Bursa trading velocity profoundly low during World Cup

PETALING JAYA: The trading velocity in Malaysia during the 2018 World Cup is expected to be subdued not just because of this event but also due to the festive season, according to MIDF Research.

“We do not expect the World Cup event to change the fundamentals of all stocks under our coverage. Hence, we maintain our FBM KLCI year-end 2018 target of 1,800 points,” MIDF said.

Based on MIDF’s observations in the year before, during and after the World Cup, the velocity in the Malaysian market is profoundly lower during the World Cup compared to the years before and after the World Cup. For example, the average velocity during the 2014 World Cup stood at 30% compared to 36% and 26% in 2013 and 2015 respectively. This was the same case for the 2010 World Cup where the average velocity during the event was at 28%, lower than 49% and 32% in 2009 and 2011 respectively.

Yet, the research house said this would provide an opportune time for investors to have a relook at their portfolio of stocks to assess the performance of each stock in the portfolio, while at the same time conduct screening in search of undervalued stocks to add to their portfolio.

“Markets in the emerging economies, including Malaysia, are facing headwinds from geopolitical events and outflow of foreign funds, which had affected their year-to-date performance. Therefore, investors could take a look at stocks with strong fundamentals and significant price upside, and companies with good dividend yields.”

MIDF’s observation shows that two stock markets outperformed during World Cup period with another five underperformed. The outperformers are Shanghai Stock Exchange Composite Index and the Hang Seng Index for Hong Kong. The underperformers are the FTSE 100 Index (UKX) for the UK, CAC 40 Index for France, DAX Index for Germany, Topix Index for Japan and FBM KLCI. The range of performance are from -2.16% to +4.24%.

“For FBM KLCI, average market return during World Cup period is -2.16%. However, average market return one year before World Cup period is -0.69%. Hence, the market return remains negative during World Cup period although it underperforms the previous year return by -1.47%. In the latest data for World Cup 2014, FBM KLCI return was +0.50% as compared to same period in 2013 return of +0.59%.”

It said among the seven countries that it tracked, only four countries had seen increases in its value traded – the UK, France, Germany and Japan. Meanwhile, China, Hong Kong and Malaysia underperformed during the period of the World Cup.

As for volume traded, five out of seven had smaller volume traded in their stock market when the World Cup was held, which are France, Germany, China, Hong Kong and Malaysia.

Out of the eight sectors tracked, five outperformed during World Cup period while another three underperformed. The outperformers are construction, consumer, property, industrial products and technology. The underperformers are trading and services, plantation and finance. The range of performance during the World Cup is between -2.55% and -0.46%.