PETALING JAYA: With October typically seen as a bad month for equities, investors should brace for a choppy market ahead.
While the first two trading days of October have been positive for the market, this could be due to the pre-budget rally that has usually been seen in past years.
The FBM KLCI, the benchmark index of the bourse, has jumped by 14.73 points or 1.06% since the start of the month.
The index has not only snapped its eight straight days of a losing streak, but also leapt back to above the 1,400-point level.
In the past 13 years, the FBM KLCI has posted returns of 0.5% one week before budget tabling, according to CGS-CIMB Research.
“However, we found that the pre-budget rally typically does not last,” according to the research house.
Budget 2023 is scheduled to be tabled on Oct 7.
With the curse of October once again haunting local stocks, there are concerns that it could wipe out the pre-budget rally.
Speaking with StarBiz, fund manager Danny Wong said the market will remain choppy, looking ahead.
However, he also noted that the market has already priced in “a lot of negative news”.
“Investors are already expecting a lot of negative news, so there is not much element of surprise there.
“The current market level would attract value investors,” he said.
Wong, who is the chief executive officer of Areca Capital, also said that Budget 2023 is a “non-event”, and thus, would not provide a major push for the market.
“While there may be election goodies, the market is expecting fiscal consolidation measures to contain the fiscal deficit.
“So, not much surprise is expected in Budget 2023,” he said.
Echoing a similar stance, CGS-CIMB Research also expects Budget 2023 to be neutral for the FBM KLCI.
“There is high anticipation that the government will dish out more goodies than usual to create a feel-good effect as it will be its last budget before the 15th General Election (GE15).
“However, we are of the view that the feel-good outcome is likely to be negated by rising concerns over a global recession, potential implementation of fuel subsidy reform, and uncertainties over the outcome of GE15,” it said.
Wong said that the current month of October may not necessarily be a bad month for stocks, but this largely depends on two major global events.
First, all eyes will be on the United States’ announcement this month on its latest inflation print.
The country’s inflation has been growing at a slower pace in recent months and if the trend continues, it would help improve market sentiment, considering that the Federal Reserve may have less reason to aggressively raise its interest rates.
Second, China is scheduled to hold its 20th National Congress of the Chinese Communist Party.
Wong said the congress would confirm whether Xi Jinping will secure the third term of presidency, hence eliminating rumours about his removal from office.
The congress may also hint on whether China will do away with its zero-Covid policy and fully reopen its economy, according to Wong.
If these happen, global market sentiment will improve and in turn, help Bursa Malaysia overcome the curse of October.
Meanwhile, Rakuten Trade head of equity sales Vincent Lau remains “cautiously optimistic” on the market outlook for the month of October.
While he acknowledged continuing market challenges, Lau believes the domestic stock market would see “better days ahead.”
One main reason is Budget 2023, according to him.
Lau said that the budget is expected to create excitement in the market as the government is likely to dish out election goodies ahead of GE15.
Among the companies expected to benefit from the budget are those involved in consumer-related businesses, tourism, construction and technology, said Lau.
Earlier, CGS-CIMB Research said the manufacturing sector could benefit from tax incentives to encourage the adoption of labour-saving technologies.
Industries highly dependent on foreign labour like agribusiness, manufacturing, services and construction could benefit, if the government accelerates the foreign labour intake process, it said.
“Budget 2023 will be mildly positive for the property sector if the government provides assistance to encourage homeownership or reduce construction costs.
“Overall, we advise investors to stay defensive ahead of GE15,” stated the research house.
When asked whether FBM KLCI would continue to edge up for the rest of October, Lau pointed out that the market is also oversold.
“And naturally, investors may take on this chance to enter the market.
“While the market may see some volatility in October, there will surely be pockets of opportunities for investors,” he said.
Lau also added that external developments will weigh on Bursa Malaysia’s performance.
“The local sentiment also depends on how the United States’ economy performs and how the interest rates are further adjusted,” he said.
