Liquidity back to pre-Covid level


PETALING JAYA: Malaysian stock market liquidity has fallen to a fraction of what it was at the height of the market recovery in 2020.

To be precise, the volume of securities traded on Bursa Malaysia is normalizing to pre-Covid-19 levels as investor aggressiveness continues to decline.

With no major catalysts in sight by the next earnings season in February, investors appear to have a more “contained” expectation of what the market is in a position to deliver.

In addition, strong net sales by local institutional funds and foreign investors for most of 2021, amounting to RM 8.99 billion and RM 3.15 billion, respectively, rattled sentiment.

The monthly volume traded in December 2021 declined to 65.19 billion units, from a record 275.49 billion units in August 2020. This represents a drop of more than 76%.

Likewise, the monthly traded value in December 2021 fell to RM44.8 billion, down more than 67% from the all-time high of RM 136.92 billion in August 2020.

As inflation rears its ugly head again and the government is unlikely to announce a major stimulus, market sentiment remains low amid developments surrounding the Omicron variant of Covid-19.

The first trading week of 2022 was not an exciting one for the local stock market, with the FBM KLCI falling three out of four trading days. Yesterday, the index closed at 1,533.36 points, down 14.59 points or 0.94%.

Kenanga Bhd Investment Bank Research Director Koh Huat Soon and Areca Capital CEO Danny Wong said the main index decline was mainly due to adjustments made by funds, after year-end dress-up activities. .

“Without counting December 31, given the facade, the current level of FBM KLCI is not far from the December 30 close of 1,543.61 points.

“In terms of risk-return at the current level, I see more advantages for the market than disadvantages. The market also benefits from an attractive price, at 15.3 times the earnings per share of FBM KLCI. That’s close to the 10-year average, ”Koh told StarBiz.

Koh said the next earnings season for the fourth quarter of 2021 will be a catalyst for market sentiment, although he believes there are “no high expectations” among investors.

“I think the market is more anxious to know the corporate management’s profit forecast for the year 2022. It will tell us what to expect,” he said.

Meanwhile, Wong of Areca Capital said the company’s upcoming earnings announcement was the only major catalyst for the Malaysian stock market at the moment.

“There aren’t a lot of positive catalysts on the external side. The weakening of bonds by the US Federal Reserve could be faster than expected and we don’t have much good news from China and Hong Kong, ”he said.

Wong expects the fourth quarter earnings season to be positive, although recent flooding in Malaysia and the spread of the Omicron variant may negatively affect business performance.

He believes that the recovery in corporate profits would restore market sentiment and, in turn, stimulate greater market participation by investors, especially local institutions and foreign funds.

‘Not only that, the developed foreign markets have already grown significantly. So naturally investors would be looking for laggards, and that includes markets like Malaysia and Hong Kong, ”he said.

Malaysia was the second worst performing market in Asia last year, after Hong Kong.

The FBM KLCI lost around 3.7% through 2021, while the Hang Seng index in Hong Kong plunged 14.1%.

Within Asean, the Malaysian stock market is considered to be the worst performing in 2021.

The negative returns generated by the 30-stock KLCI FBM are mainly due to the decline in stock prices of glove, energy and palm oil companies.

In general, sentiment towards the Malaysian stock market has weakened due to a series of negative developments in 2021.

These included the reimposition of lockdowns due to the increase in Covid-19 cases; the political uncertainties which ultimately led to the change of Prime Minister; allegations of forced labor against some manufacturers, including glove players; and the announcement of tax increases when the 2022 budget is tabled.

As for 2022, analysts are generally bullish on the outlook for the market.

Koh de Kenanga said the finance ministry’s decision to extend the tax exemption on foreign-source income until December 31, 2026 and restore the stamp duty cap for stock transactions, albeit at a low higher than before, relieved market participants. .

As part of the 2022 budget, the government proposed to increase the stamp duty rate to 0.15%, from 0.1% for stock market transactions, as well as to remove the stamp duty cap of RM200 for such transactions.

He also proposed the removal of the foreign-source income tax exemption for businesses in the 2022 budget.

However, the finance ministry subsequently did an about-face on the two measures, following criticism from industry players, including the operator of the Malaysian stock exchange.

The ministry said the stamp duty cap for stock trading will be restored to RM1,000, with a rate of 0.15%.

He added that stamp duty amounts in excess of RM 1,000 would be paid, and the payment would apply to all contract notes from January 1, 2022 to December 31, 2026.

Meanwhile, the tax exemption on foreign source income of individuals and dividend income of companies has been extended for five years from January 1, 2022 to December 31, 2026.

Looking ahead, Koh said he does not count on foreign investors to support the Malaysian stock market “greatly” in 2022.

“Amid the tightening of interest rates in the United States, we could see an outflow of funds from emerging markets,” he added.


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