Positive market outlook

PETALING JAYA: Liquidity and a strengthening ringgit are the key forces propelling the FBM Kuala Lumpur Composite Index (FBM KLCI) in the last few months. Now, as concerns of a double-dip recede, along with economic reforms by the Government and the possibility of general elections next year, analysts are becoming more positive on the market’s outlook.

OSK Research Sdn Bhd research head Chris Eng said the outlook for 2011 had improved, with corporate earnings continuing to increase.

“We also have the possibility of the general elections to look forward to. Elections are normally held when the economic prospects are a lot more sound,” said Eng.

He added that the Government had implemented various reforms which seemed to be supportive of the economy and the market as a whole.

On a year-to-date basis, the FBM KLCI was up 18.21% to close yesterday at 1507.60. Over the same period, the ringgit has strengthened close to 10% at approximately 3.087 to the dollar.

Standard & Poor’s Malaysia Sdn Bhd director Alexander Chia said the market was partly being driven by liquidity with the strength of the ringgit a function of this liquidity.

In addition, recent concerns for a double-dip recession had receded somewhat, while positive numbers from China had helped to return confidence to investors.

Markets also got a boost from strong manufacturing figures from China and a general increase in risk appetite ahead of the much-anticipated Federal Reserve meeting yesterday.

China’s Project Management Institute for October came in at 54.7, better than the 53.8 that was expected and the 53.8 in September.

JF Apex Securities Bhd deputy managing director Lim Teck Seng said retailers were starting to return to the market.

“Liquidity is not linked to fundamentals. Eventually fundamentals will dictate,” he said.

“But, for now, there are many people holding cash, and bank lending is relatively easy. Hence, people are putting their money to work through equities and property. The market should be relatively safe over the next six months.”

Lim added that foreigners were coming because Malaysia’s interest rates were moving relatively higher than its regional neighbours.

The overnight policy rate was up by 25 basis points respectively in March, May and July to 2.75%.

“We are positive until the first half of 2011. For the second half of 2011, we will have to look at global numbers,” Eng said, adding that he would turn buyer in December, as he was expecting some correction this month.

“With the continued global quantitive easing, and the slower growth in the West, foreigners realised that there is much better growth here,” he said.

Chia, meanwhile, added that he was buying on dips. He expects more upside for the market in the next six to 12 months.