The recent downtrend on crude palm oil (CPO) price sparked heavy selling on the plantation stocks on Bursa Malaysia despite analysts’ bullish view on the sector.

The aggressive selling, which is believed to be mainly from foreign fund managers, was compounded by the political uncertainties that had dampened the market sentiment, said analysts.

The sharp losses on the plantation counters, which accounted for about 20% weighting on the Kuala Lumpur Composite Index, dragged the benchmark index down to 19-month low of 1103.48 points yesterday.

Citi Investment Research said the selling on plantation stocks was ‘overdone’, pushing the foreign shareholding to historical low in the sector.

“Based on the checks with management and the latest available data they provided, the foreign shareholding for bigger cap plantation stocks is as follows — IOI at 32% (May 08), Kuala Lumpur Kepong Bhd at 21.4% (June 08), Sime Darby at 20.3% (May 08),” it said.

By looking at the volume traded since June and assuming that foreign investors dominated the selling, the research outfit estimated the foreign shareholding in IOI Corp Bhd to have fallen to 25% and 16% in KLK.

Sime Darby shed 15 sen to RM7.60 — the lowest level since it was re-listed in November last year. Its share price has shed almost 34% of its value year-to-date. Both IOI Corp and KLK plunged to a 10-month low of RM5.50 and RM13.50 respectively yesterday. IOI Corp dropped 10 sen while KLK lost 30 sen.

A plantation analyst said stocks with large foreign shareholding were most vulnerable to heavy correction in the share prices.

“The heavy selling in last week’s trading was mainly from the foreign side. It is likely to continue as CPO prices continue to drop,” the analyst said, “Although local investors have been picking up plantation stocks, we advised them to be selective and opt for liquid stocks. Otherwise, they should take profit for now and wait,” she added.

The benchmark October delivery on Bursa Malaysia Derivatives fell as much as RM195 to RM3,197 in mid-day trade before it rebounded to close at RM3,260 yesterday.

The CPO futures for August and September deliveries each fell RM135 and RM142, respectively to RM3,245.

Analysts generally believe that the fundamentals of the plantation sector remain intact. The only one significant change that has taken place lately is the abolishment of Argentina’s taxes on food exports, which may result in higher supply of soybean in the world market, and in turn put a lid on edible oil prices.

The Edge daily