PETALING JAYA: The strong performance of the FBM KLCI since June last year, which rocketed past the 1,600-point barrier for the first time in more than two years last week, is leaving investors curious if the rally can be sustained.
The benchmark is up some 10% year-to-date and over 16% from its low in June last year. Many believe the trajectory could depend on how long local institutional investors remain in a net long position, which will in turn attract retail and foreign investors into the market.
Tradeview Capital chief investment officer Nixon Wong believes it was Malaysian institutional investors who started the ball rolling on the local equity market before foreign investors turned net buyers in the past couple of weeks from being net sellers, attracted by the fact that valuations had remained attractive in Malaysia.
Furthermore, he told StarBiz, the Malaysian economy is still perceived to be relatively healthy compared to many developed markets which are showing signs of potential slowdown, underpinned by the political stability and clarity of policies.
Rakuten Trade head of equity sales Vincent Lau concurred with Wong, saying that it is important for local institutional investors to be involved to attract foreign and retail investments, while noting that a rally such as the one being staged by the premier index would usually involve external investments.
He is hoping the recent positive showing would be the start of a bull run for the FBM KLCI, on the back of a more stable domestic political scene, more so since US Federal Reserve (Fed) chair Jerome Powell had last week in all likelihood ruled out a rate hike in June while still aiming at reducing rates for the year.
“China is also accelerating its recovery and it looks as though geopolitical tensions in the Middle East, particularly between Israel and Iran, have stabilised for the moment,” he said.
Meanwhile, Tradeview’s Wong admitted the 10% year-to-date rise in the FBM KLCI had occurred sooner than he had expected, and he does not discount the probability the market may consolidate ahead of the corporate results season this month.
Wong believes the profit-taking would likely at current levels with the impending “check and balance” to come in the form of whether corporate results match analysts expectations.
“The market could have priced in its anticipation of a good corporate quarter. If results are positively aligned, then we expect more support for the current rally but conversely, disappointing results could then trigger a selldown of some extent,” he said.
abrdn Islamic Malaysia chief executive Gerald Ambrose said it is clear local institutional buyers are active as a result of favourable demographics, heavy undervaluation of the equity market and the current weak level of the ringgit.
Notably, he acknowledged that a market correction could occur any time, warning that Malaysia is a relatively illiquid market.
Ambrose made the observation that the daily traded value of the most-talked-about stock worldwide at the moment – Nvidia Corp – is more than the whole of Asean, Hong Kong, South Korea and Taiwan.
“That lends itself to gradual buying in the market. All other things being equal, any correction will reveal valuations which foreigners are likely to buy,” he said, outlining his belief that there is a big upside in the Malaysian market for the sensible investor.
