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External factors, polls speculation spook M'sian market

Publication Date : 25-09-2012


A combination of external news and speculation over the date of the 13th general election (GE 13) is making Malaysian market gyrate over the recent weeks.

The local bourse's benchmark FBM KLCI fell 11.32 points to 1,612.38.

Although the budget of the next fiscal year, which will be announcement on Friday, is likely to be people-friendly, market observers do not expect measures that will boost the market because the government is committed to reducing the country's budget deficit.

The drop in the CI was also fuelled by the sell-down of banking stocks that included Malayan Banking Bhd, Public Bank Bhd and CIMB Group Holdings Bhd. The market was down 19 points last week.

Despite the US Federal Reserve's Quantitative Easing 3 (QE3) measures, the European Central Bank's funding plans and Bank of Japan also jumping on the QE bandwagon, global markets seemed to shrug off the liquidity that was supposed to boost the economy.

“The fall in Malaysia's market is basically due to fears of the GE. With all the QEs now being announced, it is perhaps a case of selling after the news. Markets have likely peaked for the year,” said UOB KayHian research head Vincent Khoo.

Khoo said the fear factor in the market could start to rear its ugly head again. He saw the market weakening to below the 1,600 level but it could be too early to trigger the buy signal.

“Now that all the QE measures have been announced, people want to see the real economy recovering. If it doesn't, people will be fearful that nothing else can be done,” said Khoo.

Meanwhile, head of a local research house said that the market's sell-down was nothing to be worried about, as it was also accompanied by thinning in liquidity over the past few weeks. Volumes were averaging 1 billion ringgit (US$325.89) per day.

He attributed the fall in the market to domestic investors trimming their positions, along with external fears about Europe and the United States.

“There is just a lack of interest in stocks. The market isn't crashing. With less buyers, it makes it a lot easier for stocks to go down. In fact, once the market falls below the 1,600 level, I see pockets of value emerging,” said the research head.

According to MIDF Research, foreign funds continued to flow strongly into Asian equity last week. The aggregate net inflow of foreign equity investment to the seven markets it tracked South Korea, Taiwan, Thailand, Malaysia, Indonesia, the Philippines and India amounted to $3.1 billion (9.3 billion ringgit), on the heels of the $3.9 billion (12.09 billion ringgit) surge the week before.

That makes it the 10th consecutive week that foreign funds had been net buyers of Asian equity.

MIDF said that Malaysia registered strong inflow of $209 million (647.9 million ringgit), the 14th consecutive week of surplus. Malaysia remained the Asian country with the longest stretch of continuous inflow of foreign fund into the equity market. It was also the highest recipient of foreign money among South-East Asian countries this year at $3.7 billion (11.47 billion ringgit).

“The interest of foreigners could be due the new mega initial public offerings (IPOs) in Malaysia. Why the net inflows aren't being translated into higher stock prices could be due to the funds going to other asset classes. The money could also just be going straight into the IPOs,” said the research head.

He did not expect the budget to have any measures that could move the market. “As this is the last budget before the GE, it will be people-friendly,” he said.

As the Government is committed to reducing the country's deficit, it would remain firm in its commitment to medium-term fiscal consolidation, according to Kenanga.

“Therefore, the fiscal deficit is projected to narrow to 4.3 per cent of gross domestic product (GDP) in 2013 from an estimated 4.9 per cent in 2012. Combined with the expectation of more aggressive subsidy cuts post GE 13 as well as the possible implementation of the long-awaited Goods and Services Tax in 2014, it could potentially reduce the deficit to below 4 per cent of GDP by 2015,” said Kenanga.


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