Local funds shore up volatile market

REVIEW: Bursa Malaysia in the post-election week reflected investor sentiment over the polling results with a show of confidence by local institutions keeping the market in good stead.

The same couldn’t be said for foreign investors, which had fled the market to the tune of RM2.2bil as at Thursday.

The outcome of GE14 was not the sole reason for the selldown by overseas investors as the rise in US Treasury yields to a seven-year high and general pullback in emerging markets also lent to the outflow in foreign funds.

There was relief in the smooth transition of government, and as analysts predicted, investors paid attention to fundamentals, picking up small caps that had been oversold since the start of the year and undervalued big caps that had suffered temporary setbacks in the first post-election trading day.

Early Monday trading on Bursa Malaysia saw a knee-jerk reaction from investors, whose hasty withdrawal resulted in a near50-point slide in the FBM KLCI.

The ringgit also suffered an initial selldown, falling to 3.9850 at its weakest but recovering to pre-election levels at 3.9480.

But the counters in the spotlight were those that were seen to have links to the former ruling government, or whose job contracts were now seen to be in jeapordy.

Among these were George Kent, MyEG, Prestariang, Ahmad Zaki Resources, Excel Force and Gabungan AQRS, whose share prices plummeted and triggered the stock market’s circuit breakers. Cuscapi and election-play Destini lost 40% each in a single session. On the other end of the spectrum, Opcom and Thriven hit limit up on Monday with each counter putting on 30 sen apiece.

On the FBM KLCI, CIMB also experienced a selldown although it was shortlived and the stock rebounded the next day.

The benchmark index saw a high level of volatility with a trading range of 79.48 points on Monday, as it skyrocketed about 30 points in the later trading session before closing just 3.91 points higher at 1,850.42.

By Tuesday, the market had begun to stabilise. Although the fall of certain counters continued unabated, buying of heavyweights on the FBM KLCI continued to support the market.

RHB, CIMB and Genting Malaysia were among the top gainers of the day, while some profit-taking took place in Public Bank and Genting following the previous day’s gains.

The market took some off some slight gains, slipping 2.22 points to 1,848.20.

As local investors focused on domestic developments over the past week, there was some geopolitical instability on the regional front that would come into sharper focus once the local market returns to normalcy.

At midweek, Pyongyang called off diplomatic talks with Seoul, which raised doubts over whether a US-North Korean summit would still take place. Overnight, the US 10-year Treasury yield had also breached a key level to hit 3.095%, which cast a gloom over stock valuations.

Nevertheless, the local market remained buoyed for most the of day’s session by an overall sense of positivity over recent developments. At market close, the index was up 10.06 points to 1858.26

On Thursday, Bank Negara announced its first quarter GDP for the year at 5.4%, which was lower as compared to the previous corresponding and preceding quarters.

However, the market continued to lift with consumer stocks making headway on the recent news that the Goods and Services Tax would be zero-rated from June 1 onwards.

With counters such as Nestle and F&N making headway, British American Tobacco, which had been said to be underpriced, continued its uptrend, jumping over 40% since the start of the week.

While the index remained in positive territory for most of the day, foreign selling accelerated to spark a steep slide in the final minutes of trade, shaving off 3.82 points to 1,854.44.

On Friday, highway toll concessionaires were in the spotlight on news that an announcement on toll concessions would be made the following week. The benchmark index ended with a marginal 0.06 point gain to 1,854.50.

Statistics: The major index was up 7.99 points, or 0.4% to 1,854.50 points on Friday, versus 1,846.51 on May 8. Total turnover for the trading week stood at 20.14 billion shares amounting to RM21.61bil.

Outlook: Save for certain counters that may have been negatively impacted, whether real or perceived, by the change in government, the domestic market looked well-supported by local buying. Barring the volatility on Monday, the FBM KLCI continued to trade mostly within the range of 1,842 and 1,865. sideways movement suggested caution as investors await more news from the government although the persistant strength of the market in the light of heavy foreign selling shows promise. This confidence is expected to pick up once more clarity and leads come on to the market.

There are also headwinds from the external front coming in the form of the increase in US Treasury yields, which has caused a gradual slide in the ringgit, and the ongoing back and forth with regards US and China on trade tariffs. However, over the immediate term, the FBM KLCI continued to move on healthy momentum with the slow-stochastic picking up to 73 points.

Positive news in the coming week will see the index break free of the 1,865 resistance and head towards 1,880. To the downside, support remains at 1,842.