HAVING fallen 2.5% month-on-month (mom) in July, Malaysia’s FBM KLCI was the second worst performing market last month after Thailand’s SET (Stock Exchange of Thailand) Index (-4.1% mom) which was the worst performer.
Indonesia’s Jakarta Stock Exchange Composite Index (JCI) was the best performer with a gain of 1.4% mom followed by Singapore’s Straits Times Index (STI) with a gain of 1.2% mom during the month.
In 7M 2021, the FBM KLCI was the worst performer among ASEAN’s four major bourses, having contracted 8.1% while Singapore’s STI was the best performer (+11.4%).
To recap, the FBM KLCI was the best performing MIST (Malaysia, Indonesia, Singapore, Thailand) market in 2020 with a gain of 2.4%, outperforming STI (-12%), SET (-8%) and JCI (-5%).
Analysing the FBM KLCI’s historical data, CGS-CIMB Research observed that the benchmark index’s performance tends to be negative in July with an average mom loss of 1.7% over the past 10 years and loss of 1.9% mom return over the past 43 years.
For August, the research house expects investors’ to focus on:
- Economics: Market watchers will be tracking the release of 2Q 2021F gross domestic product (GDP) slated for release on Aug 13 and pre-Budget 2022 statement, including public consultation document on the focus of policies.
- Corporates: Investors will focus on the impact of full movement control order (FMCO) on the 2Q 2021 earnings season and impact of the recent enhanced MCO (EMCO) in the first two weeks of July.
Also in focus will be reports on new COVID-19 cases and which states will enter Phase 2/Phase 3 of the recovery plan in the coming weeks. They will also be eyeing newsflow on the roll-out of the nationwide vaccination programme and whether the Government has met its target to fully vaccinate 50% of the adult population by Aug 31.
Furthermore, investors would watch market reaction after the temporary suspension of intraday short selling (IDSS) and intraday short selling by proprietary day traders (PDT short sale) ends on Aug 29.
- Global: Investors will be monitoring how the Delta COVID-19 variants are affecting the number of new COVID-19 cases and the roll-out of COVID-19 vaccination and distribution programmes globally. Also in focus will be the Chinese Government’s regulatory crackdown on a range of Chinese companies.
- Politics: Investors will closely watch political developments on when the parliament will reconvene after the last day of the special parliamentary session due on Aug 2 was postponed due to COVID-19 cases. It is also unclear how the emergency ordinances conundrum will be resolved.
As a whole, CGS-CIMB Research maintained its end-2021F FBM KLCI target of 1,604 points based on 14.5 times price-to-earnings ratio (P/E) which is reflective of potential earnings risks and political uncertainties in 2H 2021F but assume Malaysia will achieve 70% of its vaccination target by end-2021.
“However, if the country is not able to rein in the high number of COVID-19 cases, if there are major hiccups in vaccination progress and political climate in Malaysia worsens, we see near-term downside risk of up to 123 points,” noted the research house.
Its three top picks remain Unisem Bhd, Public Bank Bhd and Telekom Malaysia Bhd. – Aug 3, 2021
