KUALA LUMPUR (Oct 5): As investors enter into October, CGS-CIMB Research has noted that, by analysing the FBM KLCI's historical data, the index’s performance tends to be positive in October with an average month-on-month (m-o-m) positive return of 1.5% over the past 10 years and 1.2% over the past 40 years.
Historically, the Malaysian equity market may have done well in October due to anticipations of a feel-good Budget announcement from the government, CGS-CIMB said in a report last Friday.
However, it pointed out that Budget 2021 is slated to be announced on Nov 6 instead this year.
“We expect the market to be range-bound, with downside risks in October in view of domestic and external uncertainties,” it added.
CGS-CIMB reiterated its KLCI target of 1,520 points and its top three picks, which are Public Bank Bhd (target price [TP]: RM18.90), Tenaga Nasional Bhd (TP: RM13.20) and Malaysian Pacific Industries Bhd (TP: RM19.80).
For October, the local research house expects investors to be:
1. Monitoring the news flow for political developments after opposition leader Datuk Seri Anwar Ibrahim’s claim on Sept 24 that he has a “strong, formidable majority” to form a new federal government.
2. Observing how the end of the loan moratorium on Sept 30 affects the current trend observed in the market, and also the targeted loan moratorium and the Wage Subsidy Programme 2.0 that started on Oct 1.
3. Following up on reports on new Covid-19 cases in Malaysia, which have been on the rise, and globally.
4. Watching out for the government’s announcements on: i) the medium- to long-term recovery plan (October-November); ii) the launch of the Digital Economy Master Plan; and iii) details of the Special Task Force report on the Federal Land Development Authority's (Felda) issues.
5. Also in focus will be the outcome of Brexit trade deal negotiations due on Oct 15, the polls and debate ahead of the 2020 US presidential election on Nov 3, and China's fifth plenary session to approve its 2021-2025 economic blueprint.
CGS-CIMB noted that the KLCI fell for the second consecutive month by 1.3% m-o-m in September due to concerns over political uncertainties, the end of the loan moratorium on Sept 30 and rising daily new Covid-19 cases after the Sabah state election.
It also pointed out that the retail participation share of trade fell m-o-m for the first time since March.
“Retailers were key net buyers of RM1.4 billion of equities in September, dwarfing the net buying of RM530 million by local institutions, and were key in absorbing net selling of Malaysian equities by foreign investors worth RM1.97 billion in September.
“In 9M20 (the cumulative first nine months of 2020), retailers were the largest net buyers of Malaysian equities with net buying of RM11.6 billion, exceeding net buying by local institutions of RM10.7 billion. These helped absorb net selling by foreign investors of RM22.3 billion,” CGS-CIMB said.
It added that foreign selling reached a record high this year.
“Foreign investors sold RM1.97 billion worth of Malaysian equities in September (+32% m-o-m; +253% year-on-year) due possibly to concerns over political instability. This brought the 9M20 net foreign outflow to RM22.1 billion, 101% higher than the RM11 billion outflow registered in 2019 and surpassing the record annual foreign outflow registered in 2015 of RM19.7 billion.
"As a result, the cumulative net foreign fund outflow from the Malaysian equity market (since 2010) expanded to a record RM31 billion,” CGS-CIMB noted.