Market sentiments weigh in on Bursa
KUALA LUMPUR: It has been a tough start to the year as Bursa Malaysia Bhd’s (Bursa Malaysia) net profit for the first quarter of 2019 (1Q19) came in at RM46.9 million, a drop by 26.5 per cent year on year (y-o-y) and a drop of 9.6 per cent quarter on quarter (q-on-q).
Poor market sentiment had resulted in a lower equity average daily value (ADV) of RM2.4 billion. Market volatility has also been weak at 29 per cent in 1Q19 versus 28 per cent in 4Q18 and 35 per cent in 1Q18.
The team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that the bulk of Bursa’s operating profits came from the securities market division which saw profits declining 22.9 per cent y-o-y and 5.7 per cent q-o-q.
“This was as a result of a reversal in trade values, of which was reflected by the 1Q19 ADV of RM2.4 billion,” it observed yesterday. “Meanwhile, the derivatives division saw operating profit down 25.5 per cent y-o-y and 13.3 per cent q-oq arising from lower guarantee fees as well as contraction in trading volumes.”
The only bright spot appeared in the Islamic capital market, whereby MIDF Amanah Investment Bank Bhd (MIDF Research) saw ADV trading improving slightly from 4QFY18 at 7.7 per cent q-o-q.
However, on a sequential year basis, it declined 23.9 per cent y-o-y to RM2.07 billion.
Looking ahead, AffinHwang Capital expects the implementation of a shorter settlement date for the equity market effective April 29, 2019 to result in significantly lower trade volumes in the near term.
“However, overall, the move results in lower financial market risks in general,” it added.
Meanwhile, weakness in overall market sentiment appears to persist arising from the prolonged uncertainties in the macrolandscape, with the ongoing US-China trade wars as well as the European Union’s selective banning of palm oil in European bio-diesels dragging risk-to-reward ratios.
Kenanga Investment Bank Bhd (Kenanga Research) saw that a total foreign outflow of RM1.36 billion as of Marh 31, 2019 is also a telling sign of the softer confidence in the local market.
“Still, we are optimistic for a better 2H19 with our strategist’s view that weaknesses in sentiment could be nearing its end,” it said in a note.
“This is premised on the potential bottoming of local benchmark indices, which could be showing signs of a rebound, potentially backed by healthy and sustainable oil prices.
“On another note, the introduction of the T+2 settlement’s cycle for the securities markets could lead to a rise in transaction volumes and hence trading participation.”