Monday, September 08, 2008

Market Volume On A Steady Decline

PETALING JAYA: Trading volume on Bursa Malaysia touched new lows last month from its high in February 2007 as the market is caught up in the swirl of economic and political uncertainties.

Volume of the 100-component Kuala Lumpur Composite Index (KLCI) fell to a new low in nearly a year of 3.28 billion units last month due to various factors, including cautious sentiment on the country’s political uncertainties.

It represented a 40% decline from 5.61 billion units a year earlier and a 28% fall from 4.2 billion units in July 2008. As of Aug 30, the KLCI was down 24% to 1,100.5 points from its high of 1,445.03 at end-2007. Last Friday, the KLCI fell 14.52 points to 1,070.54.

For the overall market, trading volume in August fell to 8.92 billion units valued at RM18.6 billion, from 10.45 billion units valued at RM21.3 billion in the previous month. Monthly trading volume stood at a previous high of 50.54 billion units valued at RM63.46 billion in February 2007.

RAM Holdings Berhad chief economist Dr Yeah Kim Leng noted that direct exposure to equities would be volatile, but the correction had made market valuation relatively attractive.

“There is an excess of liquidity as investors shift their asset allocations to cash, but as long as the funds don’t leave the country, the prospects of a rebound are much higher. We also have large institutional investors locally who will provide more support for the market,” he told The Edge Financial Daily.

Commenting on the state of the capital market, Yeah said: “I think there are a combination of factors. We have the political risk premium as a contributing factor. What we are seeing here is that the underpinning fundamentals such as the weakened currency and growth are contributing to the weakening of the markets.”

“However, we would likely see the ringgit weakness as temporary as it is supported by a large current account surplus,” he added.

Aseambankers research head Vincent Khoo told The Edge Financial Daily that the research house retained its defensive stance and advocated exposure on high dividend-yielding large-capitalisation stocks, adding that there could be an important relief rally towards year-end.

He reckoned that political uncertainties would continue to feature in the market for a while. However, he noted the domestic issue was not the only consideration as external factors also played a role in determining market confidence.

“Investors do not like uncertainties. Nevertheless, such domestic issue (political uncertainties) has masked equally important external issues. Stagflation in the United States and the recent fall-off of commodity plays (which impact the plantation sector) have also affected the KLCI,” Khoo said.

However, TA Securities’ technical analyst Stephen Soo does not recommend investors to commit in the equity market now.

“With our support level of 1,050, we don’t encourage investors to commit. They should stand at the sidelines and reduce their exposure,” Soo said, adding that the overseas market downturn, weakening ringgit and lower commodity prices would continue to impact the market this week.

He noted that the weakening ringgit of an almost 12-month-low at 3.46 per US dollar last Friday was due to investors’ concern over the recently-announced budget deficit.

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