Selected sectors, regional markets outperform FBM KLCI

This article first appeared in The Edge Financial Daily, on April 8, 2019.
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KUALA LUMPUR: Although the poor performances of Bursa Malaysia’s largest stocks have been a drag on the benchmark index, there have been pockets of rallies on the stock exchange.

This occurred most notably among energy stocks due to the rise in Brent crude oil prices, which neared a year-to-date high of US$70 (RM286.30) per barrel last week.

The construction index has also risen despite a lack of fresh catalysts, which suggests that investors may have already positioned themselves to gain from any expected roll-out of mega infrastructure projects. This begs the question whether or not there are still legs for a rally in the sector.

Another bright spot on the local bourse has been small-cap stocks.

However, regional peers have been outshining Malaysia’s KLCI for the past year, and even more so year to date. After China released favourable economic data in recent weeks, investors have sent shares in Chinese stocks soaring.

Stocks in Indonesia and Hong Kong have also performed strongly relative to the rest of the region, but the KLCI has lagged behind.

According to Alexander Chia, head of research at RHB Research, the weakness in the KLCI was due to foreign selling amid weak corporate earnings growth.

Chia said the ringgit’s rally against the greenback this year has outperformed most regional currencies. This means an investor with US dollars may choose to go anywhere else in Asean that is cheaper in comparison, and provide stronger earnings growth prospects.

Besides a stronger ringgit, Malaysia’s corporate earnings in the first quarter of the year failed to impress, with no notable catalysts in the horizon. Hence there seems to be no strong case yet for investors to return soon.