PETALING JAYA: The month of May has always been perceived as “not so positive” for the stock market and the same scenario could be repeated this year.
With the US S&P500 on the verge of overbought territory, profit-taking is possible next month, lending some truth to the financial adage “sell in May and go away”, says Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew.
He noted that the already subdued FBM KLCI may face more selling pressure next month.
“It is quite possible, I would not rule it out. Coincidentally, the market in the US slipped into what we call ‘overbought territory’. As a result of previous trading action, the market is in bearish divergence mode. Bullish but underlying indicators show a weakening trend,” he told SunBiz.
Pong noted that profit-taking may not always happen in May but, last year, selling in May would have been good advice as the FBM KLCI fell to 1,719.28 points at the end of May from an all-time high of 1,895.18 points in mid-April.
However, historically, the financial adage may not be true, as the index gained in the month of May for several years, between 2011 and 2014.
Foreign funds have been net sellers on Bursa year-to-date, offloading RM2.5 billion net of equities.
Pong, who has been predicting lower levels for the index this year, said it is still in a downtrend currently and expects it to fall even lower than the level recorded in December 2018.
“Corporate earnings are not good because consumer spending did not grow very rapidly, at least not sufficient to give an impetus to corporate earnings. In addition, the ringgit saw a spell of weakness and I hope it doesn’t worsen further,” he said.
He said the overall stock market has been depressive, with sectors such as plantations, finance and telco bringing in weak corporate earnings. The plantations sector weakened year-on-year due to lower crude palm oil prices while the finance sector has not seen strong loan growth.
The telco sector struggled amid heightened competition last year and the weak trend continues this year.
However, Pong noted that Malaysia is currently in a two-tier market and while blue chips are languishing, the performance of small caps has been pretty decent so far this year, and he advised investors to focus on cheaper small caps.
Meanwhile, a fund manager who declined to be named, said that the “sell in May and go away” adage is not applicable in Malaysia, especially among ins-titutional investors.
“News flow matters more. News flow such as the revival of the East Coast Rail Link and Bandar Malaysia as well as the valuations and earnings potential of the stocks matter more than the ‘season’ to buy or sell,” he said.
He believes there is still room for upside in the FBM KLCI in the second half of the year, driven mainly by big contracts being awarded to big companies with spillover benefits for smaller companies.
“Factors that will drive the KLCI would be reactivation of various infrastructure contracts while factors that will hamper the index include weak consumer sentiments, weaker earnings and unexpected turn of events related to decision-makers,” he added.
He advised investors to keep track of company earnings and watch out for news flow of government-related projects, the awards of which will help with the positive sentiments for the respective sector.
