Malaysia’s stock market may be set to repeat the market sell-off in 2015 as trade friction between United States and China escalates, say analysts.

They, however, kept optimistic year-end targets of above 1,700 points, meaning the fall which has begun since April this year is expected to end within as long as five to six months.

A new major support level of 1,600 points, a level that the key benchmark index has not traded on since August 2015, had been set and any attempt to break the level would spread fear that the index could be on the brink of falling into bear market, the analysts said.

The current fall seems to have mirrored the initial fall of the market sell-off in 2015 when FTSE Bursa Malaysia KLCI lost over nine per cent in just over two months since April 21, 2015, they added.

This year, FBM KLCI has lost about the same rate of 10.75 per cent in over two months since its recent high in April this year.

Back in 2015, the index entered into its deepest correction since 2008, having dipped more than 17.7 per cent since April 21, 2015 for over four months. It, however, managed to recover before end of the year.

The 2015-2016 stock market selloff was caused by global financial events including the long-term monetary shortfall in Greece leading up to the Greek default on June 30 and China`s stock market crash that began that same month. From June 12 to August 24, the Shanghai Composite index shed 38 per cent of its value.

During the 2008 financial crisis, it only took two months for the Malaysian 30 companies-linked index to fall into bear market or lose 20 per cent. It lost more than 45 per cent in over nine months.

Currently, analysts were still left clueless on when the US-China trade friction is going to end as foreign investors keep pulling out from the emerging markets, including Malaysia. There is rippling sense of unease among investors that a trade war is on the card, which could affect all emerging markets.

Malaysia has seen the longest foreign funds exodus from its equity market, according to the available Bloomberg data from 2009.

They had pulled out from the equity funds consequtively since May 2 for nine weeks to the tune of more than RM10 billion.

Due to the escalating trade tensions and Beijing`s efforts to reduce reliance on high debt levels, China`s Shanghai composite was among the first to enter into bear market.

According to CNBC, a six-week selling streak in the last months had sent the mainland`s benchmark stock index down 13.9 per cent this year, to its lowest since 2016 and into a bear market, a more than 20 per cent retracement from a recent high.

Stock market analyst Nazarry Rosli expects Bursa Malaysian in the coming months to be choppier and to be hit from time to time, in line with the major global and emerging markets.

“There are signs that the key index will continue to trade on a downtrend. For example, it has been trading below simple moving average 200 days (SMA200) and SMA50,” he told NST Business.

He said the fall of the stock market is not so much driven by the current political noise but rather the external factors including US-China trade war and possible rate hike by the US and other major markets.

“Breaking below 1,600 points level will be something to worry about as it will cast fear in the market. But we have to just wait and see. At this moment, our major concern is to see whether the index can be supported well above 1,600 points level,” he said.

Nazarry said the history of market sell-off in 2015 could repeat itself and plunging below 1,500 points level means bear market for the index.

Hong Leong Investment Bank said it is still too premature to call an end to the foreign funds exodus as escalating US-China trade war tension is an exogenous variable that is almost futile to predict.

“At this juncture, finding reasons to be upbeat on Malaysian equities can prove to be a daunting task. We envisage the market to stage a mild recovery once more concrete clarity is conveyed by the new government,” the research firm added.

HLIB, however, still kept an optimistic year-end target for FBM KLCI of 1,700 points. Kenaga Research said if the index manages to break the resistance level of 1,700 before year-end, then it would gain strength to trade higher.

By New Straits Times(Published: 09/07/2018)

https://www.nst.com.my/business/2018/07/388934/malaysian-stock-market-set-2015-market-sell

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