ALTHOUGH it may be too early to tell how the local bourse will fare especially amid concerns of a fourth wave of COVID-19 infection, early signs of the stock market’s volatile recovery path, structurally higher retail participation and potential return of foreigners seem to augur well for Bursa Malaysia Bhd.
For now at least, Hong Leong Investment Bank (HLIB) Research is expecting an average daily value (ADV) of RM3.43 bil for FY2021 which is lower than FY2020’s exceptional RM4.21 bil but still much better than the pre-COVID highs of RM2.3 bil – RM2.4 bil (FY2017-2018) for the stock exchange operator.
“We maintain our rather consensus view that 2021 will be a vaccine led recovery year,” projected head of research Jeremy Goh in a company update.
“However, speed-bumps such as vaccine hiccups (eg. concerns over AstraZeneca and Johnson & Johnson), COVID-19 resurgence, geopolitical tensions (ie US-China) and fluid domestic politics will bring much volatility along this recovery path, possibly inducing heightened trading activity.”
According to the research house, average retail participation in 1Q 2021 stood at 39.3% (retail ADV: RM1.99 bil) alongside net buys of +RM5.36 bil (4Q 2020: 40% [retail ADV: RM1.92 bil] and +RM2.63 bil).
“We believe that retail participation is now on a structurally higher base with the average participation rate at 39.6% post automatic loan moratorium versus the 10-year pre-COVID mean of 24%,” observed Goh. “In our view, this should lend some downside support to the market.”
On a similar note, HLIB Research is not concerned over foreign shareholding which stood at a record low of of 20.3% (end-March) which is even below the Global Financial Crisis 2008/2009 trough of 20.7%.
“We reckon green shoots are emerging with 4Q 2020 versus 1Q 2021 numbers seeing (i) foreign participation rising from 15% to 16.7% (foreign ADV rose from RM730 mil to RM860 mil, and (ii) their net selling tapered from -RM2.29 bil to -RM1.73 bil,” justified Goh.
“At current foreign shareholding levels, we reckon the base appears palatable to envision their re-entry, especially if they turn ‘risk on’ amid a vaccine driven recover climate.
“However, we are cognisant that fluid domestic politics remain the key risk to our return of foreigners view.”
All-in, HLIB Research retained its “buy” call on Bursa Malaysia with a slightly elevated target price of RM11.49 (from RM11.46 previously).
At 9.25am, Bursa Malaysia was down 2 sen or 0.23% to RM8.68 with 56,600 shares traded, thus valuing the company at RM7.02 bil. – April 15, 2021