It’s a short romance after all. The year started out with so much love and promise for Malaysian equities. On the third day of New Year, the benchmark blue chips FBM KLCI index reached for a lofty 1,700 levels, an all time high.
Three weeks later, it was all over. By Jan 21, the market plunged after prime minister Najib Razak said that his ruling party was “ready” for the national elections. The market then bounced and sputtered, then stumbled again, all at around 1,600 levels. After five straight sessions of losses, investors on Thursday asked :
Where are the buyers, really?
This is one possible answer. “We retain our overall view that the key FBM KLCI could show initial weaknesses (possibly slipping to 1,500) before posting a rebound,” HwangDbs Vickers Research said in a note published Thursday.
Among others brokers Alliance Investment Bank still holds hope that the market would find a floor at 1,600 levels. “Players simply did not want to take the risk of buying for fear of further market decline as the recent market rebound from the low of 1,597 (7 Feb 2013) to the high of 1,635.55 was not accompanied by high volume, “ the broker said.
On Thursday, the crucial 1,600 support level was tested again for the third time. In early trade, the market breached that level before recovering to close at 1,614 levels at trading day’s end. Regional market weakness was partly to blame.
Anticipation is now high that Najib will announce elections shortly. This will be the country’s most hotly contested elections with many of Najib’s economic policies not yet endorsed at the polls. The ruling coalition BN, which has ruled Malaysia for 55 years, is fighting to regain a two thirds majority in Parliament which it lost for the first time in the last elections of 2008.
“People are still worried that it (the market) will tank some more after the elections are announced,” Kaladher Govindan, the head of TA Securities Research said. “Foreigners especially will sell and go away and if they are confident later they will return and if it is not promising, the money does not come back.”
Analysts said about a quarter of the transactions in Bursa Malaysia can currently be attributed to foreign participation.
If the political uncertainty prolongs, some however see a buying opportunity.
“In a market correction, for those who are interested to buy some good shares but have no opportunity, now is a good time for them to buy,” said Ang Kok Heng, chief investment officer, Philips Capital Management. Ang however declined to recommend any stocks.
“We have to wait until the uncertainty is over… Who is running the country? Any risk or not? ”If BN wins, then its back to normal,” he added.
HwangDBS Vickers research recommends risk averse investors to stay away from volatile stocks. “High-beta stocks could be hit hard given their greater share price volatility relative to the market. Based on daily data in the past two years, stocks under our coverage that could fall deeper than the FBM KLCI are YTL Land, Perisai Petroleum and MRCB.
“We reiterate our view that the market may have over emphasised the election risk,“ MIDF said, comparing the KLCI to other regional indexes.
Noting that KLCI was the worst performer this year, with year-to-date decline of 4.8 percent while most other exchanges saw positive gains of 2-11 percent over the same period, MIDF said this represented an opportunity for some investors.
MIDF also said that foreigners were net buyers of Asian stocks last week. “Malaysia recorded a decent surplus of foreign funds flow into equity at $141 million for the week ended Feb 15. On a weekly basis, the net flow has been positive since December 14. And on a monthly basis, there have been net increase in foreign fund flow since November 2011, MIDF data showed.
Local retail investors however remained net sellers for the 11th consecutive week. They ofﬂoaded RM195.4 million last week, after selling heavily some RM449 million worth in the week prior to the Chinese New Year holiday. Retail bearishness is expected to prevail until the election. Their participation rate plunged to RM360 million, the lowest in our record.
“Investors are just keeping their books light ahead of the impending election, a similar situation to that seen in 2008,” MIDF said.