Inter-Pacific Asset Management Sdn Bhd CEO Nazri Khan (DDNK) said investors have been anticipating a snap election as early as January next year due to optimism over the introduction of the Covid-19 vaccine, along with expectations of the removal of the conditional movement control order (CMCO).
“Many investors believe that the Covid-19 vaccine is likely to be available in the country around March 2021.
“Many of them expect once the pandemic is stabilised and the CMCO removed, the snap election can happen as soon as January 2021,” he said.
DDNK believes that the snap election would be able to resolve the current domestic political situation and hence attract more foreign inflows into the local market and push it higher next year.
“This (snap election) will be one of the biggest catalysts for the market’s bullishness next year,” he told Bernama.
The market barometer was last seen touching the 1,800 mark when it climbed to 1,803.71 points on Sept 27, 2018. Since then, it had been losing steam to hit an 11-year low of 1,207.80 on March 19 this year.
Other than anticipation of the snap polls, DDNK said the RM322.5 billion Budget 2021, the largest in Malaysia’s history, would be able to jack up the FBM KLCI higher next year.
“As Budget 2021 puts great emphasis on the construction sector, we believe the sector would be the biggest beneficiary next year compared with technology stocks that are on the investors’ radar this year,” he said.
Besides that, he said the optimism over the Covid-19 vaccine would lead to market rotation where investors would shift from growth to value stocks next year, particularly the beaten-down stocks like plantation, airlines, hotel, tourism, gaming, banking, and real estate investment trusts (REITs).
“Meanwhile, we project that the US dollar would be weaker next year. This would bode well for commodity prices, such as the crude oil price, which is likely to trade higher between US$55-US$60 per barrel next year.
“This will propel Bursa Malaysia as 30% of the stocks on the local bourse are commodity-linked stocks,” he said.
With the market’s anticipation of a softer US dollar, DDNK expects a stronger ringgit which would advance by 3-5% next year from the current 4.09-level against the greenback. This would encourage more foreign funds to enter the local market.
“Hopefully, that will lead to a sovereign rating upgrade next year, which would subsequently reduce our bond yield, reduce funding cost and accelerate the inflow of capital into the market,” he said.
He added that a series of Covid-19 stimulus packages, worth a total of RM305 billion, along with the mild inflation rate (consumer price index at 1.4% in September 2020) and low overnight policy rate (OPR) of 1.75%, would provide ample liquidity for the risk assets and, therefore, create more positive catalysts for the stock market next year.
On the external front, DDNK said US President-elect Joe Biden’s victory is expected to have a positive impact on global equity markets, especially that of China, as well as other Asian and emerging markets.
“Biden seems to be less confrontational, less US-centric and more market-friendly. Many believe he will welcome more free trade and a liberal global trade system moving forward.
“This is expected to improve the US-China trade relations and I believe Bursa Malaysia is likely to benefit from that,” he said.
For the FBM-KLCI target at end-2020, DDNK expects it to remain flat at 1,650 from Friday’s close of 1,593.75.