This article first appeared in The Edge Financial Daily on April 20, 2018

KUALA LUMPUR: Expectations are high for the Malaysian stock market to continue its strong performance after the FBM KLCI hit a record close of 1,895.18 points yesterday, just a whisker away from 1,896.23 — the highest intraday the benchmark ever hit back in July 2014, right before oil prices plunged.

According to Areca Capital Sdn Bhd chief executive officer Danny Wong, the record close was long overdue as it had been delayed by trade tensions between the US and China, geopolitical tensions between the US and North Korea as well as uncertainties surrounding the country’s upcoming 14th general election (GE14).

“I would think that the stock market will continue to rally upwards. In fact, the [FBM] KLCI should have hit its record close in the first quarter of this year if not because of some of the uncertainties triggered by the external environment as well as the uncertainties over the date of the general election at the time.

“From a fundamental point of view, the [FBM] KLCI has shown stronger earnings on a year-on-year basis while oil prices have been on a steady uptrend in the last couple of months,” Wong said.

While he acknowledged that the valuation of the benchmark index is slightly higher than its long-term average, it remains attractive among the emerging markets. Wong also noted that the strong rally seen in commodity prices such as crude oil and aluminium is another positive for the Malaysian market.

Rakuten Trade Sdn Bhd vice president of research Vincent Lau agreed, saying, “The stronger commodity prices are putting the synchronised global growth story back into the spotlight especially for countries like Malaysia. With oil prices hovering near the US$75 (RM291.75) per barrel level, it’s good for the country’s economy as we are still a net oil exporter,” Lau said.

Recall that the decline in equities back in 2014 was led by the collapse in oil prices, thus, it would have been logical for the benchmark index to roar back into its all-time-high territory as the commodity rallied.

Reuters reported that oil prices rose yesterday to their highest since late 2014 as US crude inventories declined, moving closer to five-year averages, and after the newswire reported a source’s story saying Saudi Arabia was seeking to push oil prices higher.

Brent crude oil futures were trading as high as US$74.44 a barrel before they moderated to US$73.94 at the time of writing.

The election rally?

When asked if the strong performance of the benchmark index was due to the election rally expected by investors, Wong agreed, pointing out that the Malaysian stock market usually sees a rally prior to a general election.

“What we have seen in the past is a rally prior to the election, and when the incumbent wins, there will usually be a relief rally of about 10% post-election. With this in mind as well as the strong fundamental seen in the country’s economy, I believe the rally can continue,” he added.

Lau shared that foreign fund flows into the Malaysian stock market reflects the confidence level among investors despite uncertainty over the continuity in government policies with GE14 less than three weeks away.

Inter-Pacific Securities Sdn Bhd’s head of research, Pong Teng Siew, said that it is likely that some of the institutions are pricing in the possibility of a victory for the incumbent government.

He explained that historical data show that a relief rally is usually seen in the stock market when the Barisan Nasional (BN) coalition wins the election, and local institutions are positioning themselves in that scenario.

“It is probably worthwhile taking a risk to position yourself with a possible BN win given the possibility of it,” Pong added.

Market cap of FBM KLCI stocks up RM55.9 billion YTD

With foreign investors accumulating a net RM2.85 billion in local equities for the year up to last Friday, the component stocks of the benchmark index have gained by RM55.9 billion year to date (YTD), making the FBM KLCI the second-best-performing index in Southeast Asia.

FBM KLCI’s top gainer yesterday in percentage terms was Press Metal Aluminium Holdings Bhd after the stock rose 3.98% to RM5.23. Petronas Dagangan Bhd was the index’s third-largest advancer after the stock climbed 3.13% to RM27.70.

British American Tobacco (Malaysia) Bhd was among the top gainers on the Malaysian stock market, followed by Fraser & Neave Holdings Bhd, and Allianz Malaysia Bhd. The top active counters were dominated by the oil and gas players such as Sapura Energy Bhd, Hibiscus Petroleum Bhd, and UMW Oil & Gas Corp Bhd. The decliners were led by Chin Teck Plantations Bhd, Dutch Lady Milk Industries Bhd, and Ajinomoto (Malaysia) Bhd.