2 weeks ago
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PETALING JAYA: The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) is expected to trend positively on window-dressing activities as 2020 nears its end, but given recent strong gains fuelled by economic recovery plays, the broader market is also seeing some weakness on profit taking.
While 2020 has been a challenging year with the Covid-19 pandemic impacting global equity markets, the FBM KLCI extended its winning streak last week, closing at an 18-month and 2020 year-to-date (YTD) high of 1,684.58 points on Friday, helped by banking stocks amid the window-dressing period.
This marked a jump of 6% YTD and 1.82% from the day before. The KLCI added 30.19 points after moving between 1,660.49 and 1,689.77 last Friday, with 295.54 million shares traded. With banking stocks registering substantial gains, the Bursa Malaysia Financial Services Index rose 727.09 points or 4.75% to 16,046.13 points.
Losers outnumbered gainers by 690 versus 626, while 433 counters traded unchanged on Bursa Malaysia.
Even as the FBM KLCI continued its fifth consecutive day of upward movement, Malacca Securities anticipated the FBM KLCI to take a pause on the back of potential further profit-taking activities on the glove heavyweights.
Inter-Pacific Research maintained its view that the key index is toppish following its near 13% gain over the past six weeks – a runup that started on optimism over the Covid-19 vaccine development which it thinks is overplayed. The bouts of early window-dressing activities among the heavyweights have also helped to push the key index past the 1,650 level and leaving the overbought conditions.
“While we note that there are still no signs of a meaningful consolidation as yet, the increasingly toppish environment suggest that one is already due. Further gains could become more tepid with the upsides likely to be capped at 1,667 points, in our view.”
The KLCI had rebounded last month after a three-month losing streak as investors piled into Covid-19 recovery plays following news of several vaccine breakthroughs.
As the equity market approaches the final weeks of 2020 with optimism, it is worth noting that this year has been a remarkably volatile year due to the pandemic.
Looking back at this year, the KLCI started its sharp fall on March 11, 2020, subsequently plunging to an 11-year and 2020 low of 1,219.72 points on March 19, 2020, a day after the movement control order took effect. This was during the Coronavirus Crash (2020 stock market crash) during the period of Feb 20 to April 7, 2020. The crash was the fastest fall in global stock markets in financial history and the most devastating crash since the Wall Street Crash of 1929.
“The year 2020 has been eventful to say the least. Domestically and globally we were hit with a multitude of unforeseen events. Foremost is the Covid-19 pandemic, which continues incessantly and has seen a resurgent in new cases in recent months.
“Then there was the ill-advised oil price war in March this year, which we eventually saw a truce.
“Finally, there was political uncertainty, both domestic and abroad. All of these were significant factors that influenced markets which increased its volatility,” said MIDF Research.
Equity markets fell into bear territory in first-quarter 2020, especially after the pandemic announcement by WHO. However, it gradually recovered and began rallying in earnest in the second half of the year. Investors rushed into beneficiaries of Covid-19 plays. Healthcare (in particular glove sector) and technology sectors became the focus.
Analysing the KLCI’s historical data, CGS-CIMB noted that the benchmark index’s performance tends to be positive in December, with an average month-on-month return of 2% over the past 10 years, and 3.5% over the past 40 years. Historically, the Malaysian equity market may have turned positive in December due partly to year-end window-dressing activities.
“Following the Q3 earnings season, we raised our end-2020 KLCI target to 1,628 points, from 1,520 points. We also introduced our end-2021 KLCI target of 1,732 points. Our recently revised year-end 2020 KLCI target of 1,628 points suggests the market will deliver a 4.2% month-on-month gain in December and will likely end this year 2.5% higher than 2019’s closing of 1,589 points.”
In the latest review of the FBM Index Series early this month, the KLCI saw the addition of Supermax Corp Bhd into its constituent stocks, which will take effect on Dec 21, replacing KLCC Property Holdings Bhd and KLCC REIT (KLCCP Stapled) from the index.
The equity market also saw a knee-jerk reaction after Fitch Ratings lowered Malaysia’s sovereign rating to BBB+ with a stable outlook (from A- with negative outlook), the rating agency’s first for the country since the 1997/98 Asian financial crisis, due to the negative impact of the pandemic on Malaysia’s fiscal position and the lingering political uncertainty.
However, MIDF Research expects no major medium-term impact on the equity market despite short-term knee-jerk reaction. It maintained its baseline FBM KLCI year-end 2020 target of 1,525 points as well as its baseline FBM KLCI year-end 2021 target of 1,700 points.
Last year, the KLCI closed 2019 with the steepest year-on-year decline since the 2008 global financial crisis, falling 6.02% to 1,588.76 points compared with 1,690.58 points in 2018, being the worst-performing market in the region.
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