Posted on 28 October 2013 - 05:36am
Last updated on 28 October 2013 - 01:34pmLiew Jia Teng
PETALING JAYA (Oct 28, 2013): Bursa Malaysia's FBM KLCI is likely to trend higher and possibly beat its all-time intraday high of 1,826 points, following Friday's announcement of Budget 2014.
The rally, however, is not seen as sustainable.
Kenanga Investment Bank Bhd head of research Chan Ken Yew told SunBiz that the budget may have a "neutral to slightly positive" impact on the local stock market, with the benchmark FBM KLCI testing the resistance level of 1,826 points which was recorded after the 13th general election in May this year.
The support level is at 1,800 points.
Phillip Mutual Bhd chief strategist Phua Lee Kerk concurs, saying the support from local funds are strong enough and expects the FBM KLCI to hit another all-time high.
"I believe the government-backed local funds will support the stock market in the early part of this week," he said.
"But we might see selling pressure in the stock market at a later stage, as private investors might worry about weakening consumer spending sentiment following the implementation of the goods and services tax (GST)," Phua warned.
The FBM KLCI eased mildly by 1.36 points or 0.07% to 1,817.57 on Friday. Falling to a mid-day low of 1812.47 points, the index rebounded before closing as the budget was unveiled at 4pm.
Phua also believes that the short-term outlook of the local stock market will very much depend on the action of international ratings agencies such as Fitch, which has a negative outlook on the country, and Standard & Poor's.
He said the budget was supposed to have addressed the deficit issue as well as improve the country's credit rating outlook, but the issue on over-spending by the government is now overshadowed by the GST and the sugar subsidy removal.
"Back in September last year, Standard & Poor's had warned that if the government keeps spending money, they might downgrade our credit rating. Theoretically, the implementation of GST should increase tax revenue, but leakages are still possible.
"Now that we've announced something in the budget, whether they (Standard & Poor's) think this is sufficient or not (to address budget deficit) is another big question," said Phua.
Regardless of how the FBM KLCI will perform today, Etiqa Insurance and Takaful Bhd head of research Chris Eng Poh Yoon told SunBiz, investors might see weakness in the benchmark index later on.
He added that the local stock market, which was supported by the local institutional funds, has outperformed other regional markets before the budget announcement. But in view of global tight on stimulus, the corporate earnings going forward are expected to disappoint.
For now, FBM KLCI is biased towards the short-term support level of 1,800 points, while the resistance level remained at the all-time high of 1,826 points, said Eng.
A market strategy of "sell into strength" is recommended, with a year-end target of 1,800 points, Eng suggested the investors may "buy" in November if the benchmark index drops to 1,750 points.
Eng identified stocks such as MY E.G. Services Bhd and Censof Holdings Bhd, which are involved in the roll-out of the new tax system, as likely to see some buy-in from investors.
Brewery and gaming counters are expected to see a relief rally as an expected tax hike announcement during the budget did not materialise.
Construction and telecommunication counters, however, are not expected to see much upside despite the announcement on additional investment on high speed broadband and rural development.
The property sector will be worst affected by the budget announcement due to the revised real property gains tax (RPGT), said RHB Research Institute Sdn Bhd.
"The combined punitive measures heaped on the sector were unexpected and could have a substantial negative impact on the Iskandar Malaysia property market in particular. This may lead to a more drastic correction in the property market and spill over to the banking sector, impacting loans growth, although the squeeze on bank earnings should be relatively mild," it added.
MIDF Research reiterated its "neutral" call on the telecommunication sector with a positive bias, as the impact will not happen in immediate term.
It opined that the government's effort to promote tourism and providing incentives to hotel operators will benefit Malaysia Airports Holdings Bhd due to higher tourists arrivals. This will translate into higher demands for air travelling, which positively impact the prospects of Malaysian Airline System Bhd, AirAsia Bhd and AirAsia X Bhd.