This article first appeared in Capital, The Edge Malaysia Weekly on October 29, 2018 - November 4, 2018

HALLOWEEN is just around the corner. Scary movies and spooky parties. But who would have thought investing in the stock market would have the same effect? US stock markets plunged last Wednesday with both the Dow Jones Industrial Average and S&P 500 erasing their year-to-date gains as mixed corporate earnings raised concerns over global economic growth.

Based on US corporate earnings that have been released, there are signs that the trade war with China is starting to impact companies ranging from Caterpillar Inc to Ford Motor Co. Apart from that, rising interest rates have also adversely affected investor sentiment and risk appetite.

Also last Wednesday, the technology-heavy Nasdaq Composite Index plunged 4.4%, its biggest one-day decline since 2011. This month is also likely to be Nasdaq’s worst since October 2008 if the index remains at this level until the 31st.

The sharp correction on Wall Street spilled over to the rest of the world as most of the Asian markets were down last Thursday. Japan’s Nikkei 225 fell 3.72% or 822.45 points to close at 21,268.73 while Hong Kong’s Hang Seng Index declined 1.01% or 255.32 points to close at 24,994.46. The local stock market was not spared the selldown as the FBM KLCI slipped 0.2% or 3.45 points to close at 1,686.59 last Thursday. The FBM Small Cap Index was also hit, dropping 1.97% or 253.32 points to close at 12,592.22.

The MSCI World Index is also poised for its worst month since May 2012 as it has fallen 8.95% so far in October. With global indices mostly in the red, whispers of another stock market crash in October are growing louder.

On the local front, Malacca Securities Online says in a telegram message that the FBM KLCI pared down some of its earlier losses to close 0.2% lower on Thursday, mainly due to the rout on Wall Street and weakness in some oil and gas-related stocks. It notes that semiconductor manufacturers continue to remain under pressure alongside their global peers. Among those that have declined sharply are Pentamaster Corp Bhd, ViTrox Corp Bhd and Inari Amertron Bhd.

Pentamaster’s share price fell 8.5% to close at RM3.13 last Thursday, losing 15.4% of its value so far this month. ViTrox’s share price was 2.6% lower at its close of RM7.48 on Thursday, and has dipped 6.5% for the month. Similarly, Inari’s share price was 5.9% lower at its close of RM1.93 on Thursday, and has declined 15.4% so far this month.

Hong Leong Investment Bank head of retail research Loui Low tells The Edge that the FBM KLCI is likely to rebound as the immediate support level for the equity benchmark is seen at 1,673. “If you look at the market today (Thursday), it has fallen quite a bit but it managed to recover towards the close, which is a good sign. The support level is seen at 1,673 at this point, followed by 1,658,” he says.

However, when asked about the outlook for the market, Low says it is likely to remain volatile as investors look for catalysts that can boost and sustain it.

An analyst with a local investment bank believes the upcoming Malaysian budget and US midterm elections are likely to drive the stock market towards the end of the year and as we step into a new year.

“American corporate earnings are likely to be positive, although they may be impacted by a full-blown trade war between the US and China. But they are going to be good mainly because of the corporate tax cut. What people would be looking at is the upcoming budget for the Malaysian stock market and the US midterm elections in November for the global stock market. Expectations of the Malaysian budget have been lowered by the government, so if there’s nothing worse that is being announced, it should be okay. Anything that is better than expected would give the market a much-needed boost,” he says.

At the time of writing, US index futures were recovering while European stocks had opened slightly higher ahead of the European Central Bank meeting, giving investors and traders a breather. The question is, can US stocks maintain their momentum as myriad concerns — the US-China trade war, rising interest rates, Brexit, simmering tensions in the Arab world — loom on the horizon? Will these worries blow over with the end of terrible October or should investors gird themselves for more volatility ahead? 
 

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