Malaysia: Pre-Budget Rally On the Cards?

Aug 29th is the day Malaysia's Government announces the 2009 budget for key Government's spending and measures to boost the economy. As always, the outcome will have either direct or indirect impact on Malaysia corporate business and the general public.

"Traditionally", Malaysia's stock market tend to react positively by gaining some form of rallies the days or weeks leading to the event, as investors start placing their "bets" on who are likely to be beneficiaries from the speculated budget measures.

So are we going to see the same thing happening this time around?

Well, to start off with, there seems to be one too many critical issues looming over every Malaysian's mind....be it from global credit crunch and financial crisis, high crude oil price, inflation, weakening economy to political uncertainties!

Earlier, the market appeared to have provided some degree of encouraging uplift, when KLCI rallied 60 points (5%) between 21st to 31st July! Unfortunately, the market came tumbling down thereafter, no thanks to the weakening sentiment and severe correction in commodity prices, particularly crude palm oil, as global crude oil prices adjusted downward!

In my opinion, the rally is probably over, if there was even one to start off with! More like dead cat bounced, rather than a rally!

Technically, KLCI charts seem to be weakening too. As it is, the downward trend has no sign of reversal yet but more likely to weaken further.

Interestingly, according to a report by CIMB Investment Research, Malaysia's stock market could be further de-rated going forward, as the level of foreign shareholdings in our local companies is still relatively at a high level of 22%, from a high of 24% as at end 2007. Given the recent exodus of foreign funds, i am actually quite surprised to see that the foreign shareholding level is still so substantial, and is only a relatively small reduction from the high point of 24%! Moreover, KLCI is still trading at a higher PE than the average market PE of Hong Kong, Thailand and Indonesia!

That says a lot....there could be still plenty of room to fall, should our political scenario and economy turn out worse than expected!

Another rally before budget announcement? Don't count on it!