Sharp rise in ADV of stocks traded and stronger deriva­tives mar­ket set the tone


ARE the bulls back on Bursa Malaysia? An­a­lysts ap­pear to be­lieve so, based on the sharp in­crease in av­er­age daily value (ADV) of lo­cal stocks traded so far this year.

This is bol­stered by a sim­i­larly solid im­prove­ment of fu­tures con­tracts in the deriva­tives mar­ket.

The ADV of RM2.33 bil­lion as of Mon­day was 17.1 per cent above Af­fin Hwang In­vest­ment Bank Bhd’s ex­pec­ta­tions of RM1.99 bil­lion ADV for this year.

It av­er­aged RM1.93 bil­lion in Jan­uary be­fore spik­ing to RM2.53 bil­lion last month, said Af­fin Hwang IB an­a­lysts Tan Ei Leen and Loh Jia Ying.

Based on the ADV of the first nine trad­ing days of this month, it av­er­aged RM2.83 bil­lion daily, up 11.8 per cent month-on-month.

“Com­par­ing this with our 2017 ADV fore­cast of RM1.99 bil­lion, the year-to-date ADV of RM2.33 bil­lion is 17.1 per cent above our ex­pec­ta­tions. Com­par­a­tively, we last saw these bullish trad­ing val­ues in Jan­uary 2011, May-June 2013 (13th gen­eral elec­tion fac­tor) and Au­gust 2014, though they did not con­tinue in the sub­se­quent months,” they wrote in a re­port yes­ter­day.

They said Bursa Malaysia was cur­rently trad­ing at an es­ti­mated ve­loc­ity of 31.9 per cent year-to-date, based on a mar­ket cap­i­tal­i­sa­tion of RM1.7 tril­lion.

“Hence, if we were to ex­trap­o­late the ADV po­ten­tial of our mar­ket to­day based on pre-2007 cri­sis ve­loc­ity which rose to 53 per cent, this would im­ply a po­ten­tial ADV of RM3.4 bil­lion at a ve­loc­ity of 50 per cent.”

In­terPa­cific Re­search Sdn Bhd head of re­search Pong Teng Siew said trad­ing vol­umes had jumped to more than three bil­lion shares daily in the past two months.

This was an­tic­i­pated given that an ap­proach­ing elec­tion usu­ally sparked po­si­tion­ing by funds and in­vestors, he added.

“Money sup­ply has also in­creased. Spec­u­la­tive in­ter­est and a fresh bout of merger and ac­qui­si­tions (M&As) ap­pear to be brew­ing, which boost spec­u­la­tive in­ter­est,” Poh told NST Busi­ness.

MIDF Re­search deputy head of re­search Mohd Redza Ab­dul Rah­man feels that it is too early to say the bulls are back for good.

“We can see the leg of a mar­ket re­cov­ery but there are ex­ter­nal fac­tors that could dampen or slow down the rise and these con­cerns have re­sulted in our bench­mark in­dex hav­ing failed to break the 1,730 mark, af­ter briefly touch­ing it on March 7.

“Ce­teris paribus,

the mar­ket is ex­pected to do well this year on the back of ex­pected earn­ings re­cov­ery, par­tic­u­larly from in­dex heavy­weights in the FTSE Bursa Malaysia KLCI (FBM KLCI), to be led by banks.”

Redza, how­ever, said it seemed that sec­tors such as tech­nol­ogy, prop­erty and con­struc­tion had run ahead of banks and out­per­formed the in­dex. For prop­erty and con­struc­tion play­ers, this might not be sus­tain­able now with the lack of im­pe­tus such as job re­plen­ish­ments and higher take-up rates of projects.

“We are wary about the cur­rency move­ments, although we ex­pect the ring­git to strength­ened fur­ther in the sec­ond half of this year.

“How­ever, we like it that the cur­rent rise in vol­ume is seen across the board, in­clud­ing the small mid-cap coun­ters based on the av­er­age trad­ing price of be­low 95 sen over a high av­er­age daily vol­ume of 2.4 bil­lion shares, com­pared with only 1.6 bil­lion shares in the sec­ond half of last year at the av­er­age trans­ac­tion price of RM1.10,” he said.

Stronger deriva­tives mar­ket

On the deriva­tives front, Tan and Loh said the num­ber of av­er­age daily con­tracts (ADC) had risen rapidly by 9.9 per cent month-on-month in Jan­uary and 36.7 per cent last month, although ADC fell 27 per cent dur­ing the nine trad­ing days of the month so far.

“On a year-to-date com­par­i­son, the ADC of 52,584 is be­low our ex­pec­ta­tion of 59,500 by 11.6 per cent. On a pos­i­tive note, we be­lieve the ADC will con­tinue to pick up in sub­se­quent months given the im­prov­ing trad­ing sen­ti­ment,”

they added.

Trad­ing cat­a­lysts

Tan and Loh noted that Bursa Malaysia had taken a turn for the bet­ter on the cur­rent op­ti­mistic sen­ti­ment, with trades mostly un­der­pinned by lo­cal in­sti­tu­tional in­vestors at 49 to 50 per cent of to­tal value, and for­eign in­vestors at around 20 per cent.

Tan and Loh be­lieve that the in­flow of funds and pref­er­ence of equities over the bond mar­ket could con­tinue to un­der­pin the cur­rent mar­ket mo­men­tum.

A re­cov­ery in cor­po­rate earn­ings, a stronger out­look this year with a pipe­line of new list­ings and cor­po­rate M&As or de­merg­ers, ris­ing mar­ket par­tic­i­pa­tion, a sus­tain­able com­mod­ity cy­cle and ris­ing sen­ti­ment over the up­com­ing gen­eral elec­tion could also boost trad­ing ac­tiv­ity.

Mean­while, Redza has kept the FBM KLCI year-end tar­get at 1,830 level and is cau­tious about the im­pact of geopo­lit­i­cal is­sues on mar­ket sen­ti­ment. These in­clude elec­tions in France and Ger­many, the pres­i­den­tial elec­tion in South Korea, Bri­tain leav­ing the Euro­pean Union and im­pact of gov­ern­ment poli­cies in China and the United States.

Bursa closed 0.3 per cent, or 5.11 points, lower to 1,717.360 yes­ter­day.

We can see the leg of a mar­ket re­cov­ery but there are ex­ter­nal fac­tors that could dampen or slow down the rise...


MIDF Re­search deputy head of re­search

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