Investor optimism buoys Malaysian stock market, ringgit

PETALING JAYA: Despite a sharp fall of nearly 50 points after the opening bell today, the local stock exchange surprised on the upside, closing in positive territory on optimism in the new Pakatan Harapan administration.
The FBM KLCI tumbled as much as 49.37 points or 2.7% before reversing and soaring 30.11 points or 1.6% at midday to touch a high of 1876.62 points. At market close, the gain narrowed to 3.91 points or 0.21%, with the key index settling at 1,850.42 points.
In line with the positive market sentiment, there were 930 gainers versus 405 losers, with an exceptional high trading volume of 6.58 billion shares valued at RM7.31 billion.
The gainers were led by Nestle (M) Bhd, British American Tobacco (Malaysia) Bhd and Heineken Malaysia Bhd, which rose RM5.70, RM5.68 and RM2.32, to RM141.30, RM28.38 and RM22.50, respectively.

On the currency front, the ringgit strengthened 0.18% to 3.9435 as at 5pm today against last Tuesday's closing of 3.9505. Worth to note that the local unit weakened to an intraday low of 3.9875 in early trade.
Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said the smooth change in the federal government has restored market confidence in the Malaysian market, while the establishment of the Council of Eminent Persons is poised to create a cleaner and transparent environment for Malaysia, which is a strong catalyst to lure the foreign funds.
He explained another reason for the market relief was the paring down of local and foreign funds' holdings in Malaysian equities prior to the election. "And now, you see these funds starting to build their portfolios with Malaysian stocks again," he told SunBiz.
JF Apex Securities head of research Lee Chung Cheng however said foreign funds remained on the sidelines amid strong support from local institutional funds. He is maintaining the year-end target of 1,860 points for the FBM KLCI at the moment.
“We think the large-cap stocks are still okay, but small- and mid-cap stocks are facing high cost production,” he said, noting that better corporate earnings are expected this year with a high-single digit growth.
According to MIDF Research, foreign attrition began five trading days before polling day, with foreign investors net selling seen at greater than RM200 million.
As of May 9, the cumulative year-to-date inflow stands at RM2.52 billion net compared with the RM14.3 billion accumulated before GE13 during the period of Jan 1 to May 3, 2013.
For the whole of 2018, MIDF Research expects foreign net inflows to be lower than last year’s RM10.3 billion, in lieu of not only the “uncertainties” related to the elections, but also the headwinds caused by geopolitical events and also more interest rate hikes by the US Fed and the Bank of England.
Commenting on the currency market, FXTM global head of currency strategy & market research Jameel Ahmad said while there has been some weakness in the ringgit, this will likely fizzle out and is considered as marginal losses in comparison to the shock seen in the offshore markets last week.
“The relatively smooth transition of power for Mahathir being sworn in as prime minister is a likely catalyst behind the losses in the ringgit being smaller than expected.
“This reduced anxiety that Malaysia would come under a period of uncertainty and the likelihood that the election outcome uncertainties will continue to fade and present an opportunity for the ringgit to recover.” 
Public Invest Research, which foresees heightened volatility in the ringgit due to the lack of policy visibility at this point, said the outlook for the ringgit will depend on how convincing the fiscal plans of the new government are.

“Until then, it remains to be seen whether the ringgit will continue its uptrend or otherwise. That aside, the ringgit, as with other regional currencies, will remain susceptible to the shifting trend in US policy decision. This can be a harbinger to more volatile Asean currencies.”
MIDF Research is maintaining the ringgit forecast of 4.0 on average and 3.95 at the end of the year on sound economic fundamentals, elevated and stable commodities prices and strong external demand.