KUCHING: There are parallel similarities observed between the movements of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) and commodities in Malaysia.
This was exemplified by the trend of the FBM KLCI which industry specialists note had correlated positively with the movements of gold prices.
“Historically, and in most instances, the FBM KLCI had correlated positively with the movements of gold prices,” outlined the research group behind MIDF Amanah Investment Bank Bhd (MIDF Research) in its outlook on gold.
“It is shown that in five of the six periods measured from 1977 to date, gold price and FBM KLCI have exhibited a high degree of correlations at 60 to 90 per cent, with only one period recording a negative correlation.”
The research firm said the high correlation between gold prices and FBM KLCI could be explained by the nature of the Malaysian economy, with commodities being an important driving factor for economic growth.
Malaysia had, historically, been one of the world’s largest producers of tin and rubber.
More recently, Malaysia is among the largest producers of palm oil, as well as a net exporter of crude oil & gas.
“Export revenues from these commodities are generating billions of ringgit to the local stakeholders, namely companies’ profits, employees’ wages, and to the government through tax collections (Petronas alone contributed around 45 per cent to the government’s coffers).
“Furthermore, some of the major local producers are also FBM KLCI constituents (e.g. Sime Darby, IOI, Petronas Gas), with considerable aggregate weightage in the index.
Therefore, the stock prices of these companies will be directly influenced by the prevailing trend in commodity prices.” Moving forward, MIDF Research expected to see a gradual trend reversal in gold prices over time.
“Consequently, we are of the opinion that the prevailing trajectory of FBM KLCI upward secular trend may be moderated by the consolidation in gold as well as other commodity prices.”