Wednesday, April 17, 2019

Market Outlook as at April 17, 2019

A few days ago, our PM replied to a question and said that "the government might impose measures to protect the ringgit again if speculators continue to attack the currency." I believe that the reply was a mistake in 2 ways; firstly, there is no attack on our currency and talking about it would create fear in the mind of investors and businessmen, and secondly, to suggest that we would impose measures to protect the ringgit would only rekindle the fear that capital control may be an option on the table. 

The net effect of this slip-up is the selldown being witnessed in the market for the past 2 days. Foreign funds who had invested in Malaysian stocks would not want to be caught out again like in 1999. So they chose to safe themselves by exiting our market.

Chart 1: FBMKLCI's daily chart as at April 17, 2019_3.00 (Source: malaysiastock.,biz)

Looking at the chart above, it seems likely that FBMKLCI may test its support at 1600 in the current decline. I believe that this level should hold up the market.

Now, after the foreign funds have disposed off their stocks, they will remit their proceed by selling MYR and buying USD- which will depress our currency even more. From the chart below, we can see that USD-MYR is pressing against the downtrend line, RR at 4.15. An upside breakout above this line would lead to the continuation of the prior uptrend.

Chart 12; USD-MYR's weekly chart as at April 17, 2019_3.00 (Source: malaysiastock.,biz)


In stock market, timing is everything. The current decline in Maybank share price is driven by development in one of its Singapore subsidiary's loans to the Hyflux group (actually to 2 subsidiaries, Tuasone & Tuaspring Pte Ltd). These loans, collectively account for 4.1% of Maybank Singapore's total assets, may not be settled soon as the white knight for the rescue of the Hyflux has pulled out.

News reports that Singapore PUB is now likely to step in to takeover the 2 companies as its assets are deemed to be of national interest. Analysts believe that Maybank is likely to receive a fair settlement of the loans granted, with possibly a small loss. In any event, Maybank Singapore has provided SGD106 million for its exposure to these 2 companies totaling SGD659 million. I find the analysts' reasoning to be logically sound. Thus I feel that the selldown may be overdone.

Looking at Maybank share price decline, it seems that the market is pricing in a big loss for the Hyflux loans. If that turned out to be incorrect, we can expect a nice recovery for Maybank in the near future.

Chart 2: Maybank's daily chart as at April 17, 2019_3.00 (Source: malaysiastock.,biz)

Meanwhile CIMB has been dropping steadily for the past 6-7 weeks. One of the factors causing the drop is the fear of an upset in the Indonesian Presidential Election. The logic behind this line of thought is that a victory for the challenger, Prabowo would lead to economic slowdown which would affect CIMB Niaga's profit. CIMB Niaga contributes more than 20% of the CIMB group bottom-line.

I find this effort of logic to be extreme. Personally, I believe Jokowi is likely to win, and even if there were to be an upset, I believe Prabowo is pragmatic enough to avoid instituting policies that would lead to economic slowdown which would in turn affect his chance of election for the second term.

Chart 4; CIMB's daily chart as at April 17, 2019_3.00 (Source: malaysiastock.,biz)

Based on the above, I believe Maybank and CIMB are worth considering for long-term investment after the selldown in the past few weeks.

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