Bursa Malaysia set to pick up in FY17 on favourable market, ringgit


MIDF Research believed that this was also with the possible positive impact from the anticipated upcoming general election, given historical tendencies. — AFP photo

KUCHING: Bursa Malaysia Bhd’s (Bursa Malaysia) performance in the financial year 2017 (FY17) will start to pick up following favourable market growth outlook and the strengthening of ringgit, analysts observed.

In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believed that this was also with the possible positive impact from the anticipated upcoming general election, given historical tendencies.

However, the research team also believed that any upside in the stock price is limited given that current price is already at a “toppish” level due to the recent price run-up.

Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined, “While market fundamental remains largely unchanged, the market has performed relatively strong in the first quarter of 2017 (hence contributed to the decent 1Q17 results of Bursa Malaysia) with positive spill-over effect seen to date.

“Coupled with our empirical research performed from the fundamental and technical perspective, we are of the view that the decent market performance is likely driven by better market sentiment and liquidity.

“With underlying buying interest remaining strong, our strategist suggests that trend-following could be a better investment strategy for now. As such, to fairly reflect such a trend, we are ascribing a higher price earnings ratio (PER) valuation to Bursa Malaysia.”

The research arm of Maybank Investment Bank Bhd (Maybank IB Research) in separate note, believed that Bursa Malaysia offers a good trade on the bouyant volume in Malaysia equities.

It explained, “At its current share price (an increase of 13 per cent year to date), the implied 2017 equity  average daily value (ADV) is RM2.45 billion.

“Every RM0.1 billion addition in equity ADV from our base case (and on a full-year basis) would add RM6 million to FY17 net profit and raise our target price by (up to) 30sen.”

Overall, it noted, Bursa Malaysia’s equity ADV in the first 16 trading days of April was RM2.75 billion, lifting year-to-date performance up to RM2.61 billion.

“Our earlier forecast was RM2 billion for 2017. 1Q17’s growth in derivative volume also surpassed our earlier forecast for five per cent year-on-year (y-o-y) for 2017,” it said, pointed out that foreign investors have also turned into net buyers of Malaysia equities.

“From our recent roadshow to Europe/US, we sense that generally, foreign investors have turned more positive; this could keep trades on Bursa Malaysia bouyant.

“Against such a backdrop, we raise our 2017 equity ADV forecast to RM2.45 billion, and derivatives volume growth to eight per cent.”

On the bourse’s performance in 1Q, Maybank IB Research noted that Bursa Malaysia’s 1Q17 net profit positively surprised (slightly) due to higher trading revenue from equity.

“Earnings would have been stronger if not for the downward revision in guarantee fee rate for derivatives.

“Equity ADV stays strong at RM2.75 billion for April month to date (MTD) compared with RM3.06 billion in March, lifting 2017 YTD to RM2.61 billion, above our earlier forecast of RM2 billion for 2017,” it added.

Meanwhile, equity ADV was a strong RM2.54 billion, building up from RM2.03 billion in January, to RM2.53 billion in February and RM3.06 billion in March.

Derivative volume rose nine per cent y-o-y, 11 per cent q-o-q, driven by FCPO trades, offsetting slower FKLI trades.

“However, while trading revenue from equity rose 18 per cent y-o-y, 37 per cent q-o-q (reflecting the volume surge), trading revenue from derivative contracted six per cent y-o-y and three per cent q-o-q, impacted by the downward revision in guarantee fee rate imposed on margin on contracts’ open positions.”