New Era for the Malaysian Stock Market


In the stock market, there is no such thing as a sure thing. In politics, it’s probably the same. With the GE14 result finalised and the faster than expected transition done, the Malaysian stock market has moved to a new era.

While the market anticipated there would be high volatility in the first few trading days’ right after the election, it only happened in the first trading hour, with positive sentiment following through afterwards. The FBMKLCI Index ended up 3.9 points higher in the first trading day on 14th May 2018 and by the time you read this article, the new line-up of cabinet ministers would have been announced, signaling the new governance to bring Malaysia to greater heights. So, what do we expect for the stock market?
If there is no black swan in the global stock market, I wouldn’t be surprised in the next few months if:

1) The Composite Index FBMKLCI breaks new highs, for the market recognises a series of action plans and promises delivered by the new government.

2) The Ringgit strengthens as foreign funds will re-enter Malaysia as a matter of confidence, especially with the recovering crude oil price.

3) Small cap stocks that had deep correction in April due to fear will return to their previous highs or even break new highs, provided their earnings for the next few quarters are within expectation.

4) Liquidity and volume of Malaysian stock market would increase; as those who did not believe in the Malaysian stock market would start to believe. In addition, more Singaporeans will start buying Malaysian shares, because the link between Malaysia and Singapore stock exchanges will be setup by the year-end.

With a relatively stable global stock market currently coupled with the newly minted administration, should we make some adjustment to our portfolio? The answer is ‘yes’.

The companies or strategies mentioned in this article are meant for study purpose only. It doesn’t constitute any ‘buy’ or ‘sell’ recommendation. Please consult your financial professional if you want to make any decision.

As you can see, while our table has showed a gain of 195% since November 2015, the two counters bought earlier have gone into red because of their poor quarter results. Let’s observe one more quarter to decide if we should sell them.

Sold EKOVEST and MMODE before election
Construction companies tend to have higher market risks when the general election comes, for their political-linked nature means that they will no longer be able to secure new contracts as easy with the new government. To eliminate this risk, we sold all Ekovest and Mmode shares two weeks before the GE14. The sales had incurred losses at RM24750.
Bought KESM and HEVEA after election

KESM is the largest independent burn-in provider globally, which is riding on the strong growth in the automotive semiconductor segment. With its current PE at nearly 16, plus its 30-40% yearly growth in the last four years, the price below RM16 is deemed very attractive. We bought 5000 shares of KESM at RM15.9 per share.

HEVEA is a particleboard and RTA (Ready to Assemble) manufacturer and trading company. Its high-grade particleboard has given the company an edge to separate from its competitors. In terms of valuation, Hevea’s PE ratio is hovering from 7-8. Hevea is a net cash company and pays generous dividend, which is close to 6% at the price of RM0.8. We bought 80000 shares of Hevea at RM0.83 for its low valuation and bright prospects.
With the sales of Ekovest, Mmode and the investment of Kesm and Hevea, our cash level is now at RM82,725.

On a side note, while some investors were looking at companies that are linked to the new government, it’s not a good idea to chase them. Even though you have seen their share prices going up right after the election, if they are not fundamentally sound, it will not be sustainable. Let me put it this way; regardless who becomes the government, the way you select a company is still the same. It has to have sound fundamentals such as good business model, low valuation, and high growth prospect and under good management.

So, as the fundamentals of a company are crucially important, so is a country’s. With Malaysia’s newly minted government, who is trustworthy, competent and business friendly, Malaysia’s fundamentals have turned much stronger. With this, I’m optimistic that the Malaysian stock market will perform well for the years to come.

Binyuen is the founder of BY Enrich Resources and the author of ‘Life beyond the Comfort Zone’ and ‘Profit from Share Investment’. His books are available in major bookstores in Malaysia, Singapore or online .