Analysts say Bursa Malaysia’s improved performance is set to be driven by the less volatile local market environment.
KUCHING: Bursa Malaysia Bhd (Bursa Malaysia) is expected to perform better in the second half of 2019 (2H19) despite the current gloomy global market.
Analysts say Bursa Malaysia’s improved performance is set to be driven by the less volatile local market environment.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said, “While the global economic outlook may continue to be clouded by uncertainties, we believe the stock could act as a solid proxy to the less volatile local market environment.
“Furthermore, the reclassification of Bursa Malaysia into syariah-compliant will widen its investment appeal to include more investors.”
It further highlighted, “The recent two quarters have demonstrated a retraction in market appetite for Malaysian securities and derivatives.
“Sentiment is thought to be sidelined by the US-China tensions, uncertainty in the European region owing to Brexit and unfavourable commodity prices (CPO). Based on year to date-June 2019 readings, foreign outflows registered at RM4.66 billion.
“Still, there could be a chance for a turnaround from 2H19 onwards as we detect a returning sense of confidence of which our strategist points towards rising trading valuations and premiums of our benchmark indices against regional markets.”
As such, it maintained its view that the weakness in sentiment could be bottoming based on its cyclical studies.
Sharing this sentiment, AmInvestment Bank Bhd’s research team (AmInvestment) also highlighted that 2H19 earnings are anticipated to be better than 1H19’s on the back of an improvement in the daily average trading value (DATV) for the securities market.
“This is particularly from the aspect of an improved investor sentiment should FSTE Russell decides to continue retaining Malaysia in the FTSE World Government Bond Index in September. Also, we gather that the pipeline for IPO deals has been decent. We understand that there are three Main Board and seven ACE Market applications that are pending approvals.
“In addition, three Leap Market listings have been approved with a total market capitalisation of RM15 billion. Hence, the above deals are envisaged to not only assist Bursa Malaysia in generating listing fees but also create more trade transactions for the securities market,” AmInvestment opined.
In the near-term, Kenanga Research said it believed that potential developments that could support its view are potential mergers and acquisitions (M&As) with foreign parties re-igniting foreign trading interest, easing of trade war tensions, and budget talks spurring sentiment.
Meanwhile, on Bursa Malaysia’s performance during 1H19, the research team noted that its first six months of 2019 (6M19) operating revenue declined by 14 per cent to RM240 million, owing to more cautious trading activities in securities (down 20 per cent), and on weaker securities average daily value (down 25 per cent) and lower volume (down 11 per cent), as well as in derivatives (down 14 per cent).
It noted that Bursa Malaysia’s profit before tax (PBT) fell by 24 per cent to RM127.6 million as the overall cost-to-income ratio was toppish at 48.9 per cent (up 6.5ppt), due mainly to staff costs.
On a quarter-on-quarter (q-o-q) basis, Bursa Malaysia’s 2Q19 operating revenue trickled down slightly by two per cent on flattish trading revenue and lower stable revenue streams (listing and issuer services).
“Securities trading continued to drift with SADV and volume dropping sequentially by two and seven per cent, respectively. In tandem with the lower operating revenue, 2Q19 PATAMI reached RM46.3 million (down one per cent), with higher staff costs being offset by savings in technology costs and lower marketing spends,” Kenanga Research added.
All in, maintained its ‘market perform’ rating on Bursa Malaysia while AmInvestment maintained its ‘hold’ call.