Will budget boost the stock market?

RETIREES Peter Tan, 60, and Anand Raj, 58, have been spending the last three weeks in a local securities company monitoring the electronic stock board, and trying to calculate their losses from their respective equities portfolios.

Both men, who claim to have lost at least RM10,000 each as a result of the recent stock market carnage, are hoping to find a way out to minimise or recoup their losses.

“It's unfortunate I couldn't get out in time,” Tan says.

“I can still hold on to some of the good stocks that I have and wait for them to recover. But for some others, I just want to sell at the right price' to minimise my losses as much as possible,” Tan says.

His friend Anand agrees, saying: “Hopefully, our stocks will rebound soon. Much of our investable money is now tied down and we can't carry out new investments.

“But really, even if we have the money in hand now, I wouldn't dare to invest because the market is so volatile. We're not sure how much more it will fall. There's a lot of uncertainties, so we are more cautious, as we certainly don't want to get burnt again.”

Indeed, the mood is sombre at this juncture, given the ongoing debt crisis in the eurozone and persistently weak economic fundamentals of western developed nations, especially the United States.

Tan and Anand's response somewhat underscores the prevailing sentiment in the equity market, but like many they are hoping that a pre-budget rally could act as a balm to soothe their losses.

Many will be keeping their fingers crossed that initiatives in Budget 2012 could provide a catalyst for the local market, but some financial experts are not too optimistic.

Indifferent view

Budget measures often act as fundamental drivers for the market. Technical analysis show the Malaysian equity market to be oversold and this essentially means the stock market is currently trading at very attractive valuations.

But indicators, according to experts, still suggest a bearish momentum for the broader market over the short to medium term.

Unless the budget offers measures that will help navigate Malaysian equities through the global market nervousness, further downside is expected as the local stock market, like its regional peers, still has to grapple with the effects of nagging fundamental problems in the global economy.

“Buying interest is unlikely to pick up anytime soon given the prevailing mood in the market and I'm not sure about the upcoming Budget 2012 being a game changer,” an analyst from a foreign research house tells StarBizWeek.

Budget 2012 will be tabled by Prime Minister Datuk Seri Najib Tun Razak in parliament on Oct 7. Najib has promised that the budget would be an “inclusive and people-centric scheme that would spur Malaysia towards a high-income economy by 2020”.

“There could probably be some boost to the local market in the run up to the budget announcement, but I don't expect to see any significant movement,” he adds.

His sentiment is shared by most analysts.

CIMB Investment Bank head of equity research Terence Wong says: “Even if there's a pre-budget rally, it would likely be short-lived, and would likely happen a day or two before the budget is announced.”
Eng: ‘We struggle to see how the budget can have any significant impact on the market.’

“While we're still positive on the local stock market over the long term, we think there's probably further downside ahead, short-term wise,” Wong explains, adding that his team is looking at the benchmark stock index, FTSE Bursa Malaysia (FBM) KLCI, trending towards a range of between 1,280 and 1,350 points in the short term.

The FBM KLCI closed on Friday 21.87 points lower at 1,365.94 points, representing a loss of 14% from this year's high of 1,594.74 points on July 8.

Traditionally, in the run-up to the budget, the Malaysian stock market would rally. But this time round, that tradition could well be broken, as depressing external factors are casting a shadow on any positive measure that could be announced.

“We struggle to see how the budget can have any significant impact on the market,” OSK Holdings director/head of research Chris Eng says.

For one thing, the downtrend of the market is unlikely to be reversed, at least not in the short term. Even by trying to be as positive as he could, Eng, by assuming a “non-recessionary environment”, thinks the FBM KLCI could stabilise within the range of 1,350-1,378 points.

But based on current trends, Eng says “the market seems to be pricing in a recessionary environment”, which means further downside ahead.

OSK Research on Friday published a report stating that the FBM KLCI could be moving towards 1,335 points soon. The researh house also had a report stating its expectations of a moderate hike in tobacco duty in the budget, while the brewery sector would likely be spared. With that, it has a “neutral” stance on the tobacco industry, while maintaining an “overweight” call on brewery.

In any case, Eng says the potential wage hike for civil servants that could be incorporated in the “people-friendly” Budget 2012 will remain supportive of consumer spending and benefit the domestic economy.

The bull is dead

Perhaps one thing will not change. A “people-friendly” budget means politically-linked stocks will likely gain this budget season, as Affin Investment Bank head of retail research Dr Nazri Khan sees it.

But Nazri says any so-called rally by the broader market will likely be muted, as huge selling resulting from an increasingly gloomy global economic outlook will continue to overwhelm any feel-good factor in the domestic market.

“If past trends are of any indication, the selling climax will happen in October,” Nazri says.

“From then on, we will have to see how stable the global market is to chart the next course,” he explains.

Every action that global policymakers take to resuscitate the world economy seems to have failed to re-ignite investors' risk appetite.

“The bull is dead. Any life' is merely a rebound within a downtrend, giving investors, who are still stuck with their bad investments, an opportunity to come out of the market and cut losses,” a local analyst says.

“I don't think the market is talking about the upcoming budget at all. It is more concerned about what's going on in overseas markets, and if the market did indeed rebound, that would merely be a technical correction of an oversold market that so happens to coincide with a so-called pre-budget rally,” he explains.

Echoing a similar sentiment, Maybank Investment Bank head of retail research Lee Cheng Hooi expects further “blood-letting” by the market in the days ahead, especially since the FBM KLCI broke through a critical level of 1,400 over the week.

He had earlier expected a mini pre-budget rally to take place. A worsening global market outlook and US Federal Reserve's recent warning of “significant downside risks” nevertheless threw his earlier judgement out of the window, and Lee is now expecting a continuous slide of the FBM KLCI towards the 1,249-1,344 range.

“Markets are very bad globally. We're seeing a meltdown here,” Lee explains, adding that the chance of a pre-budget rally is extremely remote.

Sell on rallies and keep a larger cash pile for now, is what he advises, amid the present market turbulence.