KUALA LUMPUR: The lifting of temporary ban on regulated short-selling (RSS) of local stocks may lead to some easing of Bursa Malaysia's benchmark FBM KLCI, analysts said.
They, however, said the move was welcomed and probably well timed given that the key index was slightly overvalued.
As of Wednesday, the FBM KLCI gained six per cent year-to-date and over 38 per cent from the March bottom.
Hong Leong Investment Bank Bhd (HLIB) said while the market might have an optimism bias in the near term, the announcement on the lifting would bring volatility along the recovery path after the index had enjoyed an outstanding run since the November 2 low of 1,452 points.
"We expect some easing of the FBM KLCI following the selected uplifting of short selling effective January 1 2021," Rakuten Trade said.
"In such case, we can expect some price volatility amongst the FBM KLCI constituents predominantly the rubber glover stocks hence the impact on the benchmark index," the firm added.
The suspension of RSS will be lifted on January 1 next year, after it was imposed by Bursa Malaysia Bhd and the Securities Commission for nine months.
However, the regulators extended the ban on intraday short-selling (IDSS) and intraday short-selling by proprietary day traders (PDT Short Sale) until February 28 next year.
Consequential to the extension of PDT Short Sale, temporary waivers in relation to PDT will also be extended to February 28 next year.
Kenanga Research said given the strong rally in the month-to-date (FBM KLCI up 7.6 per cent, resoundingly outperforming the rest of Asean), the reintroduction of the RSS was probably timely if only to temper "the emerging animal spirits and make this recovery more sustainable",
The firm, in a report today, remains positive on the market with a 2021 year-end target of 1,803 points.
Kenanga Research said as the lifting came with tighter new measures - capping the net short position at four per cent and reducing the daily gross short position limit from three per cent to two per cent - that might lessen volatility of potential short-selling transactions.
"We list overleaf, the latest RSS aggregated net short positions taken from Bursa's website as at the close of December 15, 2020. The top four names with the highest percentage total outstanding net short positions are, not surprisingly glove makers namely Top Glove Corp Bhd (1.27 per cent), Supermax Corp Bhd (1.23 per cent), Kossan Rubber Industries Bhd (1.15 per cent) and Hartalega Holdings Bhd (0.97 per cent)," it said.
Given the four per cent limit imposed, the amount that remains shortable for each name are thus 2.73 per cent, 2.77 per cent, 2.85 per cent and 3.03 per cent respectively.
"In terms of total shortable volumes/average daily trade volumes, these figures translate to 3.50 times (x), 2.58x, 6.77x and 13.38x respectively, which are among the lowest in the list of 46 names."
Kenanga Research said stocks exhibiting far higher multiples (thus deemed perhaps more vulnerable) were Maxis Bhd (133x), Pos Malaysia Bhd (187.9x) and Digi.Com Bhd (91.7x).
"These trends hold generally true as well when viewed in terms of total shortable volumes/free float," it added.
The FBM KLCI closed 7.06 points lower yesterday, or 0.42 per cent, at 1,674.35 points.