Most financial medias are linking this stocks rally with the General Election hence explaining the hot money from both local institution and also foreign source pouring in.
However, I do not think we should get our mind focused solely on that assumption only.
As we could observe, over the past 1 year, our Ringgit has depreciated severely against the greenback (US Dollar) by close to 30-50%.
When a currency of a nation falls, it reduces our purchasing power, say items that are imported outside Malaysia would suddenly costs more due to the difference of the currency translation.
As the modern economics has it, a currency is a subset of an asset classes. There is a definite equilibrium between all these.
With a weaker ringgit, it is simply more attractive and lower risk for investors to jump onto Real Estate, Equities, Commodities, and also Fixed Income. However, the reflection is usually not an instant process, there is usually a few months lag for it to readjust to a valuation investors deem as fair.
Take Petronas for example, in their fourth quarter earnings, their earnings were beyond great simply because Brent Crude Oil were hovering around 50-55$ per barrel. As for shale producers in the USA, they do not get the benefit from strengthening of the dollar, meanwhile Petronas are actually making money due to currency translation difference and is finally consolidated in Ringgit.
Take for example, when Ringgit was at RM 3.10 vs USD in 2012-2013. Crude oil was around 80-100$ per barrel.
Hence Petronas were earning
$90 x RM 3.1 = RM 279 per barrel.
And as for now,
$55 x 4.45 = RM 244 per barrel.
Note the difference werent that bad as we were lead to believe?
As for now, I foresee our ringgit recovering to RM 3.9-4.00 vs USD and KLCI will eventually break 1800 thanks to the currently improving sentiment.
Meanwhile, enjoy the free ride x)