ANTICIPATING a downfall in the average daily value (ADV) of the local bourse following the Budget 2022’s proposal to raise stamp duty on contract notes, AmResearch has downgraded Bursa Malaysia Bhd’s rating to “hold” (from “buy” previously) with a lower target price of RM7.90/share (from RM9.40/share previously).
The recently tabled Budget 2022 has proposed to increase stamp duty on contract notes to 0.15% from 0.10% currently as well as to remove the RM200 cap, a measure that could dampen trading velocity at the stock exchange.
“The increase in transaction cost is anticipated to impact trading activities of retail investors. We expect retail investors who typically invest on short-term investment horizons to be sensitive to the changes in transaction cost,” projected analyst Kelvin Ong in a company update.
“Meanwhile, the above changes in transaction cost is not expected to significantly impact trading activities of institutional investors who are longer term investors with trading activities driven by fundamentals.
AmResearch further expects ADV from retail trades to taper in 2022. This is unlike 2020 and 1Q 2021 which saw ADV of the local bourse scaling historic high levels driven by the active participation of retail investors and trades of IVTs (investment account traders).
“With the lower trades of retail investors moving forward, we expect ADV of institutional trades to make up a higher portion of the overall securities market’s ADV,” reckoned AmResearch. “This in turn is expected to lead to lower effective clearing fee rate for the exchange.”
Also underpinning AmResearch’s expectations of lower ADV assumptions for the securities market in FY2022/2023 are:
- The gradual tapering of asset purchases by developed markets reducing excess liquidity;
- The end of broad loan repayment assistance programme (moratorium) after FY2021;
- Potential end of temporary suspension of IDSS (intraday short selling) and PDT (proprietary day traders) short sale on Dec 31, 2021; and
- The likelihood of a gradual increase in interest rate starting from 2H 2022 (this will be in contrast to 2020 where retail investors turned to higher yielding assets/investments after consecutive interest rate cuts to a low level.)
Meanwhile, UOB Kay Hian Research expects every 10% decline in retail participation to shave off RM100 mil (2% impact on 2022 earnings).
“That said, we note that our current RM2.9 bil ADV assumption for 2022 is already 10% below consensus average forecast,” observed analyst Keith Wee Teck Keong.
“Despite the anticipation of an improving market sentiment towards 4Q 2021 as we come closer to achieving vaccination herd immunity, hence better clarity on eventual economic reopening, we are still penciling in a downward normalisation in ADV in 2022 to RM2.9 bil vs 2021’s high base of RM3.7 bil.”
All-in-all, UOB Kay Hian Research maintained its “sell” rating on Bursa Malaysia with a target price of RM7.
At 4.15pm, Bursa Malaysia was down 50 sen or 6.66% to RM7.01 with 17.68 million shares traded, thus valuing the company at RM5.67 bil. – Nov 1, 2021
