Bullish start for Bursa
Stephanie Jacob 

THE traditional December window-dressing rally is far from over for the local bourse judging from the manner the FBM KLCI has kicked-off the year strongly.

Sceptics who doubted the sustainability of the benchmark index closing at its highest level in more than two-and-a-half-years – a 9.4% gain throughout 2017 which ironically was the worst performer in the Asean region – were almost spot-on when the market pulled back sharply on the first trading day of 2018, erasing most of the gains made on the last trading day of 2017.

However, the bleak start did not last long as investors – in particular, institutions and foreign funds – looked to external factors for the much needed catalysts to spark a comeback.

On Jan 3, a strong feel-good sentiment enveloped the local bourse with the KLCI notching up 0.57% or 10.09 points amid hefty trading volume which surpassed five billion shares valued at a staggering RM3.7 bil.

The bullish sentiment was further underlined as gainers roundly thumped losers by 771 to 305 or a ratio of 2.5:1 – an outcome that has hardly been visible for a long while.

Those expecting the rally to have a short lifespan were wrong as the market jumped another 0.59% or 10.66 points the following day to break the psychological 1,800-mark, again with gainers outpacing losers substantially (716 against 353).

Market observers largely attribute the performance of the local bourse to buoyant spillover effect originating from Wall Street and other Northeast Asian key markets.

“I think investors were questioning whether there will be a repeat of the good performances of 2017,” a research analyst with a local fund company told FocusM. “In that sense, the performance on Wall Street and markets in Japan and Hong Kong have helped eased concerns while at the same time, raise optimism.”

Both the Dow Jones Industrial Average and the S&P 500 ended the period popularly known as the “Santa Claus Rally” by posting strong gains in their first two trading days of 2018. The “Santa Claus Rally” period traditionally covers the last five days of the past year and the first two trading sessions of the new year.

Market participants often see a positive market in those sessions as a good indication of market health.

The Dow is now rocketing towards the 25,000-mark – just a month after breaching 24,000 – by adding a further 0.4% or 98.67 points to close at 24,922.68 on Jan 3.

On a similar note, the S&P 500 also continued its record-breaking streak by breaching the 2,700-mark to end 0.64% or 17.25 points higher at 2,713.06.


Spillover effect

Positively, AllianceDBS Research observed no indication of bubble forming in the US markets in the near term.

“Despite US interest rates travelling on an upward trajectory, interest rates in the US would remain structurally low,” the research house pointed out in a recent Malaysia Strategy report.

“With inflation levels exceeding this, real interest rates are negative [thus] fuelling prospects of further valuation expansion for equities,” the report further argued.

Closer to home, the Hang Seng Index also continued its gallop higher to close 0.57% or 175.53 points to 30,736.48 on Jan 4. This continues the good run of Hong Kong’s benchmark index which posted significant gains of 36% last year.

Similarly, Japan’s Nikkei 225, which had a stellar past year, continued into 2018 with a bang as it shot to its highest level for 26 years on its first day of trading for the year. At the bell on Jan 4, it was 3.26% or 741.39 points higher at 23,506.33.

TA Research Securities chartist Stephen Soo believes such bullishness will continue in the first half of the year.

“As we leap into 2018, the appointment of Jerome Powell to lead the US Federal Reserve, US tax cuts as well as stronger growth and earnings in Japan and emerging markets can push global equity markets higher over the first half of the year before facing headwinds,” he noted in his Foreign Stock Markets Outlook report.

Importantly, the continuation of the global equity rally augurs well for the KLCI too, according to the AllianceDBS report.

“We remain positive on the KLCI as we think that there is further room for global equity markets to rally,” it reckoned. “The KLCI, which has lagged behind its regional peers, should finally play catch-up.”

Low foreign ownership in the equity market, a still undervalued ringgit, the return of corporate earnings growth and attractive valuations further form the basis of AllianceDBS’s anticipation of stronger returns for the KLCI in 2018.


Pre-election rally

Market participants also believe that a pre-election rally is imminent, if not already begun. The 14th General Elections (GE14) must be called by Aug 24 although most polls watchers believe that it is likely to take place much earlier.

Popular predictions point to any time between February and April. Back in November, Deputy Prime Minister Datuk Seri Zahid Hamidi lent credence to the forecasts as he hinted that elections would quickly follow the Lunar New Year celebrations.

In this timeframe, Hong Leong Investment Bank head of retail research Loui Low suggested that investors would have a small window for accumulation before the country heads to the ballot box.

“We think stocks in general will remain buoyant driven by the short window for accumulation ahead of the anticipated GE14,” he added in his recent Traders Brief report.

This article first appeared in Focus Malaysia Issue 266.