Bursa, Ringgit in another bearish year, but more bullish outlook seen in 2022

Developments surrounding the latest variant of concern have indicated that Malaysia is not out of the woods yet.

While Bursa Malaysia still draws some interest from foreign funds, the Malaysian ringgit is seen as less favourable at present, with issues surrounding the tapering of the US Federal Reserve asset purchases programme pushing the ringgit into volatile territory.

Impact of new variants

The first month of 2021 had looked promising for both Bursa Malaysia and the ringgit before the country was hit by the Delta variant, which resulted in a second Movement Control Order (MCO 2.0) having to be imposed.

As MCO 2.0 was less stringent, the market downtrend was not as severe as during MCO 1.0, where the FBM KLCI hit its lowest level in five years, falling to 1,303.28 in March of 2020.

This year, the benchmark index had managed to breach1,600 points multiple times but is only expected to settle at around the 1,500 level, said Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid.

Mounting fears over the new Omicron variant sent the FBM KLCI to its weakest level of the year at 1,480.92 in mid-December.

The highest level in 2021 was at 1,639.83 points, recorded in early March.

Volatility in the market had also prompted Bursa Malaysia and the Securities Commission Malaysia (SC) to extend the temporary suspension of intra-day short selling (IDSS) and intra-day short selling by proprietary day traders (PDT short sale) twice this year until the end of 2021.

It was first imposed on March 24, 2020 amid the pandemic as part of the regulators' proactive measures to improve market stability.

On Dec 17, the SC and Bursa Malaysia Bhd said they will lift the temporary suspension on Jan 1, 2022.

The regulators have also extended relief initiatives for companies in financial distress, with the latest measures granting companies that trigger the PN17 and GN3 criteria between July 1, 2021 and Dec 31, 2021, an 18-month relief period compared with 12 months previously.

PN17 stands for Practice Note 17/2005 issued by Bursa Malaysia and pertains to financially distressed companies. To keep their listing status, companies that fall under the definition of PN17 must submit a proposal to the approving authority to restructure and revive the company.

Similarly, Guidance Note 3 or a GN3 company is one that is listed on the ACE Market and is financially distressed.

Following the relief measures, companies like KNM Group Bhd, Alam Maritim Resources Bhd, Impiana Hotels Bhd, and Serba Dinamik Holdings Bhd managed to temporarily avoid falling into PN17 status.

As of Nov 30, 2021, a total of 23 companies were classified under PN17 and GN3, which represented 2.54 per cent of the total number of 905 companies listed on the Main Market and ACE Market.

G Neptune Bhd and IDimension Consolidated Bhd are under GN3 while TH Heavy Engineering Bhd (THHE) is facing delisting after Bursa Malaysia rejected its request for more time to submit a regularisation plan.

Ringgit and international reserves

The ringgit kicked off this year strongly at the 4.00 level and is now hovering at above 4.20 versus the US dollar.

According to Mohd Afzanizam, a slew of US Federal Reserve officials have expressed confidence that the monetary policy would need to be tightened faster in light of the improving US economy.

That anticipation has caused the ringgit to weaken against the greenback.

The chief economist from Juwai IQI Shan Saeed believes Bank Negara Malaysia (BNM) has navigated the global economic fragilities well through a prudent monetary policy and the "structural stability of the ringgit."

"The BNM has played its card sagaciously as we navigate through tempestuous times in the global financial markets," Shan noted. ''The global economy is heading for shortage, not abundance, and inflation is making headlines all around. We are coming to the end of the year and have seen a lot of slowdown in the global economy, shortages, supply chain bottlenecks, geopolitical risks.''

As for international reserves, he said the figures will continue to consolidate as the country's exports are rising. BNM's international reserves amounted to US$116.3 billion as of Dec 15, down slightly from US$116.7 billion at the end of last month. It stood at US$116.1 billion on Oct 29.

False hope again in 2022?

Although Malaysia's economy has begun to recover, any emergence of new coronavirus variants could potentially push the economy back into a stop-start situation.

Hence, Mohd Afzanizam believes financial markets would remain guarded as we enter the third year of living with the coronavirus.

"Demand for safe-haven assets should be well supported.

"However, at the same time, the ongoing reopening of the economy has proceeded well and the government remains committed to procuring more vaccines as the third booster shots seem to be inevitable.

"In that sense, the upside risks to growth should not be totally ruled out," he said.

Bank Islam is projecting the FBM KLCI to end 2022 at 1,660 points while the ringgit could appreciate to RM4.09.

MIDF Amanah Investment Bank Bhd's head of research Imran Yassin Md Yusof noted that Malaysia saw the return of foreign funds from August this year.

Total net purchases done from Aug 11, 2021 until Dec 2, 2021 amounted to RM3.74 billion, resulting in the paring of the net selling position this year to minus RM2.27 billion.

"The question now is whether this inflow from foreign investors is sustainable into 2022.

"While it is still early days, but notwithstanding the recent days' reaction to renewed concerns on the COVID-19 front, we opine that the signs seem encouraging," said Imran Yassin.

Meanwhile, Juwai IQI's Shan is expecting the domestic currency to stabilise in 2022.

"At Juwai IQI, we expect ringgit to leverage from higher commodity prices and higher trade with China as the economy opens up next year," Shan said, adding that the ringgit may move between 3.75 and 4.15 against the greenback in 2022.

BNM is seen keeping the Overnight Policy Rate (OPR) between 1.00 per cent and 1.75 per cent next year and consolidating the monetary policy lever when required.

Shan said international reserves would be higher than US$120 billion as the trade surplus sets the tone.

''Overall, the FBM KLCI market should trade in the range from 1,600 to 1,700 to keep investors engaged and the market structure attractive for investment opportunities. A few sectors would remain in the limelight such as plantation, technology, and gloves," he added. ''In a nutshell, Juwai IQI remains buoyant on the Malaysian economic outlook for 2022 with the GDP growth at between 4.0 and 5.0 per cent on strong domestic consumption, upsurge in digital technology, and higher commodity prices driving the growth trajectory."