Crude oil price crash takes FBM KLCI to 9-year low due to Covid-19

Investors are encourage to focus on the fundamentals of their investments and do not be affected by market volatility

by SHAZNI ONG/ graphic by MZUKRI

MALAYSIA’S equity market fell sharply as the price of crude oil fell 20% triggering a sell-off as investors, pressured by the ongoing spread of the Covid-19 virus outbreak globally, took risk-off mode and volatility rose.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fell 58.94 points or 3.97% to 1,424.16 points, a nine-year low ahead of the announcement of appointments to the Cabinet by Prime Minister Tan Sri Muhyiddin Yassin yesterday.

The ringgit fell 445 points to 4.2155 against the greenback, while gold jumped US$10 to US$1,676 (RM7,056.33) a troy oz at press time. The volatility on global markets is here to stay for now.

“Buckle up as oil prices will surely topple, but the question is by how much as the shock-and-awe Saudi Arabia strategy will propel oil markets into a period of radical uncertainty. Russia balking is one thing, but Saudi ramping up production is a bird of another feather,” AxiTrader Ltd chief market strategist Stephen Innes stated yesterday.

FSMOne Malaysia assistant portfolio manager Jerry Lee said the Covid-19 virus outbreak, political uncertainty and now the volatility in crude prices have hit investors sentiment.

“Foreign investors have continued to offload Malaysian equity since the middle of last month and we believe the loss in confidence would have to take a longer time for foreign investors to reconsider Malaysian equity.

“Having said that, the recent selloff, to a larger extent, is a result of the Covid-19 outbreak outside China,” he told The Malaysian Reserve yesterday.

Lee noted that Malaysia’s equity is likely to be rather volatile in the next two weeks as the Covid-19 outbreak goes global.

“We would like to encourage investors to focus on the fundamentals of their investments and do not be affected by market volatility. Shifting investment to the defensive sector would help to cushion much of the market drawdown,” he said.

Lee said given the local equity market has dropped significantly over the past couple of weeks, some counters/sectors have appeared to be rather attractive.

“At this juncture, we like sectors like technology/semiconductor, which we believe the long-term growth story still remains intact. Construction-related counters could be another option as we believe the government will prioritise measures to support the slowing economic growth and the key step is to revive some of these megaprojects,” he said.

The losses yesterday took the FBM KLCI 164.6 points or 10.36% lower year-to-date from its 1,588.76 close on Dec 31, 2019, heading for the biggest decline since the third quarter of 2011.

Sentiment on the market was poor with losers beating gainers by 1,139 to 120 counters yesterday. The FTSE ML 70 Index fell 793 points or 6.2%, while the FTSE ML ACE Index fell 606 points or 11.6% and the FTSE ML Small Cap Index closed 1,273 points or 10.16% lower.

Regional markets were hit as well. Singapore’s Straits Times Index fell 6% or 178 points to 2,782, the Hang Seng Index fell 1,106 points or 4.23% to 25,040, while the Nikkei 225 Spot Index fell 1,051 points or 5% to 19,698 at close yesterday.

Petroliam Nasional Bhd (Petronas) listed companies led the losses on the benchmark index with Petronas Chemicals Group Bhd slipping 22.1% or RM1.25 to RM4.40, Petronas Dagangan Bhd falling 5.34% or RM1.18 to RM20.90, MISC Bhd 10% or 75 sen lower at RM6.65 and Petronas Gas Bhd down 44 sen or 2.7% at RM15.70. Glove makers Top Glove Corp Bhd eased the fall in the index by advancing 1.83% or 11 sen to RM6.11, while Nestle (M) Bhd rose 80 sen or 0.5% to RM140.80.

Other sectoral indices also took the beating with Bursa Malaysia Energy Index leading the way, dropping 256.97 points or 25.39% to 754.95 points.

BIMB Securities Sdn Bhd (BIMB Research) in a report yesterday said the FBM KLCI was in bear market territory after having fallen 22% from its April 2018’s record high of 1,895.

“A net outflow of RM1.2 billion was seen last week, bringing the past two weeks’ outflow to a staggering RM2.4 billion. The local market is dominated by local institutional buying, not surprisingly, of RM927 million, followed by retail with RM261 million,” it said.

The research firm expects Malaysia’s risk premium to stay elevated as investors assess Covid-19 impact and the government’s ability to manage the country under an extremely challenging economic condition.

“Recovery in stock prices is always a long and arduous process, as it took three years for the KLCI to surpass its pre-recession high of 2008. Under the current scenario, we recommend a defensive and high yielding stocks strategy,” it stated.

BIMB Research favours Kossan Rubber Industries Bhd, GHL Systems Bhd and Time Dotcom Bhd, and is cautious on two other recommended stocks, Yinson Holdings Bhd and Malaysian Pacific Industries Bhd.

Rakuten Trade Sdn Bhd added that the fall in crude oil prices is leading funds towards safe havens like gold which is now trending towards the US$1,700/oz and could see more upside nearing its high of US$1,900/oz.

“Looking ahead, we expect prevailing consolidation to continue with more downside for the equity markets. We expect the FBM KLCI to experience some selling pressure albeit not much as foreign shareholding is already at an all-time low,” it said.