Bursa steady, may pick up on new money boost

IN spite of the market gyrations elsewhere, Bursa Malaysia seems to be holding quite steady, leading to the question of whether there are any prospects ahead for the local bourse.

“Yes, it is likely to pick up as the government has some new money. Government deposits are higher by 40% but there is no new money from the retail crowd. There is also zero growth in fixed deposits and savings,’’ said Pong Teng Siew, head of research, Inter-Pacific Securities.

When Asian markets fell beginning of last week following the detonation of a hydrogen bomb by North Korea, Bursa remained steady. Later in the week, even as Wall Street tumbled more than 200 points, it hardly “batted an eyelid”.

In the US, stocks remained resilient. While swings proliferated among industries and the US braced for another hurricane, the S&P 500 was its typical imperturbable self, closing the fourday stretch last week with a decline of about 0.5%, noted Bloomberg.

Anyone who sold into the 1.2% decline last Tuesday following North Korea’s hydrogen bomb test may have regretted it the next day, as the S&P 500 made most of it back. The rebound came as President Donald Trump struck a deal with Democrats to extend the debt ceiling, which is the maximum amount of money that the federal government can borrow.

“Bursa will still be subject to external volatility associated with global financial markets.

“On the domestic front, sustained economic growth momentum and delivery of corporate earnings will underpin valuations,” said Lee Heng Guie, executive director, Socio Economic Research Center. Subdued earnings While noting that second quarter earnings could not sustain those of the past two quarters, UOB Kayhian has raised its 2017 core earnings forecast. However, this was based on distortion from Sime Darby which for the first time in its final quarter, revealed a oneoff provision for the full year.

“This resulted in a 15% upgrade for the plantation sector. Without Sime Darby’s adjustment for provisions, our forecasts for the FBM KLCI and our coverage universe would have been trimmed, revealing an overall uninspiring corporate earnings trend,” said UOB Kayhian.

While domestic consumption remained sluggish, the recent sharp rise in residential property approvals and applications saw improvement in growth rates for residential property loan approvals and applications.

These growth rates averaged at 18% year-on-year (yoy) and 17% yoy respectively for the first seven months of the year, compared with 15% yoy and 0.8% yoy in 2016. UOB Kayhian’s forecast for yearend FBM KLCI is at 1,770, as the market is expected to be largely flat, especially in the near term.

The latest publicised foreign funds inflows have turned negative, at RM 219mil for equities, for the first time in August, and RM 2.3bil for debt.

“Foreign investors may be sidelined ahead of the huge expiry of Malaysian Government Securities in September/October,’’ said UOB Kayhian.

Investment themes for the second half include the awarding of mega infrastructure projects (for the East Coast Rail Link and Light Rail Transit 3); the electronics and electrical sector (launching of the Samsung 8 and iPhone 8).

Towards year-end, investors may look at the tourism-related sector ahead of the 2018 opening of iconic tourism attractions like Genting’s 20th Century Fox theme park and Yong Tai’s Impression Melaka theatre.

Central banks watch

All eyes will be on when the European Central Bank (ECB) ends its 60–billion-euros-per-month bond buying programme, said Lee.

An October announcement on its scaling back is expected.

“The ECB does not seem to be in a rush to end its stimulus programme although the market thinks it is likely to be toned down.

“The fact that the ECB does not show much concern over the strength of the euro suggests there is still room for upside of the currency against the US dollar,’’ said Nor Zahidi Alias, chief economist, Malaysian Rating Corp.

Also being monitored is when the ECB will begin to normalise interest rates as economic conditions improve, according to Lee. There is no indication yet whether interest rates could be raised before net asset purchases end; they will be kept low for an extended period, said ECB chief Mario Draghi last week. Sterling may remain relatively weak in the near term, said Zahidi, as concerns over domestic political risks and weaker economic performance may limit its upside.

Assuming that geopolitical risks can be contained in the near term, the US interest rate hike cycle will likely continue; the greenback potentially strengthening against some major currencies, after weakening since December last year, said Zahidi.

If Malaysia’s economic growth continues to beat expectations for the rest of the year, the chances of a rate hike will be higher, Zahidi added.

However, geopolitical risks will be considered before such a decision.