Smarties: Market Musings

Smarties: Market Musings


The local equity market has taken a beating since our government change. A lot of the movement has been attributed to concerns over uncertainty with regards to drastic policy changes. It has been slightly over two months since the new government came on board. I think it’s about time we take a look and see if we can conclude if the recent roller coaster ride is due to our recent regime change.

In a bubble, looking at the movement our local stock market index, it’s pretty easy to conclude that the recent change in government would have caused this:

Roller coaster
Bulls versus Bears

The markets have been pretty volatile, and a few days after the election, you can see what technical analysts call a broadening formation.  This a classic sign of heightened uncertainty, and a clear battle between the bulls and the bear. You could conclude here that the bears are very bearish, and the bulls are trying their darnedest to keep the market up (hence the large trading range during these few days leading up to and shortly after the election).

Eventually the bears took over and and the market hasn’t looked back since.

I suppose you could say that a couple of days after, investors are nervous about the uncertainty coming from change in the government. This was pretty apparent in the construction sector, having taken a beating in the aftermath of the election. Investors are concerned that with the change in government, contracts handed out previously will be revisited. Which is a fair, I guess.

Now that we have passed the two months mark, can we still say that political uncertainty is still the overriding theme? Well, let’s do a comparison. If you look below, you’ll see two charts, one is the MSCI Emerging Markets Index, and the other, is our own FBMKLCI:

MSCI Emerging Markets vs FBMKLCI



If you want to know, the MSCI Emerging Markets Index (EM Index) measures the changes in market cap of the largest stocks in emerging markets. Chinese companies make up a whopping 32.7% of the entire weightage of the index, followed by South Korea at 14.6%. Where is Malaysia? We’re slotted conveniently under others, which collectively make up 25.9%.

Safe to say, Malaysia’s relatively small weightage means that we’re not influential enough to make large changes in the index.


One thing I’d like to take notice of is how similar the movement in our index is, compared to the EM Index. What’s going on here? Could the entire emerging market segment be that affected by what’s happening in Malaysia? Honestly, I don’t think so. Whilst I think that yeah, maybe locally, government change may have had something to do with how our market behaved, there may be other greater forces that are imposing its influence.

What could that be?

Personally, I think that the ongoing trade spat between Mr.Trump and China is the main driver to how our market is behaving. I open up news on the market and all I see are updates about escalating trade tension between Uncle Sam and China. Given this region’s heavy reliance on China as a trade partner, I expect to see the same behaviour in how their market is performing too.

Here’s what I found:

Everyone is underwater

Investors in this region have seen better days. This makes sense, given everyone’s reliance on China as their export destination.

I guess after all this, what I’m trying to say is that what we’re seeing happening in our market might not be because of the recent change in government. Again, I think that may have had an influence, but globally, there are other thing happening, that is exerting its pressure on us. I reckon until this who trade issue settles down, we’re going to be in the same boat, along with our neighbours, for some time yet.

What do you reckon? What other things do you think is currently affecting the performance of our market? Let me know! Comment down below!


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