Malaysian equities continue to correlate with upcoming GE13 and Market sentiment growing 'stronger'

Market sentiment growing 'stronger' on GE13 run-up

Free Malaysia, February 25, 2013

By Kamalavacini Ramanathan

KUALA LUMPUR: Investors have been advised to focus on value and buy on weakness when the local bourse overreacts in the run-up to the 13th general election (GE13), said Mercury Securities Sdn Bhd in a recent market strategy report.

Mercury said it believes stocks with low beta will continue to be on investor's focus in the run-up to elections, prefering companies with strong presence outside Malaysia as they are less dependent on the outcome of the polls.

According to Mercury, the election is a key macro risk and sees Malaysian equities to be highly correlated in the short term.

According to Bloomberg data on KLCI performance during and post GE, the market was not that reactive to political affairs in 1980s and 1990s.

However, from 2004, it has developed into a sensitive stage whereby the market sells down even a month before dissolution of Parliament.

In 2004, the market fell 2.1% while in 2008, it slipped 13.9%.This clearly shows that the market sentiment is getting stronger year by year as the election is prolonged.

However, Mercury predicted that the impact of the upcoming GE13 will be short-term and the market is expected to come back to normal in a few days or weeks after the polling date.

"It is very uncertain. We could not figure out how long the impact would be as we have yet to determine which party will take the lead.

"Whichever party wins, it is a fact that the government policies will not change overnight," Mercury head of research Edmund Tham told The Malaysian Reserve. The FBM KLCI has fallen 4.8% after reaching a record on Jan 7.

Despite a commendable gross domestic product growth of 5.7% in 2012, Malaysia's index is the worst performing index this year in Asia.

Given that a shocking poll outcome in 2008 caused a plunge of more than 9% on a single trading day, Mercury was not surprised to see the broader market underperforming relative to its regional peers since investors are pricing in the elections risk.

The firm suggested six stocks it deemed worth buying namely YTL Corp Bhd, IHH Healthcare Bhd, IOI Corp Bhd, Cimb Group Holdings Bhd, Gamuda Bhd and AirAsia Bhd.

"Mercury has an 'overweight' call for these stocks as we expect the stocks' total return to exceed a relevant benchmark's total return by 10% or more over the next 12 months," it said.


Regional sentiment lifts KLCI

The Edge Malaysia, February 25, 2013

By Chong Jin Hun

KUALA LUMPUR (Feb 25): The FBM KLCI which opened in the red pared losses to settle for a 0.3% gain as the advance in regional equities lifted domestic sentiment. This comes amid local pre-election concerns which have been inducing volatility across the KLCI.

At 5pm, the FBM KLCI rose 5.27 points to settle at 1,627.35 points, led by gains in Telekom Malaysia Bhd, YTL Corp Bhd, and Kuala Lumpur Kepong Bhd.

In a note today, TA Securities Holdings Bhd said "there is a high possibility for a relief rebound this week as the widely-speculated dissolution of parliament last Friday to pave way for the 13th general elections proven to be unfounded".

The election must be called by the end of April this year. TA said technical dynamics of the KLCI indicates that the benchmark may register gains this week.

"Nonetheless, investors should watch for bullish confirmation from a significant increase in buying momentum for sustainable gains ahead," TA said.

Across the exchange, a total of 850.48 million shares worth RM1.41 billion were traded, resulting in 326 gainers and 296 decliners.

Leading gainers included British American Tobacco (M) Bhd and Hong Leong Capital Bhd while Panasonic Manufacturing Malaysia Bhd was the top decliner.

Most active was Patimas Computers Bhd after the company refuted market speculation that it had secured a biometric authentication contract worth RM160 million.

Across Asia, Japan’s Nikkei 225 rose 2.43%, while Hong Kong’s Hang Seng climbed 0.17%. South Korea’s Kospi, however, declined 0.46% against a weakening yen, prompting anticipation that South Korean exports will be less competitive against goods from Japan.

Reuters reported that the yen hit a 33-month low against the dollar on reports that a strong supporter of aggressive monetary easing is likely to head the Bank of Japan, while Italian assets gained as markets await the outcome of national elections.

Reports that the Japanese government was likely to nominate Asian Development Bank President Haruhiko Kuroda as the next central bank governor, along with an academic who has criticised the central bank as deputy governor, sent the yen down to 94.77 to the dollar, lows not seen since May 2010.

Tokyo shares rose 2.4 percent to a 53-month high on the news, but gains in other Asian markets were limited by data showing growth in China's giant manufacturing sector in February pulled back from two-year highs.