Positive news flow woos equity bulls back to Bursa Malaysia

This article first appeared in The Edge Financial Daily, on February 21, 2019.
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KUALA LUMPUR: Positive news flow, for instance the likelihood of reviving the East Coast Rail Link (ECRL) thus raising hope of more construction jobs and strong crude oil prices, has wooed the equity bulls back to Bursa Malaysia.

The current upward momentum is expected to continue on the local bourse for a while until any external shocks take centre stage again, according to analysts contacted.

Share prices, particularly the mid- and small-cap stocks, have been at multi-year lows for long, said a fund manager, and just some positive news is needed to give buying impetus for investors to hunt for bargains.

Yesterday, stocks were mostly higher with 724 gainers outnumbering 252 losers.

The FBM KLCI jumped 19.62 points or 1.15% to close at a four-month high of 1,726.18, after hitting an intraday high of 1,727.25. This is the third consecutive day of gains for the KLCI.

Inter-Pacific Securities research head Pong Teng Siew said local funds were reacting to news that Malaysia and China could come close to an agreement in the reinstatement of the ECRL project, which immediately drew attention back to the construction sector.

“This is probably driven by the development that Malaysia and China would come to some kind of agreement which will be a big boost to the construction sector,” said Pong.

“I see no signs that it (KLCI) has exhausted or close to be exhausted. In fact, we haven’t been seeing great corporate earnings being reported. Notwithstanding that, the market has managed to climb,” he said, adding that this shows some forms of optimism and confidence from the market.

The construction index grew 6.74 points or 3.68% to 189.93, making it the top gainer in percentage terms among the bourse's indices.

MIDF head of research Mohd Redza Abdul Rahman sees the possibility of the index moving upwards on expectations of accommodating quarterly earnings results and the recovery of crude oil prices continues.

Domestically, macro numbers seem to provide strong support as distributive numbers, such as wholesale, retail and auto sales, remain strong coupled with accommodating inflationary numbers, said Mohd Redza.

However, he noted external shocks could be the speed bumps for the market rally, for instance the trade talks between China and the US and the degree of the slowdown in the Chinese economy.

Mohd Redza said the KLCI has gained more than 2% in the past three trading days fuelled by the rise of companies related to commodities, as oil price climbed up to US$66 (RM268.52) per barrel for Brent and crude palm oil prices still holding strong at above RM2,100 per tonne, as well as a stronger ringgit.

TA Securities technical analyst Steven Soo is also expecting the bullish momentum to continue for the remaining week.

“Tomorrow (today), I’m anticipating it (KLCI) to be strong, but if there’s a double-digit point gain tomorrow (today) … then we should see a profit-taking happening,” said Soo.

He noted that the index will likely pause at the 1,740 level based on his reading of the charts. Thus, he does not exclude the possibility of another double-digit gain in points today.

“But, I will be cautious as there is only some 14 points to this level, and we could likely see some profit-taking after (a) bullish momentum from these two days,” Soo said, noting 1,700 points as the new support level for now.

Moving forward, Soo noted that the oil and gas and construction sectors should climb further, noting that many of these stocks have been pushed to the oversold zone.

He also sees government-linked companies performing well going forward in anticipation of some restructuring.