Fund managers see short market spike
Rally happens amid year-end window-dressing activities
PETALING JAYA: The FTSE Bursa Malaysia KL Composite Index’s (FBM KLCI) rally yesterday is likely to be temporary amid year-end window-dressing activities by major funds.
Fund managers concurred on this but are mixed on how long the current run-up can last.
Speaking to StarBiz, Inter-Pacific Research head of research Pong Teng Siew said he was surprised by the index’s uptrend quantum, although the uptick was largely expected.
He expects the index to continue its uptrend for the next two to three months before starting to ease gradually.
“Generally, it looks like a rising trend for the next few months. We have actually predicted the rally as historically, the FBM KLCI would start its climb whenever the Thai index eases in terms of absolute index points.”
Areca Capital fund manager and chief executive officer Danny Wong thinks that the FBM KLCI’s sudden surge is likely to hold “only for a day or two,” before starting to ease gradually.
On the contrary, Pong believes that local funds were the main reason behind yesterday’s rally.
“There is no mass buying from the foreign funds, maybe largely due to the uncertainties shrouding the 14th general election (GE14).
This uptick may only sustain for one or two days and the market will go back to more valuation-based trading thereafter,” he said.
Following a three-month long downtrend, the benchmark FBM KLCI rose to a 10-week high yesterday.
The index rose 21.34 points or about 1.23% to 1,759, making it the best performer among the key Asian markets.
Turnover was at 2.43 billion shares valued at RM2.36bil.
Advancers led decliners five to three or 540 gainers, 331 losers and 470 counters unchanged.
Yesterday’s uptrend was primarily driven by the performance of banking stocks, which lifted the overall index.
Malayan Banking Bhd delivered the biggest contribution to the FBM KLCI with 4.6 points as it rose 24 sen to RM9.49, giving it a market capitalisation of RM102.3bil.
Public Bank Bhd’s share price, which soared to an all-time high of RM21.08, added 3.04 points to the index.
British American Tobacco (M) Bhd, however, was the top gainer of the day, jumping by RM1.88 to RM40.20.
“This (year-end rally) has happened about four times over the last 12 years and just as predicted, the FBM KLCI’s surge yesterday is reflective of the trend before this,” Pong said.
“Foreign funds have started to come into our local equity market and this will lift the index, going forward, as foreign funds are usually more attracted to large-cap stocks,” he added.
Apart from the banking stocks, several other counters on the bourse also performed strongly yesterday.
Among the semi-conductor-related counters, burn-in tester KESM Industries Bhd rose 58 sen to RM19.28, while Malaysian Pacific Industries Bhd was up by 40 sen to RM11.60.
In the oil and gas ( O&G) segment, Petron Malaysia Refining & Marketing Bhd rose 26 sen to RM13.26, while Petronas Gas Bhd was up by 24 sen to RM16.30.
Pong said foreign funds could also be looking at technology-related stocks and selected O&G counters, mainly because of their brighter prospects moving forward.
“Prospects of tech stocks remain positive as it has been this year, and this may have attracted the funds. As for O&G stocks, companies involved in the refinery business or by-product manufacturing will generally do better.
“However, for O&G support and services companies, the prospects are still uncertain, given the dampened capital expenditure of oil majors,” he said.
Year-to-date, the FBM KLCI has gone up by about 7.14%. However, the index’s current level of 1,759 points is still significantly below the year-to-date peak of 1,792.35.
Areca’s Wong, meanwhile, said it was unsurprising that the banking stocks were among the best performers yesterday.
“Usually, the FBM KLCI will trend upwards following an improvement in the gross domestic product of Malaysia. Banks, being the proxy of economic growth, will likely follow suit.
“Given the banks’ recent financial performance in the third quarter, which was generally better sequentially, there are rerating possibilities going forward. Hence, funds may have been more attracted to the banking stocks compared to other counters,” he said.
Wong added that the market could see more foreign fund participation post-GE14 if the stellar economic growth and trade performance continued.
He expects FBM KLCI to perform stronger next year, with about 7% to 8% growth in earnings among the constituent stocks in the index.
In its published note, Alliance DBS Research said it expected the FBM KLCI to register an earnings growth of 10.6% in 2018, with an end-2018 index target of 1,870. In comparison, the index is projected to grow by 5.8% this year.
The stronger growth is expected largely on the back of an election-friendly Budget 2018, the lag effect of strong economic growth, strong external demand and recovering crude oil prices.
The research house also said that Malaysian equities remained attractive, as the FBM KLCI is currently trading inexpensively after underperforming regional markets in 2017.
“With the earnings recovery gaining traction, preference for equity over fixed-income investment in a rising interest-rate environment and recovering foreign flow, we see better days ahead for Malaysian equities in 2018.
“As such, we reaffirm our bottom-up derived end-2018 KLCI target of 1,870. This implies a price-to-earnings ratio of 16.2 times in 2018 and 8.1% potential upside,” it said, adding that it preferred cyclical stocks for next year.