THE KL stockmarket is expected to rally and possibly peak next month, following the US Fed’s inaction on rates, with profit-taking likely to set in subsequently.
“The market in Malaysia should gradually rise to perhaps the peak in October.
“Then, some profit-taking could set in for November due to the US presidential election and a potential rate hike in December,’’ said Chris Eng, head of research, Etiqa Insurance & Takaful. The suggestion is to buy blue chips which will likely benefit from foreign-buying.
But there may be some uncertainties along the way. “In the immediate term, there will be relief and a rebound in the equity market.
“Then, it will be subject to events such as foreign flows, the budget and potential early election news,’’ said Danny Wong, CEO, Areca Capital.
The waiting game is on for the Fed in so far as a December rate hike is concerned. “With US gross domestic product and inflation still below target, it is a waiting game for the Fed to keep an eye on external risks that may affect them,’’ said Wong.
Market players have to keep an eye on asset price inflation. “Every time the Fed fails to raise rates, markets rally,’’ said Pong Teng Siew, head of research, InterPacific Securities.
But some markets such as the US stockmarket are already considered by some to be overpriced.
Some analysts including Pong think that there is “no chance the Fed will hike the federal funds rate (FFR) in December. They had missed the boat a long, long time ago.”
So, if that’s the case, will the market rally go on potential catalysts towards the end of the year include news on local snap elections.
Apart from suggestions on blue chips, Pong sees potential in Hai O and Bison. “Bison has already reached our target price but other houses are now placing higher target prices,’’ said Pong.
Economists view a number of factors impinging on the Fed’s decision to raise the FFR in December.
“I think the Fed is certain to end the year with a 25 basis points hike, as alluded by the Fed chairman that the case for raising rates has strengthened although more conclusive evidence is needed to decide on the timing of the next move,’’ said Lee Heng Guie, executive director, Socio Economic Research Center. Other deciding factors include jobs data and market volatility.
Noting that those in favour of a rate hike had risen to three of the voting members of the Federal Market Open Committee, Lee said the immediate risk to the Fed’s liftoff intention is the outcome of the US presidential election on November 8.
And it is not due to lack of confidence in the economy that hinders the Fed from raising the FFR, said Lee.
Others see worrying signs in the horizon that may weigh on chances for a December rate hike.
“Labour market data looks favourable and I believe the nonaccelerating inflation rate of unemployment (level of unemployment below which inflation rises) is within reach.
“Despite the solid jobs gain, business fixed investment looks less than inspiring and could have negative repercussions on the US economy, going forward.
“And lower than expected inflation has raised questions on economic sustainability,’’ said Nor Zahidi Alias, chief economist, Malaysian Rating Corp.
The international angle still looks dicey.
“International and financial market developments seem to suggest that prospects for the global economy remain dicey, at this juncture, as markets’ trust in central banks’ ability to deliver via measures like quantitative easing and negative interest rates has been shaken,’’ said Zahidi.
Call it a waiting or guessing game, market players could be quite confused over the next three months as they weigh the odds of a US rate hike.
When it comes to the post-Brexit economy, the Organisation for Economic Cooperation and Development (OECD) has made a Uturn from its earlier prediction that Britain would suffer ‘instant damage’ from the Brexit vote, said The Guardian.
It has revised up its forecast for growth this year as a result of a strongerthan expected performance in the first half of the year, and action by the Bank of England last month to spur activities.
It is still predicting a sharp slowdown in the British economy, but that this would not happen until 2017, said The Guardian.
“When we made our forecasts, we did not presume to speak about what the Bank of England might do.
“The bank entered the market forcibly on interest rates and to calm the markets,” Catherine Mann, OECD chief economist, was quoted as saying.
“Nor did we presume to make any judgements about what fiscal policy might do,” she added, noting that new chancellor Philip Hammond had signalled higher public spending in the autumn statement. Sometimes, it is safer to wait and see the strategies that players in a new scenario will unfold, or to put it bluntly, what tricks they will pull out of the bag.
Columnist Yap Leng Kuen reckons that in many cases, it is advisable to not ‘jump the gun.’ – ANN