Cash-rich funds, election rally pushes KL shares to new heights
KUALA LUMPUR, July 5 — Cashed up private and government institutions in search of higher yields ahead of another round of money printing expected to be implemented by Western countries are driving the benchmark FBM KLCI index to record territory.
The FBM KLCI hit a new high yesterday of 1613.75 ahead of hopes that the European Central Bank and the US Federal Reserve would implement more quantitative easing that would flood world markets with additional liquidity.
Local investors are also gaining confidence from a region wide rally as Asian markets surge on hopes that more stimulus packages are on the way after nearly all major European economies have either slipped into recession or are poised to and with US growth showing signs of stalling.
The KL bourse is also experiencing what is seen to be a positive sentiment ahead of the general elections which must be held in less than a year.
“It's a combination of government and private institutions that are doing the buying,” said one broker. “But it's mostly index stocks that are moving up.”
He noted that with yields on 10-year US treasury notes hovering at just 1.6-1.7 per cent and poised to be depressed even further with the prospect of more quantitative easing, investors are looking for higher yields in equities.
RAM Ratings chief economist Yeah Kim Leng said that a combination of low interest rates, surplus liquidity and expectations of more policy easing was driving the market.
He also said another factor was the general elections which must be held in less than a year's time.
“It is not unusual for a pre-election rally to occur,” he said.
Yeah said that the surplus liquidity in Malaysia was estimated to be about RM200 billion from a combination of household and corporate savings.
He also noted that Malaysia had a large current account surplus, which is the equivalent of excess savings over investment that was between 10-12 per cent of GDP.
Yeah warned however that there was a risk of asset bubbles forming from the amount of money being poured into equities.
He noted that the valuation of Malaysian shares was relatively expensive compared to regional peers.
“It could mean exuberance or that investors are taking a long term view that the earnings potential of Malaysian companies have increased,” he said.
The Malaysian market has generally been perceived as defensive and unexciting due to the large percentage of quality stocks that are held by government linked institutions.
This defensive nature could however prove to be attractive to investors in times of economic volatility.
The FBM KLCI rose 0.37 per cent today and is now up more than five per cent this year and is far above its 52 year week low of 1310.5.
Japan's Nikkei rose 0.4 per cent today to 9104.17 and South Korea's Kospi rose 0.35 per cent to 1874.45.
Singapore's ST Index meanwhile closed 0.12 percent higher at 2,948.77.