KUALA LUMPUR: Investors are expected to be in defensive mode in the third quarter while waiting for the release of the new budget or progress report from the new government, says Kenanga Research.
The firm made a bold stance that Bursa Malaysia could have bottomed.
“Even if we were wrong, we believe the downside could be limited to 1,615/00 as well and we strongly believe that an immediate rebound from here is highly probable,” Kenanga Research said in a report today.
The firm said the second quarter, as expected, was a weaker and yet volatile quarter.
“The weak performance of the local equity market was somewhat worse than expected. Originally, we thought 1,680 could the floor, but the benchmark index marked a new 52-week low of 1,657.78,” it noted.
Quarter-on-quarter, FBMKLCI declined 9.2 per cent to erode gains in the first quarter. Year-to-date, rthe key index dropped 5.9 per cent.
Kenanga Research expects investors to sideline or stay defensive while waiting for the release of the new government’s 100-day progress report or the first budget of the new government.
“We reckon that some investors may stay. The swift recovery of FBMKLCI could also be limited by the premium valuation of FBMKLCI due to the stronger sell-down over its regional peers,” it said.
In looking ahead towards the third quarter of 2018, Kenanga Research said the FBM KLCI had found a temporary bottom near the 1,660 and 1,650 range.
“FBMKLCI has been trending down after the gap of 1,770/80 was filled amid a lack of re-rating catalyst. In the immediate term, it has found a temporary bottom near the 1,660/50-area.
“Should the index able to overcome the 1,700-physiological resistance in the near term, this could suggest a near-term bottom. We still expect high probabilities for FBMKLCI to trade between 1,750 and 1,800,” it added.
Kenanga Research’s various sector ratings remain pretty much unchanged after it downgraded its ratings for construction and Malaysian real estate investment trusts to neutral post the 14th General Election and recent corporate results.
However, due to sharp price corrections, the firm upgraded telco sector to “overweight” even after it cut its earnings estimates and target prices.
“We believe values have emerged after the recent strong sell-down,” it said.