Cloudy outlook for local stocks in short term

October 11, 2018 | By | Reply More

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PETALING JAYA: The local stock market saw heavy selling pressure again today, tumbling as much as 52.2 points or 3% to a low of 1,682.98 points at one point amid a regional sell-off following the rout on Wall Street overnight, before closing 26.69 points weaker at 1,708.49.

Coupled with the loss of 38.97 points on Wednesday, the FBM KLCI has nosedived 65.66 points or 3.7% in the past two days, wiping off RM62.06 billion in market capitalisation.

Today’s trading volume stood at 3.1 billion shares valued at RM3.7 billion. Market breadth was negative with only 233 gainers against 805 losers.

Among the biggest decliners were United Plantations Bhd, Nestle (Malaysia) Bhd, Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd, which dropped RM1.08, RM1.00, 94 sen and 64 sen to RM26.58, RM145.00, RM18.96 and RM18.80, respectively.

The construction index, however bucked the trend with a rise of 2.14%. Gamuda Bhd was among the top gainers, closing 23 sen or 11.1% higher at RM2.30.

On the currency front, the ringgit weakened 0.14% to 4.1590 against US dollar as at 5pm today.

Meanwhile, Asian stock markets fell sharply on fears over US interest rate increases and heightened trade war, with China’s Shenzhen and Shanghai stock exchanges slumping 6.45% and 5.22%, respectively, to their the lowest levels in four years.

The Taiwan market sank 6.31%, its largest one-day loss in history. Elsewhere, the Korean, Japanese and Hong Kong markets skidded 4.44%, 3.89% and 3.54%.

The outlook for the local bourse is expected to be gloomy in the short term as foreign selling could intensify on the pullback of global liquidity, say analysts.

JF Apex Securities head of research Lee Chung Cheng told SunBiz that Bursa Malaysia will see challenging times in the short term. Apart from external headwinds, the retendering of underground works for the MRT2 project and the possible introduction of new taxes such as inheritance tax, soda tax and capital gains tax are negative to the market.

Due to the uncertainties, he said foreign selling is expected to persist, albeit at a slower pace.

Lee said the immediate support for the FBM KLCI is 1,700 points, while the next would be 1,660 points.

Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said the downward trend in the Malaysian market began in April, where the peak of 1,895 points was recorded ahead of the May 9 general election.

“Concurrently, global liquidity also peaked around the same time. We can’t say it is the end of the US bull market, but it is getting possible as it failed to reclaim the recent highs.”

MIDF head of equity strategy Syed Muhammed Kifni Syed Kamaruddin concurred, saying that the US stock market is only at the beginning of a cyclic pullback and there could be further downside in prices.

“We believe there is a heightened likelihood of an impending short-term cyclic pullback in the US equity (during the coming months, as early as in October) which empirically would drag down other world’s bourses alongside,” he said in a research note today.

Pong is cautious on the market outlook as local funds may join hands in selling equities if foreign buying does not pick up.
“The KLCI is still unable to make new highs, It is now about 200 points lower than the peak of 1,895 points in April 2018.”

Syed Muhammed Kifni expects Budget 2019 and the 11th Malaysia Plan mid-term review could help buoy market sentiment and equity valuation with fresh orientation and interesting new or altered measures.

“Furthermore, another possible upside impetus for the local bourse in the final quarter may emanate from the prospect of a technical rebound in the recently battered emerging market equities.”

He reiterated the FBM KLCI year-end target at 1,800 points which equates to a price-to-earnings ratio of 16.6 times. For end 2019, the target is 1,900 points.

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