Domestic political uncertainties could be speed bumps to the upward momentum in the local bourse.
KUALA LUMPUR (July 30): Thanks to the continued craze for rubber glove stocks and the flush of liquidity, Bursa Malaysia remained as the top performing market in the ASEAN region in July.
The FBM KLCI scored a monthly 102.78 points gain or 6.8% to 1,603.75 although it tanked 25 points on the last trading day when UMNO dropped a bombshell announcing its departure from the Perikatan Nasional alliance.
The selling seemed well absorbed,the benchmark index managed to recoup its losses to close 7.67 points or 0.48% lower at 1,603.75 on Thursday.
Looking forward, apart from the lingering factors, such as the COVID-19 pandemic, the US presidential election, and the rising US-China tensions, investment analysts believe the upcoming corporate result season would dictate the market direction as well.
Furthermore, domestic political uncertainties could be speed bumps to the upward momentum in the local bourse.
“Market does not like uncertainty and economic disruption. It is an unnecessary distraction as the government may focus on political campaigns rather than facilitating business expansion,” said TA Investment Management chief investment officer Choo Swee Kee.
Malacca Securities Sdn Bhd head of research Loui Low concurred that political developments will be the focus now. However, Low commented that any dip in share prices would present a chance for bargain hunting.
Beside the country’s political developments, Low pointed out that the corporate results in August would hog the limelight.
Low recommended investors to hold on to glove stocks for another quarter at least as these companies’ earnings have yet to peak soon.
He also noted technology stocks are worth exploring against the backdrop of the deployment of 5G technology space, higher pent-up demand in the post lockdown period and the fact that the global semiconductor spending trend is currently trending upwards.
Ample liquidity overcome headwinds
Equity strategists believe ample liquidity will remain the fuel for the current market upward momentum.
“We previously expected some downward normalisation in retail participation post-MCO as more return to work and gambling avenues reopened. However this doesn’t seem to be the case.
“While fundamentals are subdued, this will likely remain masked by liquidity factors,” said Hong Leong Investment Bank head of research Jeremy Goh.
He explained that domestically, the “retail liquidity fuel” is showing no signs of abating while externally. “The US Federal Reserve’s unlimited quantitative easing could see some spill over to emerging stock markets that could also benefit Malaysia which is currently seeing foreign shareholding at a decade low level,” said Goh.
In view of the strong liquidity in the market, TA’s Choo also sees buy on share price weaknesses as he thinks liquidity will somehow flow back into the market, providing some form of support to the share prices.
Goh also pointed out that the short selling ban in the local stock market and asymmetric revision to stock price upper limits (+30%/+30sen) and lower limits (-15%/-15sen) have created an uneven playing field to the disadvantage of the bears.
“The unfavourable playing field for the bears coupled with the US markets that have generally performed positively in their election years (74% hit rate for S&P 500 Index and 70% for Dow Jones Industrial Index), could possibly aid the sentiment in Malaysia,” he added.
Goh has revised his 2020 year-end KLCI target upwards to 1,640 from 1,460 previously, taking into account the liquidity-driven factor.