KUALA LUMPUR (Aug 6): After the FBM KLCI dropped 5% amid a global stock selloff on Monday, analysts from TA Securities and Rakuten suggested it might be a good time to accumulate battered stocks.

Amid global market turmoil and geopolitical tensions, TA Securities cautioned investors to avoid catching the falling knife until the correction reaches attractive levels - around the 1,480-1,530 range.

The research house cited historical data as showing that major conflicts since 2001 had limited long-term impacts on the FBM KLCI, except for the 9/11 attacks.

“The current CY25 PER of 13.1x is undemanding compared to the historical average of 16x,” TA Securities stated.

The research house believe any further correction represents an opportunity to accumulate oversold stocks, especially in domestic sectors like construction and banks.

It maintained its end-2024 target of 1,690, as it expects global superpowers to contain the situation while emphasising Malaysia's resilience due to its diverse economy.

Meanwhile, Rakuten noted that the FBM KLCI has fallen to a four-month low, below 1,540, amid regional market turmoil.

It sees the selling as overdone, as market valuations in Malaysia are not as stretched as those on Wall Street.

"Our market PER dipped from 15.4x to 14.6x, presenting an excellent opportunity for value accumulation," Rakuten said

Rakuten said it expects less dramatic selling on Tuesday, anticipating the index to hover within the 1,500-1,550 range as Wall Street futures indicate a rebound is on the cards.

Separately, CGS International said the plunge in the benchmark index on Monday took out most of the key support levels, closing below the 200-day moving average for the first time since October 9, 2023, when Israel declared war on Hamas.

"The index is now sitting just above a support at 1,532.  If further selling occurs, the KLCI may fall to test 1,508-1,521 next. However, we believe that a rebound may be just around the corner as the advance/decline ratio (A/D ratio) yesterday was the lowest on our records - even lower than the Covid selloff."

"[In the] longer term, the market has likely gone into consolidation mode that may last a while. On the upside, 1,581 and 1,600 acts as resistances," it added.

According to TA Securities, the FBM KLCI plunged 78.81 points or 4.9% to 1,532.24 before closing at 1,536.48.

This drop was influenced by fears of a US recession and escalating tensions in the Middle East. Concerns about a potential full-scale war between Israel and Iran heightened market anxiety.

The unwinding of yen carry trades further exacerbated the situation.

"Recession predictions have persisted since March 2022, and recent nonfarm payroll data triggered the Sahm Rule, indicating a recession," TA Securities noted.

A full-scale war in the Middle East could severely impact global economic growth, with oil prices potentially skyrocketing to US$150/barrel if Iran blocks the Straits of Hormuz.

The US has already bolstered its defences in the region, increasing tensions.

https://www.theedgemarkets.com/node/721792