Global markets stage pullback

Bursa down in line with regional trend after Dow’s big drop

PETALING JAYA: Stock markets globally staged a pullback from a prolonged rally after sentiment on Wall Street soured.

Along with the rest of the region, Bursa Malaysia took its cue from the Dow Jones’ 665-point drop on Friday to stage a selldown yesterday, which most analysts see as a healthy and necessary correction after a 4% gain in January.

The Dow Jones made its first meaningful correction last Friday by tumbling 665 points or 2.5% after nine straight years of gains, and after rising 8% this year. This was its biggest one-day sell-off since June 2016.

Instinctively, the FBM KLCI opened yesterday morning by falling 25 points upon the opening bell. However, the fall wasn’t as painful as expected, mainly because stocks had started correcting some three weeks ago ahead of an upcoming election. Also, many felt this was a much-needed correction after 10 uninterrupted weeks of gains.

It was a sea of red yesterday morning as penny stocks and those that had surged over the past few weeks levelled down to more sober levels.

Like the Dow and S&P 500, the FBM KLCI had been partying in January, thanks to stronger global prospects, with the index gaining 71 points or 4% to close at 1,868 points.

The Dow and the S&P 500, which have been notching record highs, also had their best monthly gains last month, with an 8% and 5.6% gain, respectively, their best since March 2016.

The FBM KLCI finished the day down 17.41 points to 1,853.07 points on a volume of 2.64 billion shares.

It isn’t all bad for Malaysian stocks though as unlike the United States, Malaysian stocks had in fact started correcting some three weeks before as fears of an upcoming election had seen local investors starting to clear their position.

For example, Sapura Energy Bhd, which had seen a two-month high of 97 sen on Jan 8, has since corrected and closed at 70.5 sen yesterday.

Another firm favourite Hibiscus Petroleum Bhd, which had been hogging the volume list over the past year and touched its 52-week high of RM1.15 on Jan 15, also corrected to close at 87.5 sen yesterday.

Analysts too aren’t getting bearish anytime soon.

“February has historically been a good month for the Malaysian market with a 40-year average monthly gain of 2.4%. We expect the FBM KLCI to track the performance of the regional markets in February. All eyes will be on how the corporates fare in the upcoming February results season and investors will continue to look for hints on when the 14th general election will be held. The current term of Parliament expires on June 24,” said CIMB Investment head of equity research Ivy Ng in her strategy note yesterday.

She added that the CIMB research team was on the road for most of January, marketing its economic and strategic outlook for 2018 to investors in Kuala Lumpur, Singapore, Thailand and Hong Kong.

“Foreign investors that we met have increased their holdings in Malaysian equities from a year ago. Generally, investors were cautiously optimistic about Malaysian equities. Similar to a year ago, we found Malaysian funds more upbeat than their overseas counterparts,” she said.

She added that the FBM KLCI’s January gains were the highest since September 2014 and was driven mainly by the stronger ringgit, foreign fund inflow and improved market sentiment globally.

The ringgit appreciated 3.8% in January, due partly to strong crude oil prices, the overnight policy rate hike of 25 basis points and inflow of foreign funds into Malaysia. Foreign investors increased their exposure, with a RM3.4bil net inflow during the month.

“Undeniably, though, markets are likely to remain volatile as they adjust to a new growth and interest rate environment. Malaysia will definitely be affected by the upward and downward moves of the US,” said one strategist.

As for the Dow’s fall, the chief reasons were rising inflation and a higher interest rate environment. On Friday, the US Labor Department reported that employment grew more than expected in January with the biggest wage gain in more than 8½ years.

The thought of workers com- manding higher salaries fuelled expectations that inflation was on the rise, which would then prompt the Federal Reserve to take a more aggressive approach to rate hikes this year.

That caused the 10-year treasury yield to surge to 2.845%, the highest since January 2014, which could make returns on treasuries look more attractive relative to stocks.

But market players are not convinced that the bull market is over. In fact, many say a pullback is overdue.

“While we don’t believe a bear market (an extended market downturn of 20% or more, driven by fundamental reasons) looms, we think now is as good a time as any for investors to start preparing themselves for future market volatility.

“We aren’t saying volatility is due to return with a vengeance in 2018. Short-term moves are impossible to forecast, but it is a normal occurrence during bull markets. Better to start steeling your nerves now,” said Fisher Markerminder in its latest note on Feb 2.