From all-time highs to two-year lows

This article first appeared in The Edge Financial Daily, on December 28, 2018.
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KUALA LUMPUR: The upward momentum on the FBM KLCI that started in 2017 continued into the first half of 2018, pushing the benchmark index to hit a record high of 1,895.18 points on April 19.

However, the bullish sentiment was short-lived amid a perfect storm of developments that had impacted the market adversely from May.

On the domestic front, changes in policy after Pakatan Harapan won the 14th general election (GE14) made for an uncertain investment atmosphere.

The developments at home coincided with external headwinds, including the US-China trade dispute which saw both parties slapping each other with tariffs, the tightening of US monetary policy and concerns over slowing growth in the second largest market in the world.

The benchmark index saw a sharp decline to 1,719.28 points on May 30. It dived to two-year low of 1,635.31 points on Dec 18 but rebounded slightly to 1,690.72 yesterday — the third last trading day of 2018. Year-to-date, it has dropped 5.9% or 106.09 points.

 

Banking stocks make up 38% of KLCI weightage

With the inclusion of AMMB Holdings Bhd to the KLCI as a component stock, it is the sixth financial institutional stock on the list.

Collectively, Public Bank, Malayan Banking Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, AMMB, RHB Bank Bhd and Hong Leong Financial Group Bhd have a combined weightage of 38.86%, according to FTSE Russell as at Dec 14.

Among all constituents, Public Bank and Maybank have the highest weightage at 14.96% and 10.74% respectively, followed by TNB with a weightage of 10.07% .

This implies that movements of the banking stocks can swing the benchmark index significantly.

Analysts are positive on the banking sector amidst a steady loan growth. They expect cost saving measures and stable asset quality to benefit the banks.

On the flip side, some quarters are concerned about the slower economic growth that may impact banks’ earnings.

 

Telekom Malaysia the casualty of low price broadband

Telekom Malaysia Bhd once a “must have” component stock in institutional fund managers’ portfolio has dropped from the list of constituent stocks after the jaw dropping fall on its share price.

The share price took a nosedive after the implementation of mandatory standard on access pricing, which has resulted in lower fixed broadband prices.

Telekom’s share price plunged 57% with RM13.6 billion lost in market capitalisation year-to-date. It closed at RM2.68 yesterday.

Telekom was seen as the biggest casualty for the price cut as fixed broadband service is one of its core products.

 

YTL Corp the high speed drop

YTL Corp Bhd is another conglomerate that has been removed from KLCI component stock list. The government’s decision to shelve the Kuala Lumpur-Singapore high speed rail project has put YTL Corp under heavy selling pressure. Worse still, the group suffered from margin squeeze that weighed on its earnings.

YTL Corp’s share price was on downhill after GE14, declining 30% to 93 sen on May 30, from RM1.33 on May 8. The counter rebounded in the following months but had maintained its downtrend to close at RM1.02 sen on Dec 27.

 

Free fall on Astro

Malaysian Communications and Multimedia Commission (MCMC)’s approval for the live broadcast of the 2018 World Cup for free on RTM sparked fierce selling on Astro Malaysia Holdings Bhd.

The stock tumbled to all-time low of RM1.11 on Nov 28 versus RM2.47 on Dec 29, 2017. Year-to-date, the counter has dropped 46% to RM1.33 yesterday, translating to a RM6.94 billion decline in market capitalisation.

Consequently, its two substantial shareholders — Ananda Krishnan and Khazanah Nasional Bhd — saw their investment values shrunk by RM2.81 billion and RM1.42 billion this year respectively.