• Record equity trading values at Bursa in the first week of August, at RM7.6- 10bn in average daily value (ADV) and velocity exceeding 100% with robust retail participation (rising to 48% from 33% mom), have raised our concern of investors getting caught up in speculation activities.
• While we believe that a market correction may potentially normalize trading behaviour as well as market ADV and velocity, we are confident that a healthy market uptrend is intact.
• Maintain HOLD on Bursa, with our TP unchanged at RM9.50, based on a P/E target of 30x on 2021E EPS. 2020E earnings raised by 12.3% given a higher ADV expectation for 3Q20 while maintaining 2021E-22E earnings forecasts.

Bursa’s equity trading values at record levels, velocity rises >100% in August

We saw Bursa’s equity trading volumes and values rise to record levels in the first week of August, consistently at RM7.6-10bn in average daily value (ADV), outperforming July’s ADV of RM5.5bn and 2Q20 (RM3.85bn). The robust trading activities were driven by retail participation, which increased from 32%-33% in 2Q20 to as high as 48% in Aug20. Market velocity surged to circa 110% to 120% in August vs. 77% in July, a phenomenon we have not seen over the past 20 years.

Bursa Saw July’s Trading Values Outperforming Regional Markets

A comparison of Bursa’s July20 trading values vs. June20 saw a 24% mom growth. We note that other regional Asian markets, except HKEX, mostly had a month-on-month contraction in July’s trading. Meanwhile, Bursa’s market velocity appears to be on par with Singapore in 2Q20, but still behind other developed Asian markets.

A correction in the market will normalize trading behaviour and market ADV

In the recent days, the market was clearly jolted by a few developments which came at the same time, i.e., news of Russia registering its ‘first vaccine’ against COVID19, fall in crude oil and gold prices overnight. We believe that a correction will normalize trading behaviour and drive investors to trade rationally and focus on fundamentals. Hence, it will not be surprising for Bursa’s equity market ADV to head lower in 2021.

Maintain HOLD, Price Target Unchanged at RM9.50

We raise our 2020E earnings forecasts by 12.3%, as we factor in a higher equity market ADV assumption of RM4.1bn (from RM3.6bn) while maintaining RM2.9bn and RM2.8bn for 2021E/22E. As such, there is no change in our Price Target of RM9.50, which is based on a P/E multiple of 30x over 2021E EPS. Maintain HOLD on Bursa. At current level, the stock is trading at lofty P/E multiples of 24x 2020E and 31x 2021E. Upside/downside risks: positive/negative market news, special dividends, uplift of the suspension of short-selling.

Source: Affin Hwang Research - 13 Aug 2020