CAUTIOUSLY OPTIMISTIC
Analysts caution that current situation mirrors sell-off in 2015
BURSA Malaysia’s current trading seems to mirror that of 2015 when it lost more than nine per cent in two months amid market sell-offs, say analysts. They, however, maintain positive year-end targets of above 1,700 points.
BURSA Malaysia may be set to repeat the market sell-off of 2015 as trade friction between the United States and China escalates, said analysts.
They, however, have kept optimistic year-end targets of above 1,700 points, which means the rout which began in April is expected to end within five to six months.
A new support level of 1,600 points, not seen since August 2015, has been set and any lower level would spread fear of a bear market, said analysts.
The 2015 rout was caused by global financial events, including Greece’s debt crisis and China’s stock market crash. From June 12 to August 24 2015, the Shanghai Composite Index shed 38 per cent.
The current situation in Malaysia seems to mirror the market sell-off in 2015 when the FTSE Bursa Malaysia KLCI (FBM KLCI) lost more than nine per cent in two months since April 21, said analysts. This year, FBM KLCI lost about 10.75 per cent over two months since a high in April.
In 2015, the index entered its deepest correction since 2008, dipping more than 17.7 per cent over four months. It, however, managed to recover before the end of the year.
During the 2008 financial crisis, it took two months for the index to lose 20 per cent, creating a bearish market. It lost more than 45 per cent over nine months.
Currently, analysts are clueless when the US-China trade friction will end while foreign investors keep pulling out from the emerging markets, including Malaysia.
There is unease among investors that a trade war is on the cards.
Malaysia has seen the longest foreign fund exodus from its equity market, according to Bloomberg data. Foreign funds have been pulling out since May 2 for nine weeks to the tune of more than RM10 billion.
Due to escalating trade tensions and Beijing’s efforts to reduce reliance on high debt levels, the Shanghai Composite Index is among the first to enter the bear market. According to CNBC, a six-week selling streak has sent the mainland’s benchmark index down 13.9 per cent this year to its lowest since 2016, and a more than 20 per cent retracement from a recent high.
Stock market analyst Nazarry Rosli expects Bursa Malaysia to be choppier in the coming months, in line with global and emerging markets.
“There are signs that the key index will continue to trade on a downtrend. For example, it has been trading below simple moving average 200 days (SMA200) and SMA50,” he told NST Business.
Nazarry said the stock market is driven by external factors such as the US-China trade conflict and possible rate hikes by the US and other major markets.
“Breaking below the 1,600-level is something to worry about as it will cast fear in the market. But we have to just wait and see. At the moment, our major concern is whether the index can be supported above 1,600 points.”
He said history could repeat itself.
Hong Leong Investment Bank (HLIB) said it is premature to call an end to the foreign fund exodus as the escalating US-China trade tension is an exogenous variable that is almost futile to predict.
“At this juncture, finding reasons to be upbeat about Malaysian equities can prove to be a daunting task. We envisage the market to stage a mild recovery once more concrete clarity is conveyed by the government,” added the research firm.
Nevertheless, HLIB kept an optimistic year-end target 1,700 points.
Kenanga Research said if the index breaks through the resistance level of 1,700 before yearend, it will gain strength to trade higher.
There are signs that the key index will continue to trade on a downtrend. NAZARRY ROSLI Stock market analyst