This article first appeared in The Edge Financial Daily on April 17, 2018
KUALA LUMPUR: Foreign funds and local institutions swarmed Bursa Malaysia’s large-capitalisation (large-cap) stocks yesterday afternoon, boosting the FBM KLCI to its highest point since August 2014. The benchmark index, which rose 10.29 points or 0.55% to close at 1,878.76 points, saw a spike in buying interest just an hour before the market closed.
This was largely due to higher interest from foreign investors, who were seeking a safe haven for their assets, according to analysts.
“They have a tendency to view emerging markets as a shelter from volatility in the developed markets,” said Pong Teng Siew, the head of research at Inter-Pacific Securities Sdn Bhd. He told The Edge Financial Daily that such investors typically tend to take cover in large-cap stocks, particularly those on the composite index.
Kenny Yee, the head of research at Rakuten Trade Sdn Bhd, also attributed the 11th hour surge in the market to an inflow of foreign funds, which he said were seeking to adjust their portfolios to include more “stable stocks”, such as those on the FBM KLCI.
“If you look at the movement of the FBM KLCI during the volatility of the US markets, it didn’t move by as large a margin,” Yee noted.
Meanwhile, local institutional funds were also seen supporting the index, which could be due to positive sentiment ahead of the 14th general election, said Pong.
“Historically, the FBM KLCI sees an upswing ahead of the election, but this has not been noticeable in the last two months because of volatility driven by the US markets,” he said.
Gains in the index were led by Genting Malaysia Bhd, Telekom Malaysia Bhd and Petronas Dagangan Bhd, while other big caps such as Dutch Lady Milk Industries Bhd and S P Setia Bhd also advanced.
“Buying sentiment could have been driven by the higher oil price, which has hovered above US$70 (RM272.30) per barrel for the last few days, as well as the stronger ringgit,” said Kenneth Leong, a senior analyst at Malacca Securities Sdn Bhd. Oil and gas stocks were noticeably popular yesterday, with counters such as Sapura Energy Bhd, UMW Oil & Gas Bhd and Sumatec Resources Bhd being the most actively traded.
Inter-Pacific’s Pong also pointed out that Malaysia, in line with other emerging markets, appears to be insulated from escalating tensions in the Middle East. Despite a weekend missile attack by the US on Syria, the MSCI AC Asia Pacific Index fell 0.1%, while Japan’s Nikkei 225 closed up 0.26%.
Broader sentiment mixed
Of the FBM KLCI’s 30 component stocks, 22 stocks advanced compared with five that declined. Buying interest in big caps was similarly broad-based, with the FBM Top 100 Index and the FBM Mid 70 Index rising 0.44% and 0.13% respectively.
Despite this, Bursa ended the day in negative market breadth, as 465 decliners outweighed 373 gainers. This was driven by weakness in the small- and mid-cap stocks, evidenced by a 0.08% decline in the small-cap index.
This “two-speed” trend in the market was likely driven by the launch of intraday short selling on Bursa yesterday, Pong said, as 280 securities were declared eligible by Bursa for short selling, a list which will be reviewed every six months.
Rakuten’s Yee cautioned that sentiment on the local market would still be mixed going forward due to continued volatility in the US markets.
Pong, meanwhile, was of the view that the general election would play a part in determining how long the uptrend would last.
“The rally is likely to be sustainable as many investors are looking forward to the election,” he said, adding that the positive sentiment would be boosted by a large win by the current ruling party.