KUALA LUMPUR (Oct 21): Bursa Malaysia Bhd’s (KL:BURSA) third quarter could be sequentially softer as weaker securities trading activity dragged on a stronger derivatives market, an analyst flagged.

The exchange operator may report RM70 million in earnings, a 2% quarter-on-quarter decline but a 7% growth on a year-on-year basis for July-September, Hong Leong Investment Bank said in an earnings preview. For the full year, the house’s projection is for a net profit of RM286.6 million.

Bursa Malaysia is scheduled to announce its results on Oct 28.

Data out earlier showed a decline of nearly 11% quarter-on-quarter in average daily volume for securities while the average contracts per day for derivatives climbed nearly 19% in the third quarter.

On a year-on-year basis, however, average activity was up 14% for securities and 38% for derivatives.

Overall, the expansion of the FBM KLCI benchmark index and the potential 16th general election next year are supportive of the average daily volume of securities in the coming months, Hong Leong Investment said as it maintained its ‘buy’ call on Bursa Malaysia.

The upcoming December review should see at least 40 changes spanning the FBM70 with 20 constituents migrating out and 20 new members entering the index, much higher than usual reviews in the past, “rendering a more profound positive impact” on trading activity, the house said.

The next general election, meanwhile, may also result in a spike of trading activity on Bursa Malaysia, Hong Leong Investment predicted, noting that average daily volume surged up to 37%-70% a month after past polls compared to the baseline.

Indonesia’s woes from a potential downgrade of its ‘emerging market’ status to ‘stand-alone market’ could also send funds flowing into Malaysia and other neighbours, the house added.

Shares of Bursa Malaysia were down about 4% year-to-date to RM8.06 at the time of writing on Wednesday. The stock has 10 ‘buy’ calls, eight ‘hold’ and only one ‘sell’ out of 19 analysts covering it, according to Bloomberg. The average target price is RM9.35.