The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) extended gains to a fresh two-year high last Friday, with foreign buying sustaining gains on key heavyweight utility, healthcare, technology and construction stocks ahead of the weekend. While short-term overbought technical momentum sparked profit-taking correction ahead of the Workers’ Day holiday in mid-week, blue chips regained strength as bargain-hunting interest returned to prop up sentiment.

For the week, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) added 14.43 points or 0.92 percent, to 1,589.59, with most gains again coming from key utility heavyweights Tenaga (+40sen), YTL Corp (+23sen), YTL Power (+37sen) and Axiata (+13sen). The average daily traded volume last week moderately improved to 4.03 billion shares as compared to 3.91 billion shares the previous week, while the average daily traded value recovered to RM3.36 billion, against the RM2.89 billion average the previous week.

The FBMKLCI continued heading north last week to hit a two-year high of 1,590.56, thanks to foreign buying, before cooling off. The sharp 58-point rally from the 16 April low of 1,532.49 could face some profit-taking hurdles if traders take heed from the idiom “Sell in May and Go Away”, which refers to a historical phenomenon where stocks tend to do well

between November and April and underperform between May and October. Is there any truth in it?

Some may contest it as the complete adage should read as “Sell in May and Go Away, Do Not Return Until St. Leger’s Day”, which refers to a summer vacation period between May and the end of horseracing season in September. It is supposed to denote a less active trading period than weaker returns as people go on summer holidays. Somehow, the idiom got associated with weaker returns, and the period was extended to October as most major meltdowns occurred during this period.

An analysis of the FBMKLCI’s closing from 2000 to 2023 did reveal better performance between the November and April period, where the probability of gain frequency was 70.8%, and the total average return was 3.7 % as compared to 50% and 0.1% during the May to October period. Moreover, if we zoom into the last ten-year period, as shown in the table below, the underperformance during the May to October period was more pronounced, with the probability of loss frequency rising to 80% and the total average return contracting by 2.7%. Nonetheless, this adage should not be taken as gospel as there could be valid reasons to hold on to stocks with good fundamentals and buy some for the same reason if they are undervalued.

Source: TA Research - 6 May 2024