Trading on Bursa to remain jittery in short term: MIDF Research

PETALING JAYA: MIDF Research expects the Malaysian equity market to remain jittery in the short term, leading up to the 14th General Election and in the immediate weeks or even months after its conclusion.
“Our markets have been underperforming the peers for for the whole of 2017 and 2018 year to date, similar to the pattern seen in the months leading up to the 13th General Election five years ago. And subsequent to the election, market took a breather before rising back. We think that it will be the same this time around,” it said in a report on the second quarter market outlook issued today.
However, average daily volume (ADV) and average daily traded value (ADTV) for 2018 year to date have risen 41% and 27% to 3.4 billion shares daily and RM2.8 billion daily respectively, compared with the same period in 2017.
MIDF Research opined that corporate earnings growth will likely be a little subdued, due to a high base effect and a stronger ringgit this year.
Despite an increase in commodity prices in the past quarter, it said, corporate earnings might not be vastly impacted, owing to the corresponding strengthening of the ringgit since the currency broke the RM4.00 to US$1 level not too long ago.
Meawhile, the research house highlighted that an increase in interest rates would definitely signal that the era of cheap money is nearing its end.
“This literally means that investors who depend on cheap money for their investments abroad could potentially repatriate the money back.”
However, with interest rate increases being done in a gradual manner and magnitude, MIDF Research does not think that the impact would be so stark, especially for the equity market.
It also cautioned that the spike in bond yields could be a matter of concern because the yield gap between bond yields and stock returns gets smaller, incentivising investors to make a switch from stocks to bonds.
“Money will also look for assets that could provide the best balance between returns and risk. At the same amount of risk, the assets that provides the highest returns would be more attractive.”
MIDF Research has reaffirmed its year-end target for Bursa Malaysia’s FBM KLCI at 1,900 points, which is equivalent to 16.8 times of price-to-earnings ratio.
Commenting on the Malaysian economy, it expects gross domestic product (GDP) to expand 5.5% this year, with exports projected to grow by 9.3% and inflation to moderate to 2.6%.
“Based on the current development and indicators, we are optimistic that Malaysia’s economy will expand by 5.5% this year given the upbeat performance of domestic and global economy. Confluence of factors such as stable labour market, continued wage growth and moderating inflation will support and spur the domestic economy.
“Additional impetus from external sector will help boost the growth performance in 2018. Moving forward, we foresee the economic performance in 2Q18 will expand at a slower pace amid unfavourable high base effects,” it added.