KUCHING: After a year of volatility and upturns, local bourse Bursa Malaysia has emerged quite strongly, closing the 12-month period with the key index at its best in nine months.
“Blue chips extended their rise on window-dressing interest late last week, despite the mixed regional performance given concerns over the record deposits parked in European Central Bank (ECB), indicating European banks are wary of lending to each other,” observed TA Securities Holdings Bhd’s head of research Kaladher Govindan in a note.
The key FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) closed the week ended December 30 at 34.58 points higher to 1,530.73. Weekly volume, however, dropped to 5.18 billion shares worth RM4.34 billion for the week, from 7.05 billion shares worth RM4.996 billion transacted a week before.
Elaborating further, Govindan believed that on domestic expansion, the elements of change driven by initiatives contained in the Economic Transformation Programme (ETP) would be the driver, as stressed by Prime Minister Datuk Seri Najib Tun Razak
“No doubt, some detractors will point out the disappointing performance of the previous administration despite receiving strong public support; to continuing flip flops, which admittedly was the case in some areas of reform.
“Nonetheless, the Prime Minister has also pushed through other reforms in areas that were previously deemed untouchable, prominently the entrenched quota system in certain segments of the economy (deregulation of the Foreign Investment Comittee and abolishment of Bumiputera quota in Johor’s Iskandar region) – albeit some compensatory concessions to the larger segment of the population.
“We believe the reform agenda will further gather pace in 2012 and potentially turn into a catalyst for the equity market. We argue that further political and economic reforms are not merely ‘lip-service’ concessions, but rather a necessity based on the following three factors,” the head researcher said.
Meanwhile, OSK Research Sdn Bhd’s director Chris Eng said the research house put a neutral stance on the Malaysian market going into this new year as the combination of uncertain growth outlook in the US and Asia coupled with a possible recession in Europe would cloud the prospects for strong earnings growth locally.
“While we see Malaysia likely to avoid slipping into a recession, the deficit reduction exercises undertaken by eurozone economies may well tip their slow growing economies into a recession.
“In any case for Malaysia, we see earnings growth slipping to between mid-single digits and low-double digits – a pale shadow of what it was in 2006, 2007 and 2010 when earnings growth came in between 20 to 30 per cent,” he added.
Eng also noted that newsflow on developments surrounding the handling of sovereign debt in Europe and the US would also likely lead to volatile markets worldwide.
“As such, in the short term, we are faced with volatile markets that will likely give way to a dampened economic outlook. We advise investors stay cautious into mid 2012 and focus on defensive sectors such as consumer, telecommunications, healthcare and media,” he said.
Nonetheless, Eng also expected some opportunities to trade.
“Despite our overall ‘neutral’ stance, the volatility expected should give rise to plenty of trading opportunitites, especially cyclical sectors such as banks, oil and gas as well as construction as the market dips or rallies strongly,” he underlined.