The general election factor in index futures trading at discount to FBM KLCI?

PETALING JAYA: The FBM KLCI futures contracts for May and June are
trading at small discounts to the equity index, indicating some
investors are staying on the sidelines until the general election is
over.
The benchmark equity index closed down 4.19 points yesterday to 1,713.46 on volume of 809 million shares.
The futures contract for May closed at 1,705.5, which was a 7.96 point discount to the FBM KLCI's closing.
Volumes were thin with 695,200 shares traded.
The June contract closed at 1,702.5 with just 43,500 shares done.
Dealers said that market participants were just tracking the index and waiting to see the outcome of the elections.
“Looking
at the behaviour of the market traders are generally short on the
index. There is caution in the market and traders are generally
expecting a pullback to take place after the elections results,” said
TA Securities senior technical analyst Stephen Soo.
He said it also looked as if traders were reducing their positions in the market.
“The
index may have been up by 10 points on Tuesday, just before Labour Day.
But market breadth was not there and there was no volume. There is
obviously a divergence between the index and the broader market.
Traders can obviously see this,” Soo said.
“Typically, the
futures contract will trade at a premium to the current index. The
discount reflects uncertainty. With Malaysia being a political market,
no one dares to take a position before the actual elections outcome,”
said the dealer.
Meanwhile, lending activities in March were in
negative trajectory compared with corresponding period last year where
loan applications, approvals and disbursements fell by 13%, 10.3% and
0.7%, respectively.
“We believe that these contractions remain
supportive of our investment thesis that both lenders and borrowers
turning cautious with the impending elections this Sunday,” said
Alliance banking analyst Cheah King Yoong.
“We also wish to
highlight that lending indicators in early 2012 were already low, being
dragged down by the implementation of new responsible lending
guidelines back then,” Cheah said.