The underlying fundamental political development is relevant but at times can be a ‘noise’ to the market

by HARIZAH KAMEL / Pic by TMR FILE PIX

THE resignation of Tan Sri Muhyiddin Yassin as the country’s eighth prime minister (PM) has drawn mixed reactions on the stock market with some hopeful the decision will instil con dence in a reset of the health and economic crisis the country faces.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) retraced early losses to close 2.2 points lower at 1502.9 yesterday after hitting a low of 1,493.6 in early trade on news of the impending resignation of the PM.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng told The Malaysia Reserve (TMR) the underlying fundamental political development is relevant but at times can be a “noise” to the market and the equity market is always forward-looking.

“Political risk is here to stay as part of our progression towards more mature situations as a developing democracy system.

“Whoever becomes the next PM is part of the transitional process but at least to remove uncertainty, the new PM will need to work on fighting Covid-19 and recover the economy by accelerating inoculation. I remain positive on the market,” he said.

Economist Dr Nungsari Ahmad Radhi told TMR that everyone, not just the market, was looking towards a government that can act decisively and on a longer horizon to successfully manage Malaysia out of the health and economic crisis the country is experiencing.

“Given where things are, such a government is only possible if everyone does not act in a partisan manner. We need a unity government of sorts until we are ready for the next elections,” he said.

Rakuten Trade Sdn Bhd’s head of research Kenny Yee said the local equity market is encountering an intermission in the path to recovery, citing politics and the pandemic as the dominating forces.

“The lackluster performance of the local bourse and increase in Covid-19 cases both domestically and globally may delay the total reopening of the economy this year.

“On the domestic political front, we do not know what is going to happen but the climate remains uncertain,” said Yee.

He pointed out the only saving grace for Malaysia is the higher prices of commodity exports like crude oil and crude palm oil at an average of US$70 (RM296.80) per barrel and RM4,500 per tonne respectively in the past weeks.

“We foresee the ringgit to strengthen against the US dollar amid the crude oil prices recovery coupled with the anticipated homecoming of foreign funds. All in all, we expect the ringgit to trend around RM4.10/4.15 versus the US dollar by the end of this year,” he said.

Additionally, the corporate earnings growth forecast remains decent for 2021 and 2022 at 58.4% and 6.9% respectively, said Yee.

Malacca Securities Sdn Bhd head of research Loui Low said the political shock will slightly have a negative effect as foreign fund investors remain net sellers.

“However, small caps and lower liners are reacting towards the recovery theme as business operations are opening up following the vaccination drive.

“The market will turn better over time and when the new government is formed, it will boost investors’ confidence,” Low concluded.

Rakuten Trade has, however, lowered its year-end target for the FBM KLCI to 1,650 points from 1,700 due to the lack of liquidity from all fronts despite the expectations of earnings growth and alluring valuations.

“Our target is not solely based on the reopening of the economy, although it is seen as a bonus. The target is based on our expectation that foreign funds might make a return into the region,” he said during Rakuten Trade’s 3Q 2021 Market Outlook Virtual Media Briefing yesterday.

The local bourse, Yee opined, is in dire need of liquidity and while the retail portion is already in place, inflows from foreign funds would be of utmost importance.

“Generally, it is still difficult to gauge that there will be an influx of foreign funds, however, we reckon it is a matter of time for foreign funds to trickle back to the Asian region.

“Easy money is no longer available on Wall Street; hence, many may seek new avenues. Valuations wise, US equities are currently trading at around 50% above its historical average, and though corporate earnings remain robust, growth should retrace back to normalcy,” he explained.

Following a 2.5% drop in 2020, foreign shareholding on the local bourse remains weak and has declined further in July, hitting another low at 11.41%, he stated.