CGSI Research attributed the strong small-cap performance to the steady recovery in domestic activity, improved earnings delivery within the broader market, among others.
KUALA LUMPUR: Small capitalised (small-cap) stocks continue to see an improvement in sentiment as seen in their strong year-to-date gains of some 18.6% of the FBM Small Cap Index.
Small caps can usually have a broader outperformance compared to their bigger cap counterparts during periods of market upswings.
Their gains can be exaggerated as well should interest in such stocks see a big rise amid relatively lower liquidity levels.
Performance on the FBM KLCI this year has also been strong with year-to-date gains of almost 10%.
According to Rakuten Trade head of equity sales Vincent Lau, the small caps have seen a recovery in sentiment of late and theirs is usually a reflection of retail investor appetite into the market.
“Funds would usually seek out the bigger capitalised stocks since they are more liquid.
“The FBM KLCI has done well and its strong performance is due to the various foreign direct investments into areas such as data centres and also down south in Johor on improving relations with Singapore,” Lau told StarBiz.“There could be further upsides for the market as a whole in the near term although I think some scepticism still prevails in certain segments of the market at the moment. Foreign fund flows could still see inflows upon this environment.”
CGS International Research (CGSI Research) attributed the strong small-cap performance to the steady recovery in domestic activity, improved earnings delivery within the broader market as well as easing policy and political overhang following the six state elections concluding on Aug 23.
“This has resulted in a re-rating in small and mid-sized companies, which tend to have greater operating leverage and were generally coming off distressed valuations,” it noted.
Meanwhile, foreign funds continued to buy into Bursa Malaysia last week – the second week consecutively with net purchases totalling RM202.4mil.
While purchases were high in three of the five trading days last week, this was offset by net selling on Wednesday and Friday, stock exchange data cited by MIDF Research showed.
Sectors which recorded the highest net foreign inflows last week were utilities at RM240.8mil, industrial products and services (RM142.8mil) and technology (RM100.8mil).
Sectors with the highest net foreign outflows were financial services (RM330.9mil), plantation (RM126.2mil) as well as telecommunications and media (RM77.2mil).
The data cited by MIDF Research showed local institutions continuing their trend of net selling for two consecutive weeks but at a reduced amount of RM25.9mil, which represents a 91% decrease compared to the previous week.
Stronger earnings delivery may sustain any further upsides for the local market, moving forward.
CGSI Research said it was only one year ago key indices such as the FBM100 and FBM KLCI were trading close to their historically low valuations as earnings generally disappointed in the first quarter of 2023.
