Markets rebound after initial setback

Investor sentiment on stocks turns positive while the ringgit strengthens against the US dollar

PETALING JAYA: The ringgit improved and the stock market recovered from an early jolt to end the day in the positive territory.

In an indication of a vote of confidence for the newly elected Pakatan Harapan government, the ringgit appreciated marginally against the US dollar, while the stock market swiftly recovered from an opening drop of 40 points to end the day higher by 3.91 points.

The local equity market rose strongly, as buying interest quickly returned after a wild ride in early morning trade post-14th general election (GE14).

The stock market has been closed since the May 9 election that saw the incumbent Barisan Nasional being ousted from power after a six-decade rule. In the three days since it was closed, fund managers were expecting a major selldown if there was no sign of a smooth transition.

However, so far, the new government, led by Prime Minister Tun Dr Mahathir Mohamad, has taken charge in the administrative capital of Putrajaya and looked set to name the Cabinet soon.

The lack of clarity on how the new administration would implement its policies, nevertheless, had led to a wild swing in the local stock market on the first trading day since Pakatan took power.

The FBM KLCI yesterday swung 75 points, falling to a low of 1,800 points in early morning trade in a knee-jerk reaction to Pakatan’s stunning victory. However, buying interest quickly returned by mid-morning amid strong oil prices, sending the benchmark index to an intra-day high of 1,876.62 points.

At 5pm, late selling following a press conference by Dr Mahathir saw the FBM KLCI ending up just 3.91 points, or 0.21%, to 1,850.42 from last Tuesday’s close of 1,846.51.

Volume yesterday was significantly heavier, with 6.58 billion shares worth RM7.31bil changing hands, compared with 2.35 billion units worth RM2.8bil last Tuesday.

Foreign investors were net sellers in the market yesterday. Data from the stock exchange showed they sold RM2.52bil worth of stocks and bought RM1.84bil.

Local institutions provided some support and were net buyers of RM238mil worth of shares.

Swinging between losses and gains in early morning trade, the first sign of calm returned to the market by mid-morning yesterday, with the ringgit recovering to preGE14 levels of around RM3.94 to the US dollar while the FBM KLCI began to stabilise in the positive territory.

Areca Capital fund manager Danny Wong said while the negative knee-jerk reaction to the change in Government was to be anticipated when the equity market reopened yesterday, few

expected it to return so fast to the positive territory.

“All the ‘weak sellers’ were gone by mid-morning, replaced by the subsequent strong buying interest. Moving forward, the market’s performance will likely be better, as the conclusion of GE14 means one uncertainty in the market has been removed,” Wong said.

“That Pakatan had won with a comfortable margin also implies there will be stability and this is evidenced by the smooth transition in power from Barisan,” he told StarBiz.

In addition, Wong said while the new government policies had yet to be spelt out, the Pakatan alliance’s manifesto appeared to be pro-business, with a strong emphasis on less corruption and more transparency.

“All these are positive for Malaysia in the long run. We believe it will also help attract foreign investors,” he said.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew concurred, saying that Pakatan’s manifesto had been well received by the market.

“There is a sense of optimism in the market, with local buying taking full charge while foreigners appeared to be more cautious,” Pong said.

“Local investors are more in touch with the new administration, hence they welcome the change. Foreigners who are less familiar with the new administration will likely be concerned about the repercussions in the change of Government, as business in Malaysia is inextricably intertwined with politics ... they will need time to see which stocks to buy or sell,” he added.

Market breadth yesterday was positive, with 930 counters closing in the positive territory compared with 405 decliners, while 180 counters closed unchanged.

Among the gainers were consumer stocks as well as oil and gas counters, thanks to strong oil prices.

Counters seemingly linked to the previous administration as well as construction stocks, on the other hand, came under selling pressure. Construction companies were affected on reports that Pakatan would review largescale infrastructure projects.