This article first appeared in The Edge Financial Daily on April 25, 2019

KUALA LUMPUR: Malaysia’s equity market appears to be turning more positive as daily average trading volume rose sharply, spiking this week to as high as 4.7 billion against 2.7 billion in past weeks. Analysts attributed the rising uptrend and interest to a more concerted government push to boost the economy as well as abating external concerns over the US-China trade tensions.

The FBM KLCI gained 10.6 points or 0.6% yesterday to 1,638 points for its second straight day of gains. The benchmark index has risen by almost 1% this week and market players are hopeful it can be sustained until the first quarter corporate reporting season.

“There has been interest in the market over the past few days particularly in the beaten down stocks, especially banks and healthcare, as well as Tenaga Nasional Bhd,” MIDF head of research Mohd Redza Abdul Rahman told The Edge Financial Daily over the phone.

Mohd Redza said the rebound comes amid receding concerns about a potential cut to the overnight policy rate, which would have hurt bank earnings and dragged the index down as banking stocks account for the largest weightage on the FBM KLCI.

He said of the 16 points increase so far this week, CIMB Group Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd, have collectively contributed six points.

In addition, domestic macroeconomic figures are still showing “great” numbers, he said, pointing in particular to the consumer price index (CPI) which had been in the negative zone for two consecutive months, sparking concerns of a deflation. However, the CPI registered a marginal growth of 0.2% year-on-year in March.

Mohd Redza said the CPI had finally breached the positive line, “as expected.”

“But we had to halve the full year (CPI) forecast to 1.1%, since RON95 fuel is now stagnant at RM2.08 per litre,” he said.

Hong Leong Investment Bank head of retail research Loui Low expects the KLCI rebound to be sustainable as news flow turns positive, coupled with higher crude oil prices.

“Basically, we think the technical rebound should be sustainable because there is less negative news out there compared to the positive ones,” he said, pointing to the recent revival of the East Coast Rail Link and Bandar Malaysia mega infrastructure projects following a government review.

“That bodes well for the construction related counters in terms of the trading activities at least for the near term. Also, the firmer crude oil prices are lifting sentiment too as well as [providing] more positive bias indicators at this juncture,” he said.

What’s even more interesting, he pointed out, is the strength of trading volume which rocketed to 4.7 billion shares on Monday, 3.7 billion shares on Tuesday and 4.4 billion shares yesterday — well above the 2.7 billion average year-to-date until last Friday.

“Value traded the last three trading days also went up to an average RM2.8 billion daily from RM2 billion daily between Jan 1 and April 19,” he noted.

While Mohd Redza does not expect the increased trading volume to be sustainable, he expects the momentum to be sustained until next month when first quarter corporate earnings are announced.

“We don’t expect corporate earnings to be spectacular because we had seen weakness in export numbers, (plus) long festive holidays and shutdowns, which have impacted distributive sales numbers during the quarter,” he said.

As a result, GDP is projected to be lower, albeit still above 4%.