FBMKLCI Uncertainties Continue in 2020
2018 was a terrible year where almost all the global bourses plunged sharply due to the US-led trade wars against China and several other countries. The Malaysian market too has a double whammy following the surprise change of government for the first time since Merdeka day. Year-to-date, most markets recorded fairly good rebound. Unfortunately, the recovery was not seen in Bursa Malaysia. The main reasons include political uncertainties, weak ringgit and poor corporate earnings.
As for 2020, we think the challenges are likely to continue as the US-China trade war is unlikely to see immediate solution. For foreign investors to return, ringgit will have to continue to maintain its recent strength and we must see improvement in political commitment to grow our economy. In the absence of these, we will have to rely on stock picking to make alpha return for 2020.
Despite the impact of US-China trade war, the US market climbed to new high with Dow Jones Industrial Index surged 20.3% for the first eleven months this year. This is largely due to the 3 times cut in Fed Fund rate. US-China trade war seems to have a mild impact on both economies. This is evidenced in the drop in the GDP growth with the US GDP growth fell from 3.2% in 2Q 2018 to 2.1% in 3Q2019 while the China economic growth contracted from 6.7% to 6.0% over the same period.
2019 is definitely a disappointing year for the Malaysian equity market as the FBMKLCI Index (KLCI), which is the popular benchmark used among the foreign and local institutions for the 30 big-cap stocks fell by 7.6% as at November 2019. Leading the losses were banking stocks that have heavy weighting in the index. Hence, the local bourse is probably one of the worse performing markets in the world in 2019.
Persistence selling by foreign funds weighed down on some of the big-cap stocks. For the first eleven months of 2019 foreign funds sold net RM9.9bn worth of Malaysian
shares and this is slightly less than the net sales of RM11.5bn in 2018. The weak ringgit which normally deters the inflow of foreign funds, however, did
not stop them from buying more of Malaysian bonds. For the first eleven months this year, foreign investors bought RM11.7bn worth of our bonds although they disposed of a
substantial RM21.9bn a year ago.
Despite the poor showing of the KLCI, there are stocks that did well especially those mid-and small-cap stocks under the construction and technology sectors. Our right
selection of some of these stocks enabled us to show strong recovery for our portfolio performance.
We believe next year will be another challenging year as the impact of US-China trade war will continue to create more market volatilities. We have to be mindful of a
possible US recession if US yield curve flattens again. On a positive note, November will be the 59th quadrennial US Presidential Election and historically the US stock
markets performed well during election year.
As for 2020, we think the challenges are likely to continue as the US-China trade war is unlikely to see immediate solution. For foreign investors to return, ringgit will have to continue to maintain its recent strength and we must see improvement in political commitment to grow our economy. In the absence of these, we will have to rely on stock picking to make alpha return for 2020.
Despite the impact of US-China trade war, the US market climbed to new high with Dow Jones Industrial Index surged 20.3% for the first eleven months this year. This is largely due to the 3 times cut in Fed Fund rate. US-China trade war seems to have a mild impact on both economies. This is evidenced in the drop in the GDP growth with the US GDP growth fell from 3.2% in 2Q 2018 to 2.1% in 3Q2019 while the China economic growth contracted from 6.7% to 6.0% over the same period.
2019 is definitely a disappointing year for the Malaysian equity market as the FBMKLCI Index (KLCI), which is the popular benchmark used among the foreign and local institutions for the 30 big-cap stocks fell by 7.6% as at November 2019. Leading the losses were banking stocks that have heavy weighting in the index. Hence, the local bourse is probably one of the worse performing markets in the world in 2019.
Persistence selling by foreign funds weighed down on some of the big-cap stocks. For the first eleven months of 2019 foreign funds sold net RM9.9bn worth of Malaysian
shares and this is slightly less than the net sales of RM11.5bn in 2018. The weak ringgit which normally deters the inflow of foreign funds, however, did
not stop them from buying more of Malaysian bonds. For the first eleven months this year, foreign investors bought RM11.7bn worth of our bonds although they disposed of a
substantial RM21.9bn a year ago.
Despite the poor showing of the KLCI, there are stocks that did well especially those mid-and small-cap stocks under the construction and technology sectors. Our right
selection of some of these stocks enabled us to show strong recovery for our portfolio performance.
We believe next year will be another challenging year as the impact of US-China trade war will continue to create more market volatilities. We have to be mindful of a
possible US recession if US yield curve flattens again. On a positive note, November will be the 59th quadrennial US Presidential Election and historically the US stock
markets performed well during election year.