Bursa won't turn into bear market unless ringgit situation worsens: MIDF Research

PETALING JAYA: The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) is not expected to turn bear anytime soon unless the ringgit situation continues to worsen, said MIDF Research head of equities Syed Muhammed Kifni.
He said a bear market generally occurs in reaction to a drastic deterioration in the macro economic performance such as during the 1998 crisis and the 2008 economic downturn.
However, he added that a severe cyclical pullback not amounting to a bear market may take place as a result of other situational issues, which are affecting market sentiment even amid continued healthy macro growth.

"Hence, as the outlook for Malaysia's economy remains rather sanguine and with consensus gross domestic product (GDP) growth for this year and next expected at 4.9% and 5.0% respectively, we do not foresee the market turning bear anytime soon," he said in his research report last Friday.
Syed Muhammed said the usual definition of a bear market is when the benchmark indices decline by at least 20% from their recent peaks or 12-month highs and for at least two months.

Over the past 12 months, the FBM KLCI hit a high of 1,879.53 points on Aug 29, 2014 and a low of 1,503.68 points on Aug 25, 2015, reflecting a decline of 19.99%.

Since its all-time peak on July 8, 2014, the FBM KLCI hit a high of 1,896.23 points on July 8, 2014 and a low of 1,503.68 points on Aug 25, reflecting a decline of 20.70%.
"The FBM KLCI was actually dipping into bear territory early Tuesday morning before buying support emerged and quickly pulled the benchmark index out of the red zone. The ensuing technical rebound managed to lift the FBM KLCI more than 80 points away from the bear threshold levels.

"Therefore, despite the massive August drumming, it is notable that the local bourse has yet to decisively enter into the bear territory, let alone to be classified as a bear market," said Syed Muhammed.
However, he warned that any prolonged failure of the ringgit to regain its course may result in an unfavourable shift in Malaysia's macro prospects and, by extension, the corporate earnings outlook.
He said it is important for the currently distressed ringgit to regain its course and re-track the major Group of Seven currencies, notably the euro and the yen.
"We reiterate our assertion that historical observations between earnings and price are conclusive with regard to the nature of their secular direct relationship. This is despite the ever present 'noises' from short-term price volatility, which, as mentioned earlier, is influenced by market sentiment and other situational issues," he said.
Syed Muhammed said MIDF Research's assessment on the likely forward secular trend path of the FBM KLCI is highly dependent on the expected earnings growth performance during the next 12 to 18 months.
"At this juncture, the consensus 2016 forecast FBM KLCI earnings still points toward a recovery whereby growth is forecast to return to a healthy and more normal level of circa 9.4% (2015 estimate
-3.0%)," he added.