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Saturday, December 18, 2010

Good year for Malaysia stock market


It has been a good run for the stock market this year with the key benchmark index reaching a record high of 1,528 points on Nov 10.

Year-to-date, the FBM KLCI has yielded a return of about 29% in US dollar terms (18% for the index alone), outperforming the Dow Jones Industrial Average and some Asian markets including Japan, Hong Kong and Singapore.

“It has been another good year for Bursa even after a strong rebound in 2009,” says Danny Wong, chief executive officer at Areca Capital Sdn Bhd

Bursa Malaysia emerged as the fourth best performing Asian market in US dollar terms, while in local currency terms, the market ranked fifth in Asia.

“Compared to the start of the year when most market watchers were predicting the local index to close somewhere between 1,350 and1,450 points, the closing market level for 2010 (1,509.10 as at Dec 15) is definitely better than expected,” says Pankaj Kumar, chief investment officer at Kurnia Insurance (M) Bhd.

For foreign fund managers, the market’s gain of close to 18% this year was on top of the 11% rise of the ringgit itself during the course of the year and hence bumping up their returns for the year, he adds.

Market sentiment really picked up only in the middle of the year, driven by strong newsflow including the announcement of the Economic Transformation Programme (ETP) which was announced on Sept 21.

The ETP is a major economic programme encompassing mega projects and which is expected to propel the nation from a middle-income nation to a high-income one by 2020.

“That generated enough buzz and gave investors a reason to buy into the market as it could create a sorely needed new domestic investment cycle,” says Gan Eng Peng, head of equities at HwangDBS Investment Management Bhd.

“Secondly, political opposition faded (by mid-year), and with it a more stabilised view by domestic funds.
Thirdly, the return of foreign funds, attracted by the strong currency, decent economic outlook and the fashionable South-East Asian investment theme of the moment, this drove our market to new highs towards year-end,” Gan says.

Quantitative easing, which is basically the act of printing money to boost ailing economies, by the United States helped flood Asian markets this year as the money found its way into this part of the world in search of higher returns.

The latest “quantitative easing” by the Federal Reserve, also known as the QE2, will create US$600bil in greenback cash, likely to make their way here as well given the anaemic growth trend in Western economies.
It will add to the US$1.7bil the Fed injected into the economy between 2008 and 2009 under the first QE.

A lot of concerns have been raised as to what will happen when economic fundamentals change and the “hot money” is pulled back from Asian markets.

However, Prime Minister Datuk Seri Najib Tun Razak said recently the flow of “hot money’’ into Malaysia had not reached an alarming rate and that the central bank had enough financial instruments to manage risks.

Stock performance

Based on information from Bloomberg, the best-performing member of the 30 index-linked counters this year up until Dec 15 in terms of price appreciation is RHB Capital Bhd.

The stock has appreciated by 60.19%, outperforming the Finance Index which inched up 25% in the same period.

Not surprising, being a financial group and therefore a proxy to the recovering economy.

According to a recent Bloomberg report, RHB Cap’s RHB Investment Bank overtook CIMB Group Holdings Bhd to become the No. 1 adviser on acquisitions of Malaysian companies for the first time since at least 2005, working on US$11.5bil of deals.

Axiata Group Bhd is second on the list, with the stock appreciating some 55% .

Axiata has telecommunication operations in the less mature mobile markets of Sri Lanka and Bangladesh and has been benefiting from a higher number of subscribers in these countries.

In contrast, Maxis Bhd which only houses its Malaysian operations made it to the top ten list of worst performing index-linked counters.

The stock has shed 1.86% from the beginning of the year until Dec 15.

Genting Bhd was third on the list, appreciating 50.1% as it enjoyed healthy contributions from its Singapore operations.

Gamuda, which is a frontrunner for the massive RM36bil mass rapid transit project, also made it to the top ten performing stocks, ending the year more than 44% higher than at the beginning.

Also on the top ten list are the two biggest banks in the country – CIMB, whose stock price appreciated some 37% and Malayan Banking Bhd, up 24%, as well as another financial group AMMB Holdings Bhd which added 33%.

Completing the list are PLUS Expressways Bhd which was up 34% following the proposed RM23bil disposal of its business to UEM Group and the Employees Provident Fund, Kuala Lumpur Kepong Bhd, a pure plantation play and beneficiary of steady crude palm oil prices – which added 29% and Petronas Dagangan Bhd, which went up 39%, thanks to its market leadership share.

Some of the other worst-performing index-linked counters this year included Sime Darby Bhd which lost more than 3.5%, no thanks to its RM2.1bil losses it suffered due to mismanagement and wrongdoings at its energy and utilities segment, and Malaysia Airlines which shed 9.64%.

The national carrier reported losses for its second quarter this year following a net profit of RM310mil, the quarter earlier due to paper loss from derivative trading stemming from its hedging policy.

However, it reversed its losses in the third quarter, due to a derivative gain.

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