Wong believes the dip in the FBM KLCI is a short-term reaction to Chinese economic data.
PETALING JAYA: After a strong start to the week, Bursa Malaysia’s leading index the FBM KLCI extended its losing streak from Tuesday to settle at 1,479.18 yesterday, down by 12.03 points or 0.8% as fund managers attributed the lacklustre showing to perceivably weak economic numbers from China in its fourth quarter of last year (4Q23).
On Monday, the FBM KLCI closed at 1,501.11 points, the second time since Aug 30, 2022 to settle above the psychological support barrier of 1,500.
However, China’s gross domestic product (GDP) data that was deemed below expectations is seen as the primary cause for regional markets turning bearish this week alongside the local bourse, including Hong Kong’s Hang Seng Index and Singapore’s Straits Time Index.
In summary, China posted a year-on-year GDP growth of 5.2% for 4Q23 on Wednesday, which some analysts opined had narrowly missed the consensus forecast of 5.3%.
Executive director of the Socio-Economic Research Centre (SERC) and veteran economist Lee Heng Guie is of the view that while China’s 4Q23 GDP was more or less in line with market expectations, the country’s underlying economic strength remains uneven and weak as was reflected in its economic data for December.
“Market investors remain concerned about the continued stress in the real estate sector,” he told StarBiz.
Given the fact that China has remained Malaysia’s largest trading partner for 14 consecutive years since 2009, Lee said a sharp slowdown in the former’s economy will impact the latter’s exports, dampening outward investments from Chinese companies to Malaysia.
He observed: “Chinese authorities have implemented monetary and fiscal policies to avert a prolonged economic slowdown, standing at the crossroads of economic risks.”
Although recent economic data have shown incipient signs of stabilisation, Lee pointed out that real estate stress is still on the mend in the Middle Kingdom, with local governments and property developers still struggling with high debt.
At the same time, chief executive of Areca Capital Danny Wong believes the dip in the FBM KLCI is a short-term reaction to Chinese economic data which would naturally have affected investor sentiment.
Despite the apparent doom and gloom, he nevertheless believes that the Chinese economy has held up reasonably well.
Looking further on the bright side for Malaysia, he stressed that international funds should be returning to the country and other emerging markets this year, on the premise of widely expected interest rate cuts globally.
“The FBM KLCI’s decent valuations coupled with subsided political risks in Malaysia further enhance market confidence that the government would focus on growth.
“The spillover effects from more projects will drive corporate earnings recovery,” he said.
Concurring with SERC’s Lee, chief executive of Abrdn Islamic Malaysia Sdn Bhd, Gerald Ambrose, said with China and Asean being Malaysia’s most important trading partners, a 4% to 5% GDP growth for China will affect Malaysia and the world.
He noted that the marked slowdown in fixed asset investments into China since the United States-China trade disagreement has benefitted Malaysia and Asean as foreign – including Chinese – companies invest here to avoid sanctions.
Ambrose commented that China is a command economy, with sufficient tools to stimulate economic activity, but he added that too much stimulus could send wrong signals to its property market.
“So expect gradual, targeted Chinese stimulus, and not the post-global financial crisis aggression we saw in 2009,” he said.
Of speculative interest, however, there was talk that a foreign hedge fund had approached a number of investment traders with the intention to short-sell highly traded stocks on the index that have appreciated significantly in recent weeks.
Sources told StarBiz that the shorting plan could have been executed over the last couple of trading days, which could also have been a contributing factor to the FBM KLCI’s slide.
Responding to this, Wong acknowledged the existence of the market talk, but emphasised his conviction to fundamental-based and ethical investing.
He said: “While there are merits to short selling, we believe it is unethical and may attract the wrong attention, possibly affecting genuine long-term investors.
“Moreover, one should not short sell what he does not have.”
Abrdn Islamic Malaysia’s Ambrose, meanwhile was not aware of such talk, although he noticed the movement of certain “weird” stocks every now and then.
However, he reckoned that it would not be easy to short stocks because the borrowing process is not a simple one.
Notably, trading for YNH Property Bhd
and Rapid Synergy Bhd had been frozen by Bursa Malaysia yesterday, after experiencing two consecutive days of limit-down.
YNH, whose stock closed at RM2.80 last Friday, saw its stock slide by 11.8% to settle at RM2.47 on Monday.
The fall worsened on Tuesday, diving 28.2% to close at RM1.73 before extending its loss by another 29.5% to RM1.22 on Wednesday before trading was halted at 9:30 AM.
Similarly, Rapid Synergy’s opening price last Friday was RM10.50, before declining by 11.1% to close at RM9.33. A 13.6% fall followed on Monday which saw the stock settling at RM8.06.
The company’s share price took a 30% dive on Tuesday to RM5.65 before trading was suspended, after which it plunged again to RM3.96 on early Wednesday morning trade before another suspension.
Meanwhile, some 6.1 billion shares were traded on the FBM KLCI yesterday, with losers by far outstripping gainers by 748 to 234, as 504 counters remain unchanged.
The FBM KLCI’s dip notwithstanding, Ambrose maintains his view that Malaysian and Asean equities, as well as the ringgit are undervalued, pegging his year-end target for the leading index at 1,784 if the market’s prospective price-earnings ratio returned to its normal level of 16 times.
“After all, foreign investors are almost out of the market and local institutions have stopped selling at the end of 2023. There are many ways things can go wrong, but I am bullish for 2024,” he said.
