HAVING slid by more than a third since the beginning of the year, 2020’s star performer — the FBM ACE Market Index — has vastly underperformed, especially in comparison to the more moderate declines of 8.1% in the FBM KLCI and 6.6% in the FBM Emas Index.

As market sentiment continues to wane, improving on the lacklustre performance may be a challenge. It was a different story last year, however, as stocks on the ACE Market emerged the biggest winners on the local market. The index more than doubled, driven by the penny stock craze — a market phenomenon not seen in years. In part, companies venturing into the healthcare sector, into segments such as gloves, personal protective equipment, test kits and ventilators, proved a catalyst for the rally.

Typically, trading in ACE Market stocks is dominated by retail investors because of the relatively low value of the shares as well as the small number of shares issued. A total of 142 companies are listed on the ACE Market, seven of them this year.

Given the lack of thematic plays at present, Fortress Capital Asset Management CEO Thomas Yong observes that investors are positioning themselves in longer-term investments, and recent flows suggest retail investors are buying into blue chips.

“Given that the ACE Market consists of a large number of small market capitalisation stocks with volatile earnings, the market as a whole might not be suited for all investors. Having said that, those stocks that can continue to deliver consistent earnings growth should continue to outperform the market,” he tells The Edge.

Yong notes that the slump in the FBM ACE Market Index has been largely due to the worsening Covid-19 pandemic crisis, which has led to extended movement restrictions.

“Current political developments have also weighed down on market sentiment, [resulting in] continuing portfolio outflows by foreign investors,” he says. Yong points out, however, that the ACE Market is still up by more than 30% since the beginning of 2020.

While the average daily value traded on Bursa Malaysia has fallen to a level last seen in April 2020, Yong observes that local retail participation remains high at around 40%. Moreover, retail investors were the largest net buyer in July.

“Retail participation is likely to remain high given the improvement in investment knowledge and lower cost of access to trading platforms. However, local institutional interest is likely to pick up only when economic recovery is evident,” he adds.

Local equities have largely been supported by retail investors since the beginning of 2021. Cumulatively, they were the only net buyer, to the tune of RM8.97 billion, according to MIDF Research’s weekly fund flow report.

In an Aug 2 note, CGS-CIMB Research said that retail investors’ net buy flow rose 74% week on week to RM263 million worth of equities for the week ended July 30. They were the largest net buyer of the financial services and healthcare sectors. The top three net buy stocks for retail investors during the week were Public Bank Bhd, Bursa Malaysia Bhd and Tenaga Nasional Bhd.

Malacca Securities Sdn Bhd head of research Loui Low is of the view that the current pullback in the ACE Market index is “okay” because it rallied substantially last year.

“Retail investors are more into the small-cap stocks and lower-liners. Given that trading volume has declined, their exposure in the market has become smaller. Percentage-wise, it should be 30% to 40% for retail participation.”

Areca Capital Sdn Bhd CEO Danny Wong observes that interest in lower-liners usually emerges when the market sentiment is good.

“When the market was good like last year, people speculated [in lower-liners] because a lot of news came out. After a while, they realised that all that was just speculation. Investors realise that they need to search for good fundamental stocks.

“As retail investors [trade in the short term], they may want to wait for a better time to trade. In general, big funds will not go into lower-liners because their liquidity and volume are not consistent.”

Nonetheless, he highlights that lower-liners are more sensitive to a rebound in bottom line and top line due to the flexibility of securing a new revenue stream.

Wong says the main factors that have hurt market sentiment include the uncertainty in the local political scene, continuous spike in Covid-19 cases, prolonged lockdowns, as well as the sell-off in regional markets.

“Globally, the Delta variant has caused a third or fourth wave of coronavirus infections, which may affect some of the exporters.”

Genetec, new listings among top gainers

Year to date, Genetec Technology Bhd is the top gainer among ACE Market stocks, as the company is believed to be poised to gain from its exposure to the electric vehicle and battery space.

It remains to be seen if its share price rally is sustainable, however, given that the company has just returned to the black with a net profit of RM8.18 million in the first quarter ended June 30 (1QFY2022), from a net loss of RM2.09 million a year ago. It suffered net losses of RM4.25 million for FY2021 and RM166,000 for FY2020.

With its share price trading above RM23 — a staggering 13-fold jump from a mere RM1.73 as at end-December 2020 — the company now has a market capitalisation of about RM1.2 billion, a value rarely seen in ACE Market companies.

Other top performers include technology firms Sedania Innovator Bhd (+400%) and QES Group Bhd (+191.5%).

New listings Pekat Group Bhd and Mobilia Holdings Bhd have also delivered more than decent returns of 134.4% and 119.6%, respectively.

Food and beverage operator Focus Dynamics Group Bhd features prominently at the other end of the spectrum, as more than 90% of its market value has been wiped off since early this year. The counter hit a high of 75 sen in January but has been trending down since April despite posting net earnings that were 14 times higher of RM10.72 million for 1QFY2021 compared with RM748,000 in the same quarter a year ago.

A point to note is its investment in Saudee Group Bhd has floundered. On June 17, Focus Dynamics subscribed for 138.05 million rights shares in Saudee at 15 sen a share or a total of RM20.71 million, representing 19.37% of the latter’s issued and paid-up capital. Saudee’s current share price is below 10 sen, about two-thirds of Focus Dynamics’ subscription price and a pale shadow of Saudee’s share price peak of RM1.19 on March 23.

Hospital bed manufacturer LKL International Bhd has retreated to below 20 sen after its share price ballooned to more than RM2 in August 2020. For FY2021 ended April 30, it posted a net loss of RM3.5 million against a net profit of RM4.3 million in the previous year, owing to a less favourable product mix and higher administrative expenses.

New entrants to the glove industry, AT Systematization Bhd and Inix Technologies Holdings Bhd, are not enjoying the gains hoped for. Their share prices have tumbled 70.5% and 65.6%, respectively, year to date.