Opportunity for bargain hunting

PETALING JAYA: The FBM KLCI continues to see red, dropping by 35.32 points, or 2.3%, yesterday to dip almost 20 points below the psychological 1,500-point support level, ending at 1,484.83.

This decline came despite some major regional indices, including Singapore’s Straits Times Index, beginning to recover.

The slide in the local benchmark index, now at its lowest since December 2023, followed an overnight drop of over 478 points in the Dow Jones Industrial Average, with the S&P 500 also slipping by 42.49 points.

At this juncture, the key question among investor is: How long will the sell-down continue and what could resuscitate the domestic equity market?

Online trading groups, concerned about the market’s direction, are debating whether it’s even worth looking at any counters at the moment.

Expert market observers attributed the FBM KLCI’s ongoing slide to various reasons, including the “Trump factor” after US President Donald Trump backed off from slapping neighbour Canada with an additional 25% tariff on steel and aluminium products.

Rakuten Trade Sdn Bhd head of equity sales Vincent Lau pointed out the longer-term trend of foreign funds exiting Malaysian equities for the past 20 weeks, likely drawn back to the United States as the Federal Reserve (Fed) tempered optimism that it may further reduce rates this year.

Fed chair Jerome Powell said last Friday that the Fed could hold rates steady, citing uncertainties around the potential impact of Trump’s economic policies.

Echoing this sentiment, Lau noted that the primary reason for the global sell-off was investors waiting for more clarity on Trump’s next moves.

As a small exporting nation, Malaysia finds itself caught in the middle of the uncertainty.

“At the end of 2024, we saw foreign funds leaving due to a strong US market and a higher-for-longer Fed fund rate.

“In 2025, we believe investors may be concerned about Malaysia being impacted by Trump’s tariffs, which is why they are staying away,” Lau told StarBiz, adding that estimates suggested about RM6bil in foreign outflows from the last quarter of 2024 (4Q24) to 1Q25.

Lau highlighted that yesterday’s sell-off on the local bourse had affected the more resilient blue-chip and banking stocks, indicating more challenges ahead for the index.

Tradeview Capital Sdn Bhd director of investment advice Nurazlin A Samad confirmed that the sharp decline in the FBM KLCI was partly driven by the ex-dividend impact of Malayan Banking Bhd, Public Bank Bhd and Hong Leong Bank Bhd.

For context, an ex-dividend date (ex-date) is when a stock begins trading without the value of its next dividend payment included in its price.

This means that new buyers of the stock after the ex-date will not receive the upcoming dividend.

As such, the stock typically dips by approximately the dividend amount.

That said, Nurazlin added that fragile sentiment, exacerbated by ongoing weakness and sell-off in the US market, may have prompted investors to lighten their portfolios, creating a self-fulfilling downward pressure on the index.

Lau acknowledged that the FBM KLCI is in a precarious position and could use a major boost, such as a trade deal between Trump and China President Xi Jinping, to clear the uncertainty.

Only then could investors gain the clarity needed to buy again.

“On the other hand, while nobody knows where the bottom is, this could be an opportunity to bargain hunt for stocks that are fundamentally strong but whose prices have taken a beating.

“In the tech industry, we are looking at counters such as NationGate Holdings Bhd, P.I.E. Industrial Bhd and D&O Green Technologies Bhd,” he said.

Meanwhile, Nurazlin observed that the US economy is beginning to show signs of weakness, particularly in the labour market, raising expectations of higher unemployment and a slowdown in consumer spending, potentially signalilng an economic slowdown or a recession.

“Uncertainty surrounding shifting tariff announcements, more than the tariffs themselves, has further dampened business sentiment, leading to reduced capital expenditures as companies adopt a more cautious stance,” she said.

On a broader global scale, she noted that China has become an attractive investment destination due to several key factors, including the pro-growth stance from the recently concluded National People’s Congress, which has set a floor for the market, along with expectations of further stimulus.

Additionally, she pointed out that valuations are low and the potential for a weaker US dollar makes emerging markets like China more appealing.

“Another factor to consider is short covering – China has been underowned and largely overlooked for years, making a market reversal logical as investors begin to reallocate capital,” said Nurazlin.

Beyond the continued rollout of domestic policies, she opined that realistically, there is little Malaysia can do at this point, as the current risk-off environment and market weakness are largely systemic and macro-driven, extending beyond the country’s control.

A key potential catalyst, therefore, is a Fed rate cut, said Nurazlin, which could weaken the investment appeal of US assets, prompting foreign funds to seek higher-yield opportunities in markets like Malaysia.

“Additionally, greater clarity on trade policies would enhance market visibility, helping investors make more informed decisions about what lies ahead,” she said, echoing Lau’s view.

Meanwhile, veteran investor Ian Yoong said China’s outperformance year-to-date can be attributed to positive moves by its government to inject more liquidity into the stock market and the excitement surrounding artificial intelligence.

He emphasised that Malaysia must remain politically neutral to benefit from China’s apparent re-emergence, especially as some research houses have downgraded US equities to “neutral” while upgrading China equities to “overweight.”

In the immediate context, Yoong suggested that it may be better for Bursa Malaysia to suspend short selling until confidence returns to the equity market.

“Sentiment is fragile and any adverse news can cause equity prices to fall sharply. Short selling is equivalent to adding kerosene to wildfire,” he told StarBiz.

Despite the gloom, Areca Capital Sdn Bhd chief executive Danny Wong sees a silver lining, believing that the FBM KLCI is sentiment-driven at present, especially on Trump-related tariffs, after a strong 2024.

He opined that profit-taking is only natural, and more value should emerge in the market after the correction.

At yesterday’s close, losers again thrashed gainers 603 to 272, with 550 counters remaining unchanged.