
“Consensus projections are for a steady recovery through 2023 and 2024 in relative return-on-equity for Malaysian equities to 87% that of the EM versus the current 75%. Malaysia offers 45% superior yield to the EM average, at among the strongest relative levels over the past quarter century,” it added.
It noted that foreign investors heavily divested local equities over the past decade, with cumulative net selling of US$23bil (RM100.79bil) between May 2013 and August 2021.“Non-resident ownership of Malaysia remains particularly low relative to history and thus provides ample room for additional portfolio exposure,” it said.
Foreign shareholding of Malaysian equities stood at 20.3% as of end-April 2022.
While foreign investors had been buying Malaysian equities since the start of this year, with net buying totalling RM6.9bil year-to-date, last week saw heavy outflows due to concerns over a tighter US monetary policy and the weaker China economy, CGS-CIMB Research noted.
At RM365.7mil, that was the largest weekly net selling by foreign investors this year, despite the market being open for only two days last week due to the Labour Day and Hari Raya aidilfitri celebrations.
Heavy selling by foreign investors resulted in the FBM KLCI declining 2.3% week-on-week to close at 1,564.34 points.
Local retail and institutional investors were net buyers of domestic equities at RM204mil and RM130.4mil respectively.