KUCHING: Bursa Malaysia Bhd (Bursa) will likely see some improvement in its financial year 2020 (FY20) when the trade wars progressively ease.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in its results note on Bursa, many factors could have led to the dampened trading appetite over the past few quarters.
Kenanga Research noted that these factors included paring down of contract values of various mega projects, ongoing disruptive US-China trade wars, and local currency weakness.
“Although the recently tabled Budget 2020 was generally positive for the market, we reckon that it was not enough to propel the second half of FY19 (2HFY19) average daily trading value (ADV) close to the prior period,” the research arm said.
“This is due to the lingering pessimism as well as diminishing participation of foreign investors. Looking towards FY20,
we are hopeful that there could be some improvement when the trade wars progressively ease with some clarity on the table.
“However, local market could still be tepid on the back of sluggish ringgit.”
On the flipside, Kenanga Research believed that positive catalysts could come in the form of return of foreign investors and potential revival of infrastructure projects.
While the immediate outlook could be dim, the research arm opined that current trading levels could have well accounted for that.
“To balance the weakness in market activity, we believe investors could still lean on Bursa for fair dividend yield of circa four per cent from average payout of circa 90 per cent.
“Keeping up with the trends in FY17 and FY18, we do not discount the possibility of special dividends to be paid this year.”
On another note, while Budget 2020 has been mildly expansionary with measures such as tax deduction for expenses to encourage the listing of technology-based companies and small and medium enterprises (SMEs) on the Leap and Ace Markets, AmInvestment Bank Bhd (AmInvestment Bank) believed that the vibrancy of the market still largely depends on the improvement in investor sentiment to raise the daily average traded value (DATV) for equities.
AmInvestment Bank also highlighted this will depend, to a large extent, on the greater clarity in the progression of the US-China trade negotiations.
“Until then, uncertainties in the market will persist with certain investors expected to adopt a risk-off stance,” the research firm said.
“In the last two weeks, inflow of foreign funds into the securities market has improved. Foreigners were net buyers of equities in the week commencing October 14 and 21 with cumulative inflows of RM184.7 million and RM302.4 million respectively.
“Nevertheless, the inflows are still significantly smaller compared to the levels seen in the first quarter of 2017 (1Q17) and 1Q18.”