Market sentiment rising on improving economy

Kenanga Research has revised its forecast for Bursa Malaysia’s full-year average daily value to RM2.08bil from RM2.21bil.

PETALING JAYA: The local market sentiment and trading activities are poised to improve along with the positive developments in macroeconomic conditions, says Kenanga Research.

The brokerage said with the gradual improvement of macro factors, including the expectation of the overnight policy rate holding at 3%, the local market is expected to be uplifted progressively.

“We also envisage subsiding recessionary signals as well, on delivery of local economic readings which would drive corporate earnings in the coming quarters,” it noted in a report, adding that favourable state elections could be a booster to market activities.

On the second-quarter (2Q) performance, Kenanga Research said Bursa Malaysia’s average daily value (ADV) disappointed, as sentiment was not met with favourable conditions once again.

The local exchange’s ADV for the quarter amounted to RM1.78bil, falling short of the research outfit’s anticipation of RM2.1bil for the period.

“We had expected seasonal softness as compared to the 1Q ADV of RM2.14bil but market participation could have likely been undermined as a result of lower overall confidence post-March 2023 global banking crisis keeping long-term investors highly cautious,” Kenanga Research explained.

It added that heightened interest rates in the United States could have further encouraged the exit of foreign shareholders, while the weakening ringgit was unsupportive of domestic appetite.

In light of such factors, Kenanga Research has revised its forecast on Bursa Malaysia’s full-year ADV to RM2.08bil from RM2.21bil.

“Following our adjustments for the disappointing 2Q, we also lower our 3Q target to RM2bil, from RM2.2bil, as trading softness may still prevail,” it said.

However, Kenanga Research believes that this may be offset by the government’s recent reduction in stamp duty to 0.10% from 0.15%, capped at RM1,000 per contract, which could incentivise higher retail participation.

With a more meaningful diversion of headwinds expected in 4Q, the research house maintained its ADV target of RM2.4bil for the quarter.

Due to the softer ADV inputs, the research house has also lowered Bursa Malaysia’s earnings forecast for the financial year 2023 (FY23) by 3%.

“Our updated pre-tax earnings forecast remains within the group’s FY23 target of between RM295mil and RM326mil,” it said.

The research house believes that, aside from trading activities, Bursa Malaysia’s performance could be supported by higher service fees resulting from a stronger initial public offering (IPO) pipeline for the year, with up to 39 IPOs targeted, an increase from FY22’s 35 new listings

“Meanwhile, new initiatives, including the recently launched carbon credit auction and upcoming debt fundraising platform, Bursa Gold Dinar, may be revenue accretive,” Kenanga Research added.

Kenanga Research expects Bursa Malaysia to post earnings of between RM50mil and RM55mil for 2Q, compared to the RM56.17mil reported in 1Q.

The research outfit has maintained a “market perform” call and a target price of RM6.25 per share for Bursa Malaysia.