PETALING JAYA: Investor sentiment on Bursa Malaysia will be primarily led by domestic issues such as the 15th General Election (GE15) as its decouples from the impact of external developments, which has been the case in the past few months.
Despite a sharp sell-off in Chinese stocks on the Hong Kong stock exchange this week, the FBM KLCI remained resilient and closed two points lower at 1,444 points yesterday.
The local equity market has been chalking out gains since mid-October after Parliament was dissolved on Oct 9, rising some 72 points from a low of 1,372 on Oct 13 till market close yesterday.
Market analysts believe investor expectations for a strong government in place at Putrajaya post-GE15 in late November should see the local market move higher despite the heightened risk factors and volatility in global markets.
“GE15 is drawing some funds (local and foreign) into the local market on expectations a big win for one of the parties could lead to a more stable leadership and better policy outcomes.
“External markets will remain volatile leading into the earnings season this week and the Federal Reserve meeting next week but I don’t expect that to have as much an impact on the local market as the general election theme will,” said Phua Lee Kerk, head of research at Phillip Research Sdn Bhd.
The fresh buying of local stocks by funds could be an early “window dressing” move triggered also by multi-year low valuations and underpinned by an improving domestic economic activity with Phua stating Phillip Research’s inhouse forecast is for the benchmark FBM KLCI to hit 1,571 points prior to Nov 19 (election day) as funds rotate money into sectors like banking and telecommunication companies from glove makers, oil and gas or even the technology counters.
If the GE15 outcome is a stable and strong government at Putrajaya, Phua expects the market to see some profit-taking activity and the local benchmark to close out the year at 1,541 points – some 26 points lower from 1,567.5 points at the close of 2021.
As of yesterday, the index was 7.9% lower year-to-date (or 19% lower in ringgit to US dollar terms).
The net buying of local institutional funds of stocks on Bursa Malaysia has shielded it from swings in foreign markets as witnessed in Chinese stocks sold by foreign funds post the 20th National Congress of the Communist Party of China (CPC) late last week.
Global market expectations were escorted out much like former president Hu Jintao was from the CPC assembly, as Chinese President Xi Jinping consolidated power and retained the zero-Covid policy and central control over the economy amid heightened tension with Washington.
The Hang Seng Index (HSI) in Hong Kong experienced another volatile trading day, moving between the red and green in intraday trade, before closing marginally lower by 15 points at 15,165 points yesterday after falling some 6.35% on Monday as disappointed foreign investors sold off Chinese stocks.
Stocks on the mainland remained less affected with the Shanghai Composite Index down some 2% in the past two trading days.
“The selling on the Hong Kong exchange was mainly by foreign investors and retailers. The extent of the selling is rather surprising and probably triggered by margin calls on leveraged positions.
“The outcome of the CPC meeting was to be expected given it’s the same government with some new appointments. China’s zero-Covid policy will likely be gradually changed over the next few months,” said Jason Wong, research manager at iFAST Capital.
The fresh buying from lows yesterday on the Hong Kong exchange, he added, could have been a technical rebound as bargain hunters bottom fish for good companies at compelling valuations and companies which stand to benefit from Xi’s ambition to focus on strengthening the domestic economy.
Wong said Chinese stocks that support Beijing’s policy of self-sufficiency and domestic policy such as electric vehicle makers, green tech players and consumer-related counters offer good long-term investment opportunities.
China’s tech stocks such as chip makers are set to grow due to US policy action while its eCommerce giants, although facing selling pressure, offer value as they have exposure to other sub-sectors such as consumer lending.
On Bursa Malaysia, the volatility in the greater China markets played out in the structured warrants instruments which were among the most actively traded securities on the local exchange yesterday.
Instruments like HSI-CLJ and HSI-CJ5 were the most actively traded on the local market with the HSI-CLJ falling 12 sen or 34.29% to 23 sen while the HSI-CJ5 fell 2.5 sen or 36.7% to 4.5 sen while the HSI-HES structured warrant rose 25 sen or 78% to 57 sen.
For Phua, the corporate earnings figures from tech giants like Microsoft and Amazon ahead of the Federal Reserve policy meeting next week could set the direction for global markets while a non-deterioration in US-China policy further would contain risk factors on one front while the political situation on Ukraine-Russia front deteriorates further.
He expects issues like targeted subsidies post-GE15, inflation pressures from a weak ringgit and general economic performance over the medium term to impact investors sentiment on Bursa Malaysia.
In the meantime heading to GE15 polling day, the market could reinforce its role as a low beta market among investors amid heightened risk factors.
