Liquidity lifts Bursa to 16-mth high

Written by Ellina Badri
Thursday, 15 October 2009 00:56

KUALA LUMPUR: The bulls on Bursa Malaysia continued to charge ahead with the benchmark FBM KLCI marching to a 16-month high on Oct 14, driven by ample liquidity seeking better yield in the current low interest rate and weak US dollar environment.

The inflow of the liquidity to the equity markets was due mainly to the weakening greenback, which would also benefit other alternative assets, UOB Kay Hian research head Vincent Khoo told The Edge Financial Daily.

“The liquidity is a regional phenomenon; there is still plenty going around, but apart from that, there is no particular catalyst driving the market,” he said.

The FBM KLCI soared to an intra-day high of 1,248.14 points on Oct 14 before ending the day at 1,246.84 points — the highest since June last year. Some 1.26 billion shares worth RM1.65 billion were traded. Year-to-date the benchmark index has gained 42% or 370 points.

The ringgit also strengthened against the greenback. It was quoted at RM3.37 against the US dollar as at 4.59pm on Oct 14 — the strongest since August 2008.

“The most common feedback or comment about Malaysia is that the market is not cheap. In fact, it has been an expensive market and will remain so in the near to medium term, in our opinion. The market will continue to be supported by the considerable pool of liquidity that is largely trapped in the system,” said Nomura Securities Sdn Bhd in strategic report.

Although most of the capital controls have been lifted, Nomura noted that the country’s capital outflow remained slow. “Surpluses are mostly trapped in the system, especially since the imposition of capital control in September 1998,” said the stockbroker.

According to Nomura, in terms of cumulative current account balance (CCAB) between 1980 and 2009 (year-to-date) as a percentage of GDP and market capitalisations, Malaysia ranks among the top five in the Asia-Pacific. The country’s CCAB as a percentage of GDP is at 83% is only behind Singapore’s 202%, Taiwan 110% and Hong Kong 101%.

Consistently, Malaysia’s CCAB as a percentage of market capitalisations, at 69%, has ranked among the top five, after Shanghai’s 88%, Tokyo’s 82%, Singapore’s 79% and Taiwan’s 75%.

“We remain positive on the market supported by a favourable earnings revision cycle. Judging from the previous upgrade cycles, we still see plenty of upside to the current earnings upgrade cycle,” said Nomura.

The overnight loss on Wall Street did not dampen sentiment in the region in which most bourses closed higher on Oct 14.

Both Singapore and Taiwan also surged to 52-week high. The Straits Times Index was up 1.5% to 2,708.48, while Taipei’s Taiex Index added 1.3% to 7,695.75 points. Hong Kong’s Hang Seng Index rose nearly 2% to 21,886.48 points. Tokyo market did not join the rally Nikkei 225 Index eased 0.16% to 10,060.21 points.

Having the over sharp gain since January, some analysts have turned cautious warning on a long over due correction on Bursa Malaysia.

“There has to be a regional market correction at some point in time,” said UOB’s Khoo. He pegs the FBM KLCI year-end target at 1,180-points range, which is 5% lower than on Oct 14’s closing.

He pointed out that UOB’s first expected scenario of the market correcting in October before staging a recovery did not play out. A second possibility was that the market would continue rising before pulling back at year-end.

In a recent note, Maybank Investment Bank technical analyst Lee Cheng Hooi recommended his clients to take profit as he believes that the local bourse should peak quite soon following the aggressive rise from mid-April ’09.

“Resistance areas at 1,238 and 1,248 will cap market gains, whilst obvious support areas for the FBM KLCI are located at 1,215 and 1,233,” said Lee.

In the commodity market, spot gold prices reached a new record of US$1,070.80 (RM3,619.30) per ounce, before retreating to US$1,062.94 an ounce as at 6pm.

Light sweet crude for November delivery on the New York Mercantile Exchange rose to US$75.15 during the day, the most in a year, before ending at US$74.83 as at 6.02pm. Crude palm oil for December delivery rose RM3 higher to RM2,160.