WITH a fortnight to go before the tabling of Budget 2022, perhaps it is worthwhile evaluating how window dressing activities have panned out in the run-up to the major event in Malaysia’s economic calendar.
According to TA Securities research, historical data since 1997 showed strong tendencies for pre-budget rallies in the FBM KLCI.
In the two-week period prior to budget, the benchmark index has shown a 70.8% probability to rise with an average gain of 2.6% and an average total return of 1.5%.
“Chances for post-budget corrections for the same duration are 58.3% with an average loss of -3.0% and average total return of -0.9%,” observed head of research Kaladher Govindan in a recent Budget 2022 preview.
“From a total average return perspective, the FBM KLCI tends to underperform during the first two months of post-budget announcement before bouncing back for a year-end or New Year rally.”
In recent times, positive vibes were already visible in the FBM KLCI after it rebounded strongly from a low of 1,515.54 on Oct 5 to a high of 1578.76 on Oct 12, thanks to the extension of the US debt ceiling deadline and easing of trade tensions between the US and China.
“There was a big relief as well after Malaysia’s Finance Minister revealed that the Government has no intention to impose windfall taxes on rubber glove sector or other businesses that generate large profits during the COVID-19 pandemic,” opined TA Securities Research.
“There was no specific mention about the much speculated capital gain tax which will affect the equity market if implemented, but investors are hopeful that the Government will not impose it as well since the local market is still a laggard among its regional peers and struggling to attract net foreign inflow since 2014 (except for 2017).”
As far as sector performance is concerned, there are no specific pre-budget patterns in market behaviour as the price movements were mixed, according to the research house.
Comparing the last two pre-budget periods, sector performance in 2020 was better as only three sectors (financial services, energy and REITs) underperformed out of the 14 sector indices in Bursa Malaysia as the broader market was supported by the massive stimulus measures to revive the economic growth after being hit by COVID-19.
“Market sentiment was also improving at that point in time due to discovery of effective COVID-19 vaccines. Technology sector was the star performer due to pick up in demand for electronic gadgets as more and more people have started working from home,” noted TA Securities Research.
“Imposition of conditional movement control order (CMCO) on Oct 14 last year was the main reason for the underperformance of the financial services sector as there were concerns about recurring moratorium after a blanket exercise ended in September 2020. REITs were affected by weak business outlook with movement restrictions in place.” – Oct 15, 2021
