KLCI Outlook after Budget 2020 SpeechPublish Date: 14-10-2019
This is the monthly chart of KLCI. It has broken the neckline at 1580, which is not so good for Malaysia investors as the next target price for KLCI is 1310. The level which is not seen 7 years ago during the European Debt Crisis.
The major industries that formed this index are banks, plantation, telecommunication and oil & gas. 1) Banks are not performing well due to the bleak growth prospect. We had raised excessive debt in the past few years in order to grow our economy and the banks are now clamping down on loan, leaving them less space to grow. The decrease in interest rate also affects their profitability as their net interest margin are now thinner. 2) The outlook of plantation counters is bleak too. Oversupply and high inventory level have dragged the price of Crude Palm Oil. The ban from EU might not materialize eventually but there is an immense pressure on the share price as more and more funds are now focusing on ESG (Environment, Social and Governance). The recent plunge of KL Kepong Share Price is a good example. 3) Telecommunication is not in good shape either. Once the darling of investors is now turning to become a value trap. The rise of free communication apps has shrunk their margin. The companies are also expected to allocate a huge amount for capital expenditure to build the 5G network in the next few years, resulting in a lower dividend payout for its shareholders. Recently, there are rumours discussing that Singapore Telecommunication Ltd is forced to reduce its fixed dividend policy. This may also be the fate for Malaysia telecommunication companies. 4) Oil is still in the downtrend and the recent spike in oil price due to the drone attack on Saudi Arabia oil facilities is just a one-off event. However, there is not much to talk about the oil and gas counters on KLCI as their performance are not related to the oil price. In short, I think any level below 1580 serves as a good point to short and I am bullish on gold. When the next economic crisis comes, the central banks are gonna print a lot, a lot of money.
The Budget 2020 Speech had also failed to excite the market. The whole budget is only about redistributing the national wealth instead of increasing the productivity of the nation.