Bursa Malaysia enters a technical bull market

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KUALA LUMPUR (July 13): Bursa Malaysia is now in a technical bull market, judging by the quantum leap on the FBM KLCI and the Bursa Malaysia Small Cap Index since late March.

The definition of a technical bull market is when a benchmark index has climbed more than 30%. The FBM KLCI just hit the threshold last Friday. The benchmark index has soared 30.5% from the 10-year trough of 1,219.72 points on March 19.

The FBM KLCI ended the week at a six-week high of 1,591.84 points. At the current level, the index has regained all its lost ground during the global equity rout in the first quarter, when recession fears enveloped the equity markets.

Year to date (YTD), the local benchmark index has bounced back to positive territory with a marginal gain of 0.19%, from last year’s close of 1,588.76.

The rally on the Bursa Small Cap Index is even more powerful. The index, which tracks all counters except for the top 100 largest stocks in terms of market value, rocketed 63% from a low of 7,689.27 points. YTD, however, it has yet to recover its losses and is still down 11.4% against last year’s closing of 14,164.43 points.

Among the component stocks that have lent support to the strong rebound are two heavyweight rubber glove markers - Top Glove Corp Bhd and Hartalega Holdings Bhd - which have surged by 277% and about 170% respectively YTD.

Others include Press Metal Aluminium Holdings Bhd (68.8%), Petronas Chemicals Bhd (53.3%), Public Bank Bhd (46%), Genting Bhd (42.6%) and its subsidiary Genting Malaysia Bhd (up 35%).

The record high trading volume, which hit 11 billion units of securities last week, is strong evidence that the local market is getting vibrant with an influx of retail money that had been long absent.

Heading into overbought zone?

The ample liquidity, as a result of the low interest rate, has set the stage for the current bullish trend as much money is now searching for better returns.

As the signs of a technical bull market emerge, the FBM KLCI has also overshot many research houses’ year-end targets.

The equity bears, indeed, see that the market is ripe for a correction, given that the economic fundamentals are not suggesting a rosy picture for corporate earnings.

Some analysts caution that the upcoming corporate result season may set the bearing for the local bourse. While earnings for the second quarter ended June 30 are not expected to be good, the concern is whether the losses could be much wider than anticipated.  

AmInvest Research, which is mildly positive on the market in 2H 2020, has projected an end-2020 FBM KLCI target of 1,530 points.

“We believe there is a case for FBM KLCI’s multiple to stay elevated to reflect the robust domestic liquidity, driven by the risk-on sentiment triggered by the massive monetary and fiscal stimulus packages globally.

“The reality is that risk-free assets such as cash and government bonds, which are hardly generating any positive inflation-adjusted yield, could encourage investors to chase for stocks to hunt for returns,” AmInvest Research wrote in its quarterly strategic report.

TA Securities Research, however, is not that optimistic as it expects the drop in corporate earnings and low earnings visibility to exert pressure on the FBM KLCI. Its year-end target for KLCI is 1,450 points. Based on Friday's close, the benchmark is about 10% higher than TA’s year-end target.

According to the stockbroking firm, some of the immediate term downside risks include obscurity on local politics - specifically on who will rule the country - resurgence of COVID-19 cases globally, rising tension between the US and China, weak crude oil prices, and a slow pickup in economic activities that could drag corporate earnings further.

“Should the above mentioned factors gather strength, we expect 1,280 to act as a strong support for the FBMKLCI,” said TA Securities.