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KUALA LUMPUR: The decision of the King, Sultan Abdullah Sultan Ahmad Shah not to declare an emergency is a great relief for the market, as such a declaration would shake the confidence of consumers, companies and investors in the country.
CGS-CIMB Equities Research, in its strategy report issued Monday, declared that an emergency declaration would lead to lower growth prospects for the country and companies.
“The advice of the King to the deputies not to continue with any irresponsible action that could undermine the stability of the current administration could silence the political noise in the short term.
“Your reminder of the importance of the 2021 Budget, which will be presented in Parliament (on November 6), reduces the chances that the Budget will be rejected due to insufficient support.
“Overall, this is a more favorable outcome for the Malaysian stock market than an emergency decree, but it may not be sufficient to reverse net sales by foreign investors due to prevailing political uncertainty,” said CGS-CIMB Research.
Foreign funds were again net sellers in Bursa Malaysia in the week ended October 23 at RM214.4 million, but this was at a slower pace than the previous week, according to MIDF Research.
In his research note on Monday, he said that foreign investors were net sellers at RM479.5mil for October so far.
“So far in 2020, net sales by foreign investors have reached -RM22.81b in shares in Bursa,” he said.
Meanwhile, Maybank Investment Bank Research noted that while Asean’s diversity of governance styles and issues is recognized, Bursa’s historical relative political stability premium is eroding and unrequited (for example, a large and attractive domestic market for growth and / or an expanding investment of the “new economy” options), foreign equity flows will continue to press (fixed income should be more stable).
With domestic investors on the verge of retreating on the sidelines, the KLCI will struggle to gain support, especially as the largest foreign holdings are in heavyweight indices like finance and gloves.
The research house said that while it maintained its KLCI target of 1,505 by the end of 2020 (15 times the future price-to-earnings ratio (PER) of 12M, or -0.5 standard deviation (SD) versus the long-term mean ) for now, the potential for understatement has gone up, with a level of -1SD (14 times), implying a KLCI around 1,410.
“A sell-off can provide attractive entry points for growing exporters / stocks, with value picks that demonstrate attractive cash flow / strong balance sheet visibility on a 12-month basis.
“We are overweight in Mid Cap Finance, Utilities, NFO, Healthcare / Gloves, Construction, Large Cap Oil & Gas + Selective Value Games in Tech, Auto, REIT, Property and Plantations,” Maybank Research.
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