Malaysian equities to recover only when Parliament convenes

FBM KLCI plunged 5.3% to 1,344.75 points last Friday, its biggest decline since the global financial crisis in 2008


MALAYSIAN equities are expected to recover only when the postponed sitting of Parliament takes place, as the recent political coup is exacerbating the impact of Covid-19 and falling oil prices on the local bourse.

The FTSE Bursa Malaysia KLCI (FBM KLCI) plunged 5.3% or 74.68 points to 1,344.75 last Friday, marking its biggest decline since the global financial crisis in 2008 as markets roiled worldwide on burgeoning Covid-19 fears.

While stock markets worldwide are suffering as well, Malaysia has the added millstone of political turmoil which will put the country at the bottom of international investors’ destination lists for now, Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said.

“I only expect the FBM KLCI to recover once Parliament finally convenes and has the no-confidence vote, assuming that we will see the worst of the coronavirus and the oil drop by then — neither of these effects is a given by then.

“Malaysia will only have a sustained recovery when the major economies start recovering themselves. The situation is about damage control for now,” Halley told The Malaysian Reserve.

The FBM KLCI will likely test the 1,300 level early this week on negative sentiment, he added, as the negative growth picture remains bleak and will probably worsen, weighing heavily on Malaysian stocks.

The oil and gas and consumer sectors will continue to be among the worst performers for the foreseeable future, Halley said.

Top losers on the local bourse last Friday included Nestle (M) Bhd, Carlsberg Brewery (M) Bhd, PPB Group Bhd, Heineken (M) Bhd, Hong Leong Bank Bhd, Kuala Lumpur Kepong Bhd, Fraser & Neave Holdings Bhd, Hap Seng Consolidated Bhd, Public Bank Bhd and Petronas Dagangan Bhd.

Earlier this month, Parliament speaker Tan Sri Mohamad Ariff Md Yusof said the first Dewan Rakyat sitting of 2020, which was supposed to convene on March 9, will take place on May 18 instead.

The pushback is expected to give Prime Minister (PM) Tan Sri Muhyiddin Yassin time to take stock of the country’s overall condition and decide on his Cabinet line-up, as well as to allow the new PM to shore up support and prove his majority in a divided Parliament.

Independent financial consultant and investment analyst Leong Hoe Kit also believes the local bourse is further depressed by political uncertainties.

“Given these concerns, it is highly unlikely that the FBM KLCI will recover in just a short time span.

“Investors should track the developments pertaining to these issues and after some yet to be known amount of time, the FBM KLCI will recover,” he said.

Markets are currently gripped by fear and investors are aggressively selling higher risk assets, including equities, in a show of irrational risk aversion and driving liquidity flight from the capital markets.

“The FBM KLCI could rebound to 1,400-level this week, but the upside would likely be capped at 1,470 in the short term,” Leong said.

Malaysia’s 30 largest stocks appear to be tracking the US markets closely, thus further negative news from the US and Europe could exacerbate the situation on the local front, potentially dragging the gauge to 1,280 this week, he added.