FBM KLCI weighed down by political climate, Covid-19 surge

PETALING JAYA: The past week has not been short of political drama on the local front but the equity market was rather reserved as the FBM KLCI moved sideways during the height of the uncertainty, closing at 1,494.64 points on Oct 23 and at 1,494.61 points on Monday.

Tuesday saw Bursa Malaysia buck the regional trend as the index closed 5.74 points or 0.38% higher at 1,500.35 points compared with Singapore’s Strait Times Index which ended 5.86 points or 0.23% lower at 2,518.59 points, while Tokyo’s Nikkei 225 fell 10.24 points to 23,478.34 points.

MR DIY made its debut on Bursa Malaysia’s Main Market on Monday, chalking up a 15 sen premium at the close, and Econframe entered Bursa’s ACE Market on Tuesday, closing 9 sen above its initial public offering price and topping the most active counters list for the day.

However, the toll from domestic developments finally caught up with the local bourse as the FBM KLCI ended down 0.34% or 5.15 points to 1,495.20 points on Wednesday, ending the calm composure adopted by investors amid political turbulence and rising Covid-19 transmissions.

MIDF Research’s senior analyst Imran Yassin believes that the benchmark index’s performance from Oct 22 to 27 was largely driven by bargain-hunting activities.

“In fact, our performance is against regional peers today (Oct 27) as almost all are experiencing a selloff following the decline in US markets overnight,” he told SunBiz on Tuesday.

Meanwhile, Inter-Pacific Securities head of research Victor Wan remarked that the FBM KLCI’s decline on Wednesday reflects the dearth of catalysts on the local equity market, evident by the thin trading volumes which denote very little interest.

He said the market is currently weighed down by political uncertainty and the surge in Covid-19 transmissions. “Until this situation is resolved, I anticipate little to no change to the equity market.”

Wan said the US presidential election on Nov 3 could be a catalyst for the Malaysian bourse, particularly from foreign investors. However, the head of research expects interest from retail investors to remain subdued.

He opined that the tabling and passing of Budget 2021 in the Dewan Rakyat would be a more significant catalyst for retailers.

On Sunday, Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah rejected a request by Prime Minister Tan Sri Muhyiddin Yassin last Friday to declare a state of emergency due to a steady increase in Covid-19 infections in the country.

However, political analysts and observers saw the prime minister’s request as a response to the claim of parliamentary majority by the opposition leader, Datuk Seri Anwar Ibrahim, who was granted an audience with the King to present his case.

With regard to the tabling of Budget 2021 on Nov 6, the palace has issued a statement by the King advising MPs to support the measure, which is aimed at combating the threat of the pandemic and supporting the frontliners.

As for the national budget, Wan expects to see a continuation of the government’s earlier Penjana and Prihatin stimulus measures instead of bold pump-priming measures.

“I am not expecting much for the upcoming budget as the government has very little leeway, due to the bigger-than-expected deficit.”

MIDF Research’s Imran highlighted that increased support for Budget 2021 in Parliament will translate into support for Bursa Malaysia’s benchmark index as downside risks will be reduced.

He said the budget is expected to be expansionary, so as to maintain the economic recovery.

“We expect resumption of some construction projects, incentives for companies and possibility of further cash assistance to the B40 and lower M40 which might spur employment and demand,” said the senior analyst.

In regard to the ringgit, FXTM market analyst Han Tan opined that the local currency is in a relatively stable shift against the US dollar, despite the shifts in global risk sentiment amid a resurgence in Covid-19 cases in major economies and waning hopes over a pre-election US fiscal stimulus deal.

However, he cautioned that there could be a big move on the currency front should the US presidential election produce a shock outcome that triggers a knee-jerk reaction in the dollar.

On the domestic front, Tan said next week’s Bank Negara Malaysia’s monetary policy decision and the tabling of Budget 2021 may serve as catalysts for the ringgit, while the domestic political uncertainties have added a layer of risk to the currency’s performance.”

Tan pointed out that the ringgit has broken above its 50-day simple moving average against the greenback for the first time since May, and it is testing the technical indicator support level as of Wednesday.

He expects the ringgit to stay close to the 4.15 level against the dollar over the coming days, barring a major surprise either on the domestic or external front.

“The 4.1707 mark serves as the immediate resistance level, while it remains to be seen whether the 4.14 support level could be tested again over the coming days,” said the analyst.

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