KUALA LUMPUR (Sept 8): The Malaysian equity market tends to be negative in September, according to analysts, fuelled by the rising Covid-19 infections that would continue to dampen the local market sentiment.

Yesterday, the FBM KLCI index closed up 1.89 points, or 0.12% to 1,583.48 compared to Monday’s close of 1,581.59. Thus far in the month of September, the local index has shed 17.90 points.

Based on historical data, PMB Investment Bhd’s acting chief executive officer Mahani Ibrahim said that the FBM KLCI's performance tends to be negative in September, with an average month-on-month (m-o-m) loss of 1% over the past 10 years.

In a reply queries from the edgemarkets.com, she said the trend of the weak market sentiment in September may be repeating.

Interestingly, September has historically been the trickiest month in the year for Malaysian equity. The market crashes in 2000, 2001, 2003, 2008 and 2011 all occurred in September.

“Lingering worries over rising COVID-19 infections would continue to cloud local sentiment and market participants continue to focus on the speed of vaccination.

“However, we are not discounting on market appreciation if foreign investors keep coming into our market. Last month foreign investors turned net buyers for the first time this year with a net inflow of RM1.05 billion. Subsequently, it helped push the market to gain 7.14% in August,” she said.

Among the key events to watch in this month are the Bank Negara Malaysia (BNM) monetary policy committee meeting, the motion of confidence in the Dewan Rakyat to confirm the newly elected prime minister Datuk Seri Ismail Sabri Yaakob command’s majority support in Parliament and the progress of the National Recovery Plan.

MIDF Research strategy head Syed Muhammed Kifni Syed Kamaruddin is expecting range bound trading in September this year, with downside risk emanating from a potential cyclic pullback in the red-hot US/European equity markets.

“Admittedly, data from the past 20 years point to underperformance in the FBM KLCI average return during the month of September. Having said that, the local benchmark registered its worst average return in the month of August. However, the most recent August fared otherwise with an amazing 7.1% return,” he said.

Chief investment officer at TA Investment Management Bhd Choo Swee Kee meanwhile said: “We do understand that generally September is a tricky month for the market and we are cautious as globally most international markets have done reasonably well.

“Our main concern is the volatility of the US market and the record high level of the equity indices.  Any big headwinds ahead could significantly swing the market and affect investors’ sentiment,” said Choo.

Moving forward, the analysts are expecting recovery for the market due to re-opening of the economy, supported by the national vaccination progress.

PMB’s Mahani said she expects a more meaningful recovery in the fourth quarter of 2021 (4QFY21) when Malaysia crosses the vaccination herd immunity to achieve the 80% threshold of the adult population being fully vaccinated by October.

“Technically, we expect the resistance level of FBMKLCI at 1,600, 1,620, and 1,640. Meanwhile, the downside supports are at 1,580, 1,560, and 1,550,” she said.

Although the number of Covid-19 cases are still relatively high, MIDF’s Syed Muhammed Kifni said, the tide may turn rather swiftly due to the progressively higher vaccination rate.  To date, 16.11 million people or 49.3% of Malaysia’s total population had been fully vaccinated against the Covid-19 pandemic as of Monday (Sept 6).

“On this score, the prospect of an MCO-free Malaysia during the final months of this year is not unlikely.

“A buoyant economic recovery in the final months of this year would help to lend a further lift to equity market sentiment as well as valuation. Hence, we maintain our FBM KLCI 2021 year-end target at 1,700 points which equates to PER [price-earnings-ratio] 22 of 15.5x,” he explained.

TA Investment’s Choo meanwhile added: “We are also heartened to see the return of foreign funds in recent weeks which could indicate the best yet is to come”.