Malaysian market at record high – so what is the next thing?

Malaysian market at record high – so what is the next thing?

Making a Point by Jagdev Singh Sidhu

WHAT next? That might be a common question asked after the FTSE Bursa Malaysia KL Composite Index hit a new record high this week and therefore heads into uncharted territory.

That question is difficult to answer because unlike the previous rallies in 1993 and in 2008, the run-up this time around has been surprisingly orderly.

Volume, often an indicator of fervent euphoria, has remained sane and while the index has set a record, trading activity on Bursa Malaysia is nowhere close to previous high levels. This would suggest there is still more room to go.

Although the rise this time has less to do with direct retail interest as it did in the past, the professionalism in investing these days – where more Malaysians are putting their hard-earned money in the hands of professional managers to invest – is also a good sign.

It’s often joked that when retail interest shoots up and everybody becomes a tipster, it’s time to sell. Also a signal would be syndicate activity returning to the market in a big way.

That, to my knowledge, is nowhere close to the situation in previous rallies and surely is a contrarian indicator worth following.

Another fundamental backing to the rise this time would be borne by the efforts ongoing to revitalise the economy, especially the private sector and the investments it is expected to pour into the country.

Some may argue that economic growth might have some correlation to corporate earnings but the balance sheet and cash generation capability of most companies are far better now then in the past.

Maybe it’s also the better health and performance of the largest companies in the country where more focus and strict adherence to key performance indicators now then before have led to better financial performance and hence their attraction.

Furthermore, as more companies in Malaysia venture abroad and with the large commodity companies riding on skyrocketing crude palm oil (CPO) prices, the story at home might not swing investor focus as much as it did in the past.

But the surge in the local stock market also has to do with the amount of money that is swimming around globally, hunting for the best returns they can get.

Between the United States printing money from its quantitative easing and the still super-low interest rates globally, cash around the world has been hunting for returns.

They have so far got it from commodities. Among this group, CPO is rising and rubber has hit an all-time high.

And in emerging Asia, they might have also found an answer for now by buying the currencies of Asian economies.

The flood of money into Asian currencies has led to reciprocal rises in the stock markets in the Philippines and Jakarta, which have in recent months peaked at their all-time highs, suggesting that money is trying to capitalise on growth in equities as well as currencies. Markets in Thailand and Singapore are also rising strongly.

To pour more cold water on the rally, the market is said to be trading at high price to earnings ratio and economically, the horizon globally is less rosy.

Malaysia’s economic growth is forecast to fall next year to between 5% and 6% from a projected 7% this year.

Is 2010 a replica of the 1993 bull run? I don’t think so although most would love the ride, not the end.

The situation this time is vastly different but any time a market hits an all-time high, some caution should come into play. A market high does not happen often.

·Deputy news editor Jagdev Singh Sidhu is cautiously optimistic that the rally this time would not be accompanied by companies with poor fundamentals promising a pot of gold for unsuspecting punters

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