KUALA LUMPUR: Plantation stocks led a blue-chip rally, spurred by fund buying that pushed the Kuala Lumpur Composite Index (KLCI) to close comfortably above 1,040, the highest since September last year.

Local institutions, some of which had been underweight in recent days, also returned to pick up big-capitalised stocks, including banks, as investors brushed aside Moody’s Investors Service’s placing of nine Malaysian banks on review for possible downgrade.

The KLCI outperformed all key regional markets, closing 1.87% or 19.14 points higher at 1,042.63. Market capitalisation rose by RM12.13 billion to RM793.51 billion. Year-to-date, the KLCI is up 18.92%.

MIDF Research head Zulkifli Hamzah said plantations and banks had slightly underperformed the KLCI since the market rally in early April and therefore some rotational interest at work was not a surprise.

However, he said it was difficult to gauge whether the upward trend would continue for the rest of the week, “but the news flow has been positive of late”.

“There are a few corporate results that the market is looking at (Telekom Malaysia Bhd and Malayan Banking Bhd) and these may hold surprises,” he added.

He also said that the market rally might last a few months.

Among key Asian markets, Hong Kong’s Hang Seng Index fell 0.39% to 17,475.84 and the Shanghai Composite Index shed 0.94% to 2,651.41.

The Nikkei 225 added 0.59% to 9,344.64 despite Japan’s economy shrinking a record 4% in the first quarter as domestic demand and investment fell, threatening to crush an anticipated export-led rebound in the second half.

South Korea’s Kospi gained 0.52% to 1,435.70 while Singapore’s Straits Times Index rose 0.39% to 2,269.24.  Most other markets, including those in Europe, were little changed or modestly higher in early trade on May 20.

On the local front, plantation counters including Kuala Lumpur Kepong Bhd, IOI Corporation Bhd, United Plantations Bhd, Asiatic Development Bhd, Sime Darby Bhd, IJM Plantations Bhd and Batu Kawan Bhd soared on expectations of crude palm oil futures breaching the RM3,000-per-tonne mark.

There was also active trading in companies linked to the Iskandar Malaysia development in south Johor, including Malaysian Resources Corporation Bhd, UEM Land Bhd and Tebrau Teguh Bhd.

Dealers said the buying interest was spurred by expectations of positive news from Prime Minister Datuk Seri Najib Razak’s visit to Singapore today. However, it is learnt that there will be no discussions on the scrapped  “scenic bridge” project.

A high-powered Singapore delegation is to scout the Nusajaya area within the Iskandar Malaysia region for investment opportunities early next month.

MIDF’s Zulkifli said the market on May 20 was supported by local institutions, as the gain in the KLCI came mostly from  the bigger blue chips (plantation and finance), as well as Tenaga Nasional Bhd and Axiata Group Bhd.

He did not rule out further upside for plantation stocks, linking it to the rebound in crude oil prices. Light crude oil rose 59 cents to US$60.69 (RM216) per barrel in electronic trading as at 6.15pm on May 20 while CPO futures eased RM28 to RM2,602 per tonne. News about Indonesia’s plan to impose a 3% tax on CPO exports in June, after a seven-month freeze, failed to support the market, as investors were in profit-taking mood, according to a Bloomberg report. MIDF expected CPO prices to average RM2,375 per tonne in 2009.

“Some investors are still nostalgic of the CPO rally last year, and they cannot afford to miss the boat the second time around. The bet is more on crude oil, and speculative forces in the global crude oil market are quite strong lately,” Zulkifli said.

However, another analyst at a local bank-backed research house said while the performance of the local bourse had improved, fundamentals had not changed much and factors like higher CPO prices were speculative in nature.

“The plantation stocks are riding on expectations of higher demand from China, and also after recent comments by Godrej International’s Dorab Mistry that CPO prices could reach RM3,000 per tonne.”

“While it is true that inventories are running low, seasonally production during the second half of the year will increase and therefore CPO prices might taper off,” he said.

On Moody’s move to put the nine Malaysian banks on review for possible downgrade, Zulkifli said it was unlikely the review would affect the banks’ valuation that much as their shares had already priced in the expected deterioration in asset quality.

“A Moody’s downgrade will raise the cost of borrowing externally, but there is ample local liquidity for banks to tap into,” he said.

Among plantation stocks, KLK was the top gainer, surging 70 sen to RM12. PPB Group Bhd gained 40 sen to RM11.40 while Sime Darby, Asiatic and Batu Kawan added 25 sen each to RM6.95, RM5.45 and RM8.70, respectively.

United Plantations rose 30 sen to RM11.40, IJM Plantations rose 18 sen to RM2.59 and IOI Corp was up 16 sen to RM4.64.
 
Among finance stocks, Malayan Banking Bhd added 25 sen to RM5.30, LPI Capital Bhd rose 20 sen to RM10.30, Public Bank Bhd gained 15 sen to RM8.60, RHB Capital Bhd was up six sen to RM4.18 while Hong Leong Bank Bank Bhd added five sen to RM5.70.

MRCB rose two sen to RM1.27 with 26.6 million shares done, while UEM Land added one sen to RM1.37 with 17 million shares traded. Tebrau Teguh gained 2.5 sen to 68 sen.

Among losers, Concrete Engineering Products Bhd fell 50 sen to RM2.80, TAHPS Group Bhd and Tanjong plc lost 20 sen each to RM3 and RM14.10, Shell Refining Company (Federation of Malaya) Bhd was down 10 sen to RM10.40 while Bumiputra-Commerce Holdings Bhd declined five sen to RM8.85.