KUALA LUMPUR: With uncertainties looming in the local equities market due to the Covid-19 pandemic, Rakuten Trade Sdn Bhd has suggested investors be less focused on counters that involve ‘big ticket items’ such as property and motor vehicles.
In a virtual media briefing on Entering a New Normal Today, head of research Kenny Yee advised caution to investors as the impact of the pandemic and its magnitude on the local economy is still unknown.
Commenting on banking stocks, which carry the most weight on the FTSE Bursa Malaysia KLCI (FBM KLCI), he said: “Banks are still an enigma because no one knows yet the exact impact of the lower interest rates and six months moratorium.
“I would look at banks that are traditionally steady like Maybank, Public Bank and Hong Leong Bank, hence why they are trading at a premium compared with the others.”
Yee said the earnings performance of banks in the first quarter of this year would not be too extreme and he expects the real impact of the outbreak would only be reflected in the sector’s earnings performance in the next two quarters.
On outlook, he expects the FBM KLCI to close the year at 1,400 while the ringgit would likely strengthen against the US dollar, trending between 4.20-4.25 per US dollar with gains capped by the low crude oil prices.
Yee described local retail investors as a saving grace with their increased market participation in the local equities market amidst diminishing foreign funds and a backdrop of uncertainties brought by the pandemic.
He expected this trend to persist, especially given the low-interest rates environment and cheaper valuations of stocks.
“Since February, we detected a surge in retail participation and this became more obvious in March following the market sell-down during that month.
“Overall, retail participation has risen by 62% compared to the 2019 average. As a result, the local bourse experienced a surge in daily trading volume, averaging 4.42 billion shares (Feb-now) from 2.51 billion shares for 2019,” he added.
Commenting on the recent uptrend on Bursa Malaysia, Yee advised investors to be cautious because it is likely to be liquidity-driven without any fundamentals.
Liquidity, according to him, is playing its part in propping up the share market and the recent performance of equity markets seemed detached from reality, particularly Wall Street.
Yee cautioned that stock markets are highly susceptible for another sell-down since prevailing negative news has overshadowed that of positive; “I am not saying that there will be another episode of panic selling, but to ignite this panic selling is not difficult at all.
“The only way the market can be on a more solid footing is when a vaccine for Covid-19 is developed and the pandemic is cleared. We are only standing on one foot right now and we can fall anytime with the slightest push,” he added.
Yee also noted that foreign funds have been moving in and out of the market despite the downtrend on Bursa Malaysia since the start of the pandemic as valuations were still not cheap when compared with other regional markets.
Foreign holding had been diminishing over time and it dipped to a multi-year low of 12.9% from around 20% in 2017 and Yee said: “We are not at all surprised by this. On a positive note, with this low foreign shareholding, we may not see any massive foreign funds out of Malaysia.” - May 20, 2020, Bernama