MIDF Research says Malaysian market in need of a spark
KUALA LUMPUR: MIDF Equities Research says the Malaysian stock market is in need of a spark after its rather indifferent response to the strengthening of the ringgit and the oil price.
The research house said the Bursa Malaysia’s indices have traded in a narrow range in the last three weeks. Retail volume had been depressed while institutional volume was easing.
For the month-to-date, the FBM KLCI and FBM70 have lost only a marginal -0.3% and -0.6% respectively. Interestingly, the market’s performance in May 2015 appears to be mirroring that in May 2014.
“The market was rather indifferent to 1Q15’s relatively strong 5.6%yoy GDP growth.
“What would be more of concern is the 2Q15’s numbers, as economic activity is likely to be affected by the GST. Hence, few economists are rushing to upgrade their 2015 forecasts,” it said.
As for the ringgit, the local unit was the best performing Asian currency last week against the greenback. The comeback occurred in a week when the Brent crude oil price appears to be settling at the US$65 level. The ringgit’s short term recovery has also failed to lift sentiment.
“The market is in need of a bit of a spark. The Prime Minister will unveil the 11th Malaysia Plan (11MP) on Thursday.
“The five-year plan may be loaded with more development projects necessary to help sustain the nation’s growth up to year 2020. Hence we can expect a positive knee-jerk reaction to the announcement particularly among construction stocks,” said the research house.
MIDF Research said Minister Datuk Seri Abdul Wahid alluded recently to the 11th Malaysia Plan being a “game changer”.
Pure speculation has it that the government may outline a plan for a signiﬁcant reduction in corporate tax in the 11MP.
The research house said the Indonesian government plans to gradually cut corporate tax rate to as low as 17.5% from 25% currently, aimed at narrowing the gap with countries like Singapore to stop lost revenue via companies’ transfer pricing.
If such an intention is embedded in 11MP, expect a positive stock market reaction as lower tax means potentially higher dividend yields.
“Insofar as the on-going 1QCY15 earnings season, a total of 13 FBM KLCI constituents have thus far reported their results. The number of underperformers has risen to 2 (from 1 last week).
“IOI Corp’s bottom line ﬁgure failed to meet our expectation due to due to lower margin from all the sub-segments as well as lower sales volume from the reﬁnery sub-segment,” it said.
MIDF Equities Research said there was some portfolio rebalancing activity as a result of the inclusion of Westport and the omission of UEM Sunrise from the MSCI Malaysia Index.
“The next major rebalancing exercise is expected to be in June after Bursa’s semiannual index review. We expect FGV to be dropped from the FBM KLCI, to be replaced by any of the stock in the reserve list. Likewise, the FBM70 is likely to see new addition(s) from the reserve list,” it said.