AMID expectations of window dressing, it is generally viewed that the election theme may also provide a catalyst to the KL stockmarket especially when foreign selling gets exhausted.
“Get ready for a more determined window dressing rally in about two weeks from now. That would be the first instalment of what is possibly in store for the next three to six months when foreign selling gets exhausted,” said Pong Teng Siew, head of research, Inter-Pacific Securities.
Calling it more of an uptrend rather than year-end rally, Vincent Khoo, head of research, UOB Kay Hian, expects more upside to the stockmarket in the first half of next year.
What about the election catalyst? “The election catalyst should kick in fairly soon and we should see a stronger stockmarket by year-end,” said Chris Eng, head of research, Etiqa Insurance & Takaful.
“Besides positive sentiment from history in relation to pre- and post-election runs, there are so-called election spending and friendly policies which may benefit some stocks and the market in general,” said Danny Wong, CEO, Areca Capital.
However, there is a view that the election theme may not likely to have much of an effect on the market.
“There is little room in the current situation to drive market direction independently of economic fundamentals,” said Thomas Yong, CEO, Fortress Capital.
For those who are optimistic, blue chips and generally, big caps are in favour. Under potential election spending,
Wong is looking at media, logistics, retail, telcos and Internet-related services while under people-friendly policies, the sectors include infrastructure, consumer and construction.
Eng is choosing Tenaga Nasional Bhd, Sime Darby Bhd and banks. In the case of banks, he sees improved economic prospects helped by higher fees based on foreign exchange transactions from exporters who now have to convert 75% of their earnings overseas into ringgit.
As a boost to this generally positive outlook, would the ringgit be expected to strengthen?
“There should be a small positive impact from the forex measures (introduced by Bank Negara to boost demand for and stop speculation in ringgit).
“A more stable exchange rate will possibly reduce the spreads and be positive for corporates in Malaysia,” said Hor Kwok Wai, chief operating officer, global markets, Hong Leong Bank.
Supposed to benefit from a weak ringgit, export-oriented stocks were regarded with favour for the rally at year-end or beginning of next year. Will the new forex ruling dampen their values?
Some see pressure on exporters’ margins while others see minimal impact.
“It is not advantageous for our exporters who are complaining about the lack of US dollars in the onshore market when it comes to paying for their liabilities in US dollars. It is hard to get more than US$1mil or US$2mil.
“This time around, world trade has weakened even more compared with last year’s bout of ringgit weakening. Customers overseas are demanding that our exporters ‘share’ the benefits of a weaker ringgit.
“Also, as commodity prices have risen this year, exporters’ margins have deteriorated sharply,” said Pong.
Flexibility in terms of conversion of forex earnings may be granted for deserving exporters.
“The impact on export oriented stocks is modest. I am confident that Bank Negara will provide flexibility to deserving exporters,” said Khoo.
More findings on the operational impact in relation to the conversion of forex may tell a different story.
“In the meantime, this may have a small impact on exporters in terms of cost of doing business especially for those with huge portions of non-ringgit denominated input cost,” said Wong, adding that until more findings on the operational aspect are made known, he sees little impact on valuation.
There is, at the same time, a positive edge to this development. “We do see some cost increases for exporters from the new ruling which will be beneficial to local banks as they will gain more forex fees onshore,” said Eng.
The way stocks are powering to all time highs on Wall Street is reminiscent of what former Fed chairman Alan Greenspan termed as “irrational exuberance” of heightened asset bubbles which may be followed by a long period of contraction.
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Greenspan was quoted to have said two decades ago.
Greenspan is now more worried about debt than equity, said Bloomberg, quoting his interview with the Wall Street Journal published Dec 3, adding that he also recognised his warning had had little impact and repeated his view that bubbles are almost impossible to stop once they get going.
While the worry is on asset bubbles in the United States, the concern in emerging markets is that they may face “pronounced outflows” in 2017 if president-elect Donald Trump’s planned stimulus spending sends US yields higher and further strengthens the US dollar.
That could prompt policy makers to take action, and they might even coordinate in a collective rebellion against the United States, said Bloomberg, quoting Nomura.
Warning of possible capital controls by emerging markets, Nomura was quoted as saying that countries most at risk are those with volatile currencies, low currency reserves and relatively low rates.
Columnist Yap Leng Kuen reckons investors would be astutely looking for opportunities in a financial minefield.