PETALING JAYA: The KL Composite Index (KLCI) bounced back yesterday after the steep fall on Monday sent bargain hunters swooping in on stocks that have taken a beating.
Local sentiment was also aided by rising share prices across the region despite continued weakness in the US market overnight.
The KLCI was up 33.03 points, or 2.8%, at 1,206.56 yesterday amid lingering concerns over rising political risk following Barisan Nasional's worst-ever performance in Saturday's general election.
Most analysts were of the view that the 9.5% decline on Monday was excessive and attributed the panic selling to political uncertainty rather than economic conditions.
“We reiterate our view that a market correction will turn into an opportunity to buy on weakness in our preferred sectors of plantation, banks, oil and gas, and telecommunications,'' RHB Research Institute said in its market update report yesterday.
However, it cautioned investors that the market would see “false recoveries and knee-jerk reactions” in the short term as the political situation unfolds.
The Malaysian bourse has under-performed its regional counterparts over the past one month and is down by more than 15% since Parliament was dissolved on Feb 13.
The benchmark has fallen more than 20% from its Jan 11 peak of 1,516 points, fitting the classic definition of a so-called bear market.
“Although (Malaysian) stock valuations are starting to look attractive, we believe it is too early to buy into the market due to the political uncertainties,'' research firm CLSA Asia Pacific Markets said yesterday.
It recommends that investors switch to high-yield domestic oriented companies and avoid politically-linked counters, especially those in the construction sector.
Meanwhile, OSK Investment Bank yesterday joined the growing rank of brokerages that had slashed their year-end target for the KLCI in view of the country's recent political changes.
The investment bank, in its market strategy report, lowered its KLCI's year-end target to 1,340 points from 1,650 previously and recommended that investors focus on large “defensive” stocks.
“We have gone more defensive, with capital preservation as the main focus and are looking at companies with the strongest propensity to stay firm amid the vagaries of the stock markets, be it locally or regionally,'' it said.
OSK's picks for capital preservation include DiGi.Com Bhd, KNM Group Bhd and Petronas Gas Bhd while IOI Corp Bhd, Malaysia Airlines and Bursa Malaysia Bhd are for higher beta exposure to the market.
Meanwhile, yesterday's market recovery was mainly attributed to a “technical rebound” after the sharpest fall in a decade pushed the KLCI deep in “oversold” territory.
The benchmark's Relative Strength Index (RSI) reading stood at 18.3 on Monday, below the 20-point level considered by technical analysts as a sign that the market is oversold.
Yesterday's rebound lifted the RSI to 26.7 points, Bloomberg data shows. The market is considered overbought if the reading goes above 80 points.
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