KUALA LUMPUR: Battered blue chips led to Bursa Malaysia singing the blues in 2018 as eventful dramas mainly orchestrated by the bad boy of the global stage — the United States (US) — has led to a sombre mood for most global and regional stock markets.
The local equity market was constantly being rattled by the lingering US-China trade friction, US Federal Reserve’s (Fed) interest rates hikes, geopolitical events, volatile stock markets and fluctuating crude oil prices.
The unprecedented change in the Malaysian government for the first time in 61 years, along with the drastic changes in the leadership and boards of agencies and government-linked companies, have prompted funds to move to the sidelines as they grappled to understand the future state of the country and its economy.
The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) finished the year at 1,690.58 on Dec 31, down 106.23 points, or 5.91 per cent, from 1,796.81 on the last trading day of 2017 on Dec 29.
Commenting on the performance, Rakuten Trade Sdn Bhd head of research Kenny Yee said the factors mentioned above, coupled with disappointing third-quarter corporate earnings which retreated 5.9 per cent from a year earlier, put paid to the benchmark index reaching the 1,900-level as projected by the research house earlier.
“We have lowered our forecast for Bursa Malaysia to reach 1,780 at end-2018 from 1,900 predicted earlier due to the recent results season which saw many companies’ performances being downgraded, especially in the plantation and gaming sectors,” he told Bernama.
Voicing his disappointment over the local bourse’s performance, Yee pointed out that the telecommunications and gaming companies were among the top losers, being hit hardest over the year, mainly due to the policies announced by the government after the 14th General Election (GE14) on May 9.
The government’s announcements such as reduction in broadband price by at least 25 per cent by year-end has severely hammered the telecommunications blue chips.
This has resulted in the drop of Telekom Malaysia Bhd, along with KLCC Prop & REITS – Stapled Securities, from being the components of the 30-stock FBM KLCI on Dec 24, to be replaced by Top Glove Corporation Bhd and AMMB Holdings Bhd.
As for gaming counter Genting Malaysia Bhd, the company’s shares hit limit down on Nov 5, shattered by the higher gaming tax announced in the 2019 Budget on Nov 2.
The share price has continued to slide since then, exacerbated by the Fox-Disney theme park fiasco, coupled with the impairment loss of RM1.83 billion on the group’s investment in the promissory notes issued by the Mashpee Wampanoag Tribe in Massachusetts, US.
The triple whammy had led the counter to register the worst performance in history since its listing in 1989.
Meanwhile, Yee said construction and infrastructure-related stocks were also affected after the GE14, especially when the government announced its plan to review mega projects such as the Kuala Lumpur-Singapore High Speed Rail and East Coast Rail Link.
“However, we saw a lot of positive signals on public infrastructure projects (such as the resumption of the underground works of the Mass Rapid Transit 2 project) from the government recently, so I believe the relevant construction stocks will be more stable moving forward,” he said.
Echoing Yee’s views, MIDF Amanah Investment Bank Bhd’s Research head of strategy and quantitative analytics Syed Muhammed Kifni Syed Kamaruddin said the weaker KLCI was mainly dragged by the plantation and utility-linked stocks, but was supported by finance and banking-related counters.
“Other than banks and construction sectors, we also remained positive on automotive, aviation, healthcare, insurance, power, as well as oil and gas sectors moving into 2019,” said Syed Muhammed Kifni.
To recap, Bursa Malaysia kicked off the first trading day of the year on Jan 2 on a relatively subdued note closing 14.11 points lower at 1,782.7.
The FBM KLCI however picked up momentum to breach the psychological level of 1,800 to hit a three-year high of 1,803.45 on Jan 4 on bullish sentiment backed by the strong economic fundamentals, a stronger ringgit against the US dollar and a rally in commodities prices.
The bull run persisted thereafter, with the benchmark index surging to close at record close of 1,895.18 on April 19, just weeks ahead of the GE14 on May 9 as investors bet on the victory of the then ruling party – Barisan Nasional, believing its win would be a boon for economic growth. But things did not pan out as anticipated. History was created as Pakatan Harapan (PH) shockingly snatched the GE14 win, unprecedented, to say the least.
The benchmark index had closed at 1,846.51 on Tuesday, the day before the election on Wednesday which was subsequently declared a public holiday. The holidays were then extended to Thursday and Friday to commemorate the victory by PH but the market was able to sustain trading momentum until a week later as players digested the outcome of the election.
The market resumed trading on Monday, opening lower at 1,814.79 on a knee-jerk reaction before recovering to end the day higher at 1,850.42, with the FBM KLCI moving between 1,804.25 and 1,858.26 from May 14 to May 23.
However, the key index began to lose ground and fell below the critical level of 1,800 to close at 1,775.66 on May 24, a fortnight after PH took power, as sentiment was mainly dented by the announcement that the government’s debt level had exceeded RM1 trillion. The market barometer continued its downward slide subsequently to below the psychological level of 1,700, finishing at 1,692.32 on June 21.
Since then, the bourse saw range-bound trading with the index lingering at between 1,678.10 and 1,820.64 from June 22 to year-end, mainly impinged by external factors, particularly the trade war fears and the Fed’s hawkish decision to raise interest rates that led to the massive exodus of foreign funds from the emerging markets (EM) including Bursa Malaysia.
According to MIDF Research’s Strategy Report released on Dec 31, Malaysia saw a total foreign net outflow of RM11.65 billion, chalking its largest yearly foreign net outflow since 2015 of RM19.49 billion.
“While this amount offsets last year’s foreign net inflow of RM10.33 billion, Malaysia is still the nation with the second lowest year-to-date outflow amongst the four ASEAN markets we monitor,” it said.
MIDF Head of Research, Mohd Redza Abdul Rahman, however stressed that the change of government was not the cause for the foreign outflows, as it was mainly due to the Fed’s rate hikes that pulled investors from the EM into the US markets.
Despite the volatility seen in the local stock market, both Yee and Mohd Redza opined that it was still seen as a more defensive safe-haven compared with its regional peers and would therefore continue to be the preferred destination for foreign funds, moving forward.
According to MIDF Research’s statistics, although the FBM KLCI slid 6.8 per cent between January and Dec 14, it was relatively stable as compared with other bourses, whereby the MSCI Asia Pacific ex-Japan Index fell 15.4 per cent while the MSCI EM Index retreated 16.0 per cent in the same period.
Zooming back into Bursa Malaysia, although the key index performed weaker-than-expected over the year, 2018 saw 22 initial public offerings (IPOs) compared with 14 recorded last year, bringing the total number of listed companies on the local bourse to 915 versus 905 in the previous year.
Responding to Bernama via an email, Bursa Malaysia Bhd described 2018 as a challenging year for IPOs, mainly hampered by global uncertainties on the back of factors such as the trade war and Brexit. “Despite this, Bursa Malaysia has shown a resilient performance, with the number of listings comparable to other exchanges in the region,” it said.
The local exchange said there were 22 listings as at Dec 11, 2018, out of which two were on the Main Market versus six in 2017, nine on the ACE Market (six in 2017) and 11 on the LEAP Market (two in 2017).
“Currently, we see a healthy pipeline of companies that have been approved for listings, as well as a number of submitted applications pending decision from the authorities.
“For the Main Market, a few large-capitalised companies are expected to list soon, and more details will be provided in due course,” it added.
According to Bursa Malaysia’s website, the total volume traded in November amounted to 41.4 billion units, mainly contributed by local retail players who made up 41.20 per cent of the stock volume transacted during the month.
This was followed by local institutions, which constituted 20.17 per cent, and foreign institutions which accounted for 17.84 per cent.
Moving forward, Rakuten Trade and MIDF Research expect the FBM KLCI to improve to 1,840 points and 1,830 points, respectively, in 2019, supported by a recovery in corporate earnings and clearer domestic policy directions observed through the mid-term review of the 11th Malaysia Plan and 2019 Budget. – Bernama
