KUALA LUMPUR: THE local stock exchange was tipped for a brighter 2016 but, due to global uncertainties, it lost steam to end the year more than 50 points, or 3.56 per cent, off the 2015 mark.
However, analysts and economists, remain bullish about Bursa Malaysia’s outlook next year, given the country’s economic resilience.
MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor said Malaysia’s domestic economy would remain the main driver.
He said private consumption was growing at healthy pace and various infrastructure projects in the pipeline would inject significant multiplier effect into the domestic economy while, at the same time, creating employment.
“Upward trajectory of commodity prices will also be supportive of Malaysia’s economic growth in 2017. Moreover, our external sector is expected to perform better next year,” Kamaruddin told Business Times yesterday.
This year’s highlights have been dominated by Britain’s exit from the European Union (known as Brexit), Donald Trump’s surprise win in the United States presidential election, China’s weakening economy, soft oil prices and other external developments, which have impacted Bursa Malaysia and other global stock markets.
The FTSE Bursa Malaysia KLCI (FBM KLCI) settled at 1,641.73 points yesterday, the last trading day of the year, making it one of the worst performers among Asia Pacific’s stock exchanges.
The benchmark index, however, ended 3.80 points higher than Thursday’s close of 1,637.93.
Yesterday’s close was a far cry from the close of 1,692.51 on December 31 last year. The index had also recorded a historical high of 1,862.80 on April 21 last year.
The first quarter of this year saw the FBM KLCI, which tracks the top 30 companies, stay above the 1,700-point level to close at 1,718 points.
MIDF Research said foreign funds turned net buyer of local equities with a net inflow of RM4.4 billion in the quarter.
“Inflows for March was at the highest since April 2013. The ringgit also continued to strengthen against US dollar to close the quarter at RM3.93 despite moderating crude oil prices,” it said.
Analysts then were confident of the key index breaching 1,800 points by the end of the year.
The FBM KLCI, however, dipped below 1,700 points beginning April amid weak investors’ sentiment.
MIDF Research said the poor sentiment continued as the ringgit weakened to above the RM4 level against the greenback.
A stronger US dollar has sent ringgit to multi-year lows in recent days.
MIDF Research said the People’s Bank of China’s continuous attempt to weaken yuan and reports that some banks in Shanghai had stopped accepting shares of smaller listed companies as collateral for loans had spooked the Chinese market, triggering circuit breakers and halting equity trading.
“In addition, escalating tension between Saudi Arabia and Iran underscored geopolitical risks in the Middle East, resulting in the FBM KLCI, as with other world’s major markets, succumbing to selling pressure during the opening weeks of 2016,” it said in a note.
Markets were then spooked after British citizens unexpectedly voted to exit the EU, causing the plunge in the British pound and the UK benchmark index FTSE100, which recorded 11 and nine per cent decline, respectively, in the subsequent market day.
The FBMKLCI fell to 1,630 points the following week, in tandem with other markets’ indexes.
In response to rising risks from Brexit, Bank Negara Malaysia cut its Overnight Policy Rate by 25 basis points. MIDF Research said this provided a breather to the market.
But Trump’s victory last month sent global markets into a period of high volatility amid uncertainties over how his presidency would affect the US’s current economic policies and global economic climate.
As a result, the FBM KLCI declined to below 1,620 points for the first time since June.
On the local currency, Kamaruddin said the research house expected the ringgit to gradually strengthen next year amid better commodity prices as well greater clarity on the direction of US policies.
“We are also banking on the stable economic growth for our main trading partners like China which lends support to our export.”
MIDF is cautiously optimistic about the prospect next year as lack of clarity in US future policies is expected to cause further uncertainties to the market.
“Once more details are available, we can gauge the extent of which these major events will possibly impact Malaysia. Judging by the current momentum, I am sanguine that the local market and the domestic economy will perform better in 2017,” he said.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said at the current juncture, there were multiple factors at play and all seemed to point to a pessimistic or rather a cautious view on what might unfold next year.
“At best, we think the market will reassess once the US president-elect takes office on January 20, and how he would implement the next course of action will dictate the market direction. So if there is disappointment in the policy direction, chances are, the market might see some corrections,” he said.
Afzanizam said the bank expected investment thesis in Malaysia to become more selective, with the theme revolving around industries or companies that would benefit from the weak ringgit.
Naturally, export-oriented industries will be the key beneficiaries given that their revenue streams are in US dollar.
“And some of the players have beefed up their production capacity, allowing them to cater for higher demand going forward like in the case of rubber gloves.
“In addition, we also see a lively activity in the tourism sector with tourists arrivals for the first eight month of 2016 stands at 17.6 million, representing an increase of 3.8 per cent from the same period last year.
“Therefore, this will create demand for aviation, accommodation, food and beverage and, perhaps, healthcare as the players are also hoping to increase their revenue from medical tourism.”
Afzanizam said the oil and gas sector could also see some respite after a deal to reduce oil production in the first half of next year.
“But bear in mind that the excess capacity is still prevalent in the sector and perhaps, a longer investment horizon is needed when considering investment in the sector.”
Afzanizam said despite that, the bank hoped the government would reconsider its fiscal consolidation strategy.
“We have seen consumer sentiment remain weak based on the Consumer Sentiment Index whereby it continue to hover below 100 points level for nine quarters in a row.”
He added that the fiscal position could range between a deficit of 4.8 per cent of gross domestic product (GDP) and a surplus of 3.2 per cent of GDP provided that investment ratio was more than 23 per cent of GDP in order to have positive effects on growth.
“We believe that we are in this category and therefore, the government can afford to slow down its quest to achieve a balanced budget by 2020 as GDP growth is expected to be below potential in the immediate terms,” he added.