Stocks rose the sharpest this year. Malaysia stocks were generally higher as large capitalisation stocks, mainly the banking stocks, took centre stage for the first time in 2021. The KLCI posted a 4.7% gain during the week buoyed by foreign buying activities. On YTD basis however the KLCI is still an underperformer but is currently among the best performers in the region for the month of August, rising 6.4% whilst the HS Index was up by a similar margin.

Changing political scenario – a shot in the arm. The stock market was reinvigorated last week following the appointment of a new prime minister from the UMNO party. The change in the country’s leadership brought to an end months of speculation on the staying power of the previously Bersatu-led government. We have held the opinion that swings in Malaysia’s political scenarios would offer risk and opportunities for investors for the year as the PN coalition grapples for majority support. We think there is currently perceived stability on the political front which could turn out as a huge boost for the Malaysian market.

Tide may be turning for foreign flows. Malaysia has been at the end of foreign selling the past 2 years and the outflow has not abated despite inflows returning to the Asian region during the early part of this year. In August, net flows have turned positive for 3 straight weeks, culminating with a net inflow of RM964m last week – the highest weekly buying since early 2Q17. With political risk diminishing and Covid-19 serious hospitalisation reaching a peak soon – Malaysia has aggressively administered >31m doses of vaccines for its population – several sectors offer compelling trading opportunities for investors.

Semblance of normality returning, focus on re-opening theme. We think the weakness in stocks due to slowdown which we had anticipated over the past 1 month may well be behind us as investors focus on re-opening of the economy. Clearly, the momentum seen the past 1-2 weeks offers trading, as well as long-term, opportunities as the Malaysian economy is expected to reap the positives of political stability (at least for the next 6-12 months) and reopenings. We foresee the KLCI surging ahead to 1,700 by the end of the year up from our earlier 1,650 target. We continue to favour plantation on earnings momentum, and oil & gas on recovery, plus trading opportunities on large cap glove stocks. Our tech recommendation is slated for longer term, as semiconductor weakness may persist on cyclical peak demand concern.

Triple booster shots

We are staying upbeat on the Malaysian stock market as the focus has now shifted to the re-opening theme. There could be continued demand for massively underperforming sectors such as construction, building materials, oil & gas, including gloves, in our view.

The change in the PM ending months of political uncertainties, reopening of the economy, and aggressive vaccination program which is the highest in the region, are the 3 major boosts to the stock market, in our view. Additionally, commodity prices have stayed firm with crude oil price likely to remain elevated on adverse weather hitting oil facilities in the US.

Source: BIMB Securities Research - 30 Aug 2021