KUCHING: Analysts peg derivatives and fee income to continue being the main growth drivers for Bursa Malaysia on the back of a dampened securities market both domestically and globally.
Affin Hwang Capital Sdn Bhd (AffinHwang Research) noted that Bursa’s trading revenue from securities – which make up (45.4 per cent of total revenue – continued to trend lower by 5.1 per cent year on year (y-o-y) due to a lower yoy effective clearing fee of 2.33 basis points, while the average daily value (ADV) of securities remained flat y-o-y at RM2 billion.
“Growth in derivatives trading revenue – which makes up 19.3 per cent of total revenue – remained strong at 20.8 per cent y-o-y, while higher Bursa Suq Al-Sila (BSAS) and market data revenue helped to drive the growth in fee income,” it added.
“These helped to sustain operating revenue growth as securities trading revenue remained weak.”
Trading activity remained muted in the first half of the year (1H16), AffinHwang Research observed, as the weak global economy and poor corporate earnings continued to dampen investor sentiment.
“Market velocity stood at 28 per cent in 1H16 versus 29 per cent in 1H15,” it highlighted. “Nonetheless, we think the derivatives segment will remain the key revenue driver for the group as average daily contracts (ADC) continue to grow at a healthy pace.
“This should help to cushion any slowdown in securities trading revenue.”
TA Securities Holdings Bhd (TA Research) similarly opined that the outflow of foreign funds continue to dampen the securities market. To note, total net foreign outflow between April and June 2016 amounted to RM5.6 billion, erasing net inflows of RM5.5 billion recorded in this year’s first quarter.
As a result, contribution from securities trading is getting smaller.
“Contributions from the segment has fallen to 45 per cent of total operating revenue from 48 per cent a year ago,” TA Research observed in a note yesterday. “We continue to foresee softer trading activities for the remaining part of the year as sentiments remain depressed by broad macro uncertainties.”
The volatility in commodity prices and the FBM KLCI should continue to help spur activities in the derivatives market. On the Islamic capital front, Bursa said that transactions on Bursa Suq Al-Sila’ are expected to be sustained with the demand for murabahah contracts to aid liquidity management.
“However, we note that the pace of growth for this segment will continue to decline as the boost from the conversion of bank deposits to murabahah eases. Deposit growth in the banking system is also envisaged to remain lackluster.”
Kenanga Investment Bank Bhd’s team (Kenanga Research) outlined headwinds such as the fluctuation in ringgit, China’s economic slowdown, Brexit as well as the expectations of a gradual rise in US’ interest rate will continue to cast a long shadow over market sentiment.
“Challenging external headwinds still linger and our strategist is now forecasting the local bourse to hit 1,715-point by end-2016, lower than what was initially projected at 1,725-points,” it said.
“Meanwhile, we are keeping our conservative stance by forecasting average trading value and volume for the equity market in 2016 at RM1.86 billion and 1.81 billion shares. As for the derivatives market, we expect total volume for future contracts to increase by six per cent y-o-y.”