Coronavirus punishes equities, ringgit and crude palm oil

Heightened worries that the outbreak would turn into an epidemic sent equity markets around the world into a tailspin

by FARA AISYAH / pic by BLOOMBERG

THE local equity market slumped, ringgit weakened and crude palm oil (CPO) retreated as the country’s main economic barometers fell over heightening worries of a possible coronavirus pandemic, rising death toll from the virus and more cases detected across the globe.

The SARS-like influenza virus has killed more than 100 people, affecting more than 4,500 in China. The spread of the virus is accelerating with similar cases detected in more than 16 countries.

Wuhan, which is the ground-zero of the can-be-deadly virus, has been on a lockdown, but the clamp of human movements has not slowed the spread of the virus.

Many countries are trying to repatriate their citizens from Wuhan. Malaysia has imposed a travel ban for people from Wuhan and surrounding Hubei Province.

Heightened worries that the outbreak would turn into an epidemic sent equity markets around the world into a tailspin.

Malaysia’s FTSE Bursa Malaysia KLCI slumped 21.17 points or 1.35% to 1,551.64 yesterday, the lowest since October last year. The drop was also the biggest since falling 1.36% on Jan 8, 2020.

The ringgit, which had strengthened as much as 0.7% this year, also went south, losing 0.67% against the US dollar yesterday to close at 4.086.

The Bursa Malaysia Plantation Index fell 3.17%, or 235.43 points to 7,189.32, the biggest since falling 3.43% on June 21, 2013, while CPO plunged 7% yesterday, the biggest intraday drop in more than seven years, according to Reuters.

Palm oil contract for April delivery was at RM2,660 per tonne, erasing optimism after prices of the country’s key commodity rose above RM3,100 recently. CPO slumped on worries over demand from China, the world’s most populated nation, which is grappling to contain the coronavirus.

“At the moment, investors are being cautious as they try to reduce their exposures because the virus outbreak is still recent, and the cure is not found yet,” Areca Capital Sdn Bhd CEO and ED Danny Wong told The Malaysian Reserve.

He did not rule out profit-taking activity to the sudden selling surge.

“Don’t exit all counters, especially those for long-term investments, if you want to sell some, sell the high beta stocks,” Wong said.

Consumer counters, including Nestle (M) Bhd, Fraser & Neave Holdings Bhd, Dutch Lady Milk Industries Bhd, Carlsberg Brewery (M) Bhd and British American Tobacco (M) Bhd, were the top losers yesterday.

But rubber glove makers — Top Glove Corp Bhd, Adventa Bhd, Kossan Rubber Industries Bhd, Supermax Corp Bhd and Hartalega Holdings Bhd — all shined as demands increase due to the virus.

AxiCorp chief market strategist Stephen Innes said Malaysia is vulnerable to the economic slowdown in China given the close trade ties between the two countries.

“Beyond tourism, China is so important to global supply chain and even more so to Asean economies as it has moved from brickand-mortar to consumption-driven and a prime destination for Malaysian exports.

“Right now, it is a bit of fear mixed with the reality the virus could spread quicker than people thought. We know the headwinds will dissipate, but when and how long is the question,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid expects the ringgit to continue to weaken this week.

“I think this week, the focus will be on the coronavirus outbreak. Therefore, there is risk-aversion that leads to demand for safe haven currencies such as the US dollar and yen.

“Today, the US dollar index has gone up to 98 points from 96.389 points at the end of December 2019,” he said.

Kenanga Investment Bank Bhd said in a report last week that — based on the 2003 SARS experience — post assessment stipulates that the domestic economy was not able to fully thwart the impact of the epidemic as policy action was taken slightly late in the second quarter of 2003 (2Q03).

“Nevertheless, we expect authorities to be more proactive this time around and take necessary measures to support the economy before the coronavirus outbreak weighs on domestic demand.

“The house expects Bank Negara Malaysia to cut the Overnight Policy Rate by another 25 basis points to 2.5% probably at the next Monetary Policy Committee meeting in March or 2Q20,” it said.

It also expects the central bank to introduce a Special Relief Guarantee Fund for working capital for the affected companies during the outbreak.