By Kennedy Goh
Optimism has been pretty much the order of the day pre-, as well as post- 13th General Election (GE13) where the country’s economic wellbeing is concerned. While some sectors have been adopting a ‘watch and see’ approach, others have been seeing a positive wave. A case in point is the performance of Bursa Malaysia of late.
The stock market has been rallying the week prior to the election and has continued to do so post-GE13. It rallied to reach a record high of 1,826 in the week after GE13. The local bourse is performing better the last few weeks, compared to its underperformance since the beginning of 2013.
As the ruling coalition retains power in Parliament, the bourse has been seeing investors and traders returning full force and many counters have definitely benefited.
Local daily, the Star, reported on May 7 that “Blue chips like CIMB Group Holdings Bhd, Malayan Banking Bhd, Tenaga Nasional Bhd and Genting Bhd shot up to multi-week highs, pushing the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) to close at 1,752, up 3.38%.”
It added that “total trading volume surged to 1.9 billion shares compared with less than a billion shares traded daily in the couple of weeks before the general election. A total of almost RM5bil in trading was done at close.”
Besides the optimism for the current government retaining power, the rally experienced by the FTSE Bursa Malaysia KLCI has also been attributed to the firm global and regional stock performances. Upbeat global economic data has also had a favourable effect of the market, as earlier concerns of a global slowdown was expected to dampen stock markets.
While all this news of heightened investors’ confidence in the stock market is enlightening, it is yet to be seen whether this rally will continue in the long run.
Kenanga Research, the research arm of Kenanga Investment Bank Berhad, in its Post-GE Investment Strategy report stated: “Given that there are ample capital to be deployed back to the equity market and with the local market having been suppressed due to the GE uncertainty, coupled with its still lagging performance against regional peers, we do not rule out the local equity market to potentially stage a catch-up play. As such under this gigantic short-squeeze scenario, we prefer more exposure to the higher beta (vs. all weather and defensive) sectors for now. These sectors include (i) Auto, (ii) Banking, (iii) Non-bank Financials, (iv) Construction, (v) Gaming, (vi) Oil & Gas sectors, as well as (vii) Property.”
The investment bank is also looking for price corrections to happen towards 1,650 and believes should the local market be resilient, “latecomers (investors) could probably consider laggards that have under-performed the FBMKLCI thus far.”
It believes these stocks should carry lower downside risks but at the same time provide catch-up opportunities.
While the market has rallied quite a bit in the past, the investment bank is looking to revise upwards its index target, by projecting its year-end target to 1,770, as compared to 1,705 previously.
With the elections over and BN being returned to power, the market is no longer clouded by the election risk. Judging from current market performance, the banking sector rally looks set to continue and, with the economy looking buoyant and positive reviews of the Economic Transformation Programme, many sectors in the stock market will likely benefit and so will its investors. We will just have to be confident that this bullish run will not run out of steam anytime soon.