Malaysian stocks down 21 points on weak sentiment, 1,750 points seen as strong support level

PETALING JAYA: The local bourse, which closed 21.56 points or 1.2% lower on Monday on continued selling pressure, is expected to trend between 1,750 and 1,800 points in the short-term.

"The local market is undergoing some knee-jerk reactions especially that from the foreign funds. These funds has been net sellers for the entire month of May possibly due to the GE14 (14th General Elections) results coupled with heightened volatility spearheaded by the US," Rakuten Trade Sdn Bhd Head of Research Kenny Yee told sunBiz.

He opined that the KLCI will trade below 1,800 points for the time being before improving later this year.

"Fundamentals remains solid as depicted from the ongoing results for first quarter which have been rather decent so far. For us, we remain positive with our 2018 KLCI target still at 1,960 barring any nasty surprises from Malaysian corporates despite the uncertainties overshadowing the construction and toll concessionaires at the moment," he explained.

The KLCI hit an intraday low of 1,774.40 points, with 600 losers outpacing 360 gainers. A total of 2.19 billion shares were traded valued at RM2.28 billion.

Sapura Energy Bhd and MyEG Services Bhd were the most active counters on Monday while Tasek Corp Bhd and Petronas Dagangan Bhd were among the top losers.

Meanwhile, Nomura Securities Malaysia Sdn Bhd Head of Equity Research Tushar Mohata said he is neutral on the local stock market as the new government should be given the benefit of the doubt to come out with their economic policies and direction to address some of the fiscal concerns which appears to worry investors.

On whether the announcement of the newly minted Finance Minister Lim Guan Eng last week on the country's national liabilities has spooked the stock market, Tushar assured that it is not something to be worried about.

"Also the 1 trillion debt has not come about overnight – it was always there, so I am not so worried about that, rather I would like to observe what steps the government takes to address the situation," he said.

As at end-December, 2017, the national liabilities stood at a whopping RM1.087 trillion, which is equivalent to 80.3% of gross domestic product (GDP).

Tushar also noted that the uncertainty looming around the summit between US President Donald Trump and North Korea's leader Kim Jong-Un has no impact on the Malaysian stock market at this juncture.

Trump had previously called off the summit which was scheduled to take place on June 12. He, however, tweeted that the US team has arrived in North Korea to arrange for the summit, sparking uncertainties. Trump had also complimented the recluse nation's "brilliant potential" of becoming a "great economic and financial nation one day," in his tweet.

Meanwhile, the ringgit weakened 0.08% to 3.9835 against US dollar on Monday.

"When it comes to how the ringgit might perform moving forward, we are looking at the potential for further weakness across the emerging market currencies due to the ongoing dollar strength. External factors like dollar demand and geopolitical factors such as uncertainties around whether the North Korea summit might go ahead are still risks for investors to closely monitor. If investors do adopt a more cautious stance, then it can be expected that the ringgit will be vulnerable to selling pressure," said FXTM Global Head of Currency Strategy & Market Research Jameel Ahmad.

He believes that Malaysia's debt level is unlikely to create turbulence for the ringgit at this juncture as this is more of a domestic issue as well as the fact that many emerging markets are also known to be in debt, which is unlikely to be deterrent to international investors.