Over the past decade, if one were to measure the performance of the local bourse by taking the FBM KLCI as a reference point, an investor may be disappointed. (That’s the view expressed by Pankaj C. Kumar, Starbiz 10 June 2023).
The FBM KLCI ended May 2023 at 1,387 points and fell further in the first five trading days in June and was last seen at just under 1,375 points on Thursday, 8 June 2023. Over the past 10 years, the FBM KLCI has dropped almost 400 points or 22.5%. This is against the peak of 1,893 points that was achieved in July 2014. This is 27.4% lower.
The local bourse has been an unloved market among foreign investors for a while. Foreign holding is down to just 20% as at the end of May 2023 from 25.2% exactly ten years ago.
Between 2013 and Thursday’s closing market data, foreigners have been net sellers in the market to the tune of RM65.9bil. Other than the 2013 net inflow of RM2.6bil and last year’s net inflow of RM4.4bil, foreigners have been net sellers in the market every year with an average net outflow of RM8.7bil a year between 2014 and 2021. Year-to-date, net foreign selling amounted to RM3.32bil. If the pressure persist, foreign shareholding may dip below the 20% threshold.
According to the Securities Commission’s Capital Market Stability Review 2022 report, as at the end of September 2022, foreign shareholding on the market stood at 20.6%, of which some 68.7% of that are those related to strategic interest, leaving behind non-strategic stakes or those that trade in the market at 31.3% of the total foreign shareholding.
The immediate concern for the market will be the upcoming six state elections with expectations that these will be held between the end of July to early August.
Into June 2023, the issue as to where inflation and interest rates are heading remains a concern for markets. Inflation globally remains stubbornly sticky and elevated despite the numerous tightening measures.
Although the US Federal Reserve may hold rates in its meeting scheduled for mid-June, there is still a probability that it may still raise rates in its July meeting. Members of the Federal Open Market Committee (FOMC) remain divided if further rate hikes are necessary to cool down inflationary pressure as Core Personal Consumption Expenditure Index has remained elevated (between 4.6% and 4.7% for the past six months).
Bank Negara’s 25 basis points hike in May was essentially a pre-emptive strike ahead of the curve should inflation pressure persist. Nevertheless, the rate hike did little to help the ringgit to recover the lost ground, which is down 4.9% year-to-date. Among Asian currencies, other than the yen’s year-to-date decline of 6.3%, the ringgit’s weakness seems to be correlated to the yuan’s weakness, which has dropped 3.2% year-to-date.
With the FBM KLCI’s year-to-date decline of 8.1%, the local bourse is the worst-performing market among Asia-Pacific countries, not only in local currency terms, but also in dollar terms, as it is now down by 13% year-to-date.
The poor 1Q23 earnings report card, the political climate, external uncertainties with respect to rate hikes and the relative strength of the dollar vis-à-vis the ringgit, may take a toll before the market finds its footing. This is despite price-to-earnings ratio is just under 13.5 times for 2023. Many view both performances of the Bursa and the ringgit as barometers of a vibrant, confident economy. We need to drill-down the reasons and work constructively to rectify the present situation.
Reference:
Another washout quarter, Pankaj C. Kumar, The Star, 10 June 2023
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