FBM KLCI sinks to a 10-year record low

The Fed’s action to cut interest rate to zero has further exacerbated selling that rippled through stock markets

By NUR HANANI AZMAN / Pic By BLOOMBERG

THE FTSE Bursa Malaysia KLCI (FBM KLCI) sank to a 10-year low of 1,280.63 yesterday, losing 64.12 points or 4.76% on persistent selling pressure as investors continued to take flight despite Bank Negara Malaysia’s (BNM) move to cut Overnight Policy Rate rates and the government’s stimulus package.

Turnover decreased to 4.47 billion shares worth RM3.68 billion from 5.67 billion shares worth RM4.90 billion recorded last Friday.

The decline in FBM KLCI was also seen on the regional front, with Singapore’s Straits Times Index slumped 5.25% to 2,495.77, while the Jakarta Composite Index declined 4.42% to 4,690.66.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said the US Federal Reserve (Fed) rate cut has further exacerbated selling that rippled through stock markets.

“The Fed’s action to cut interest rate to zero will likely spark a wave of aggressive rate cuts by Asia’s central bank this week”, Jeffrey told The Malaysian Reserve.

“Asian markets are set for a tough start to the week, with only the anticipation of further easing by regional central banks likely to offer any support.

“Governments around the world will be faced with stark choices, allowing them to collapse with the economic effects downstream, such as mass job losses, or become the reluctant owners of a whole portfolio of unexpected long-term investments,” he said in a note titled “Big Bazookas Everywhere”.

Bursa Malaysia has suspended the proprietary day trading (PDT) and intraday short selling (IDSS) of 23 companies as the counters dropped more than 15% yesterday.

It includes UMW Holdings Bhd, DRB-Hicom Bhd, Syarikat Takaful Malaysia Keluarga Bhd, Sunsuria Bhd and MyEG Services Bhd.

Meanwhile, MIDF Amanah Investment Bank Bhd Research (MIDF Research) has revised its year-end 2020 baseline target for the FBM KLCI from 1,600 points to 1,480 points.

Despite the recent flare-up in new cases of Covid-19 outside China, the research firm’s baseline scenario is for the outbreak to be brought under control within the next four to six months.

“Thus, the equity market would be trapped in a cautious mood or even occasionally under extreme risk aversion perhaps until the third quarter of this year.

“However, the additional worldwide monetary liquidity from further rate cuts by major central banks, as well as fiscal outlays may help to lend downside support,” it said.

On ringgit, Halley said the near-term US dollar/ringgit in all likelihood continuing to fall towards 4.3500.

“There is no constructive case to be made for a recovery in oil prices. Both Russia and Saudi Arabia seem comfortable with the prospect of a long and drawn-out price war just as a recession sweeps the globe.

“Brent crude is much more likely to see US$25 (RM107.6) a barrel than US$40 a barrel in the near term,” Halley said.

The local unit closed at 4.3050 against the dollar yesterday. At the time of writing, the international oil market Brent crude traded at US$33.17, while West Texas Intermediate US$30.19.

However, Independent financial consultant and investment analyst Leong Hoe Kit opines that it is quite possible for ringgit to reach or even go beyond 4.3000 to the US dollar, especially if BNM cuts interest rates again.

But this is subject to the valuation of other currencies of Malaysia’s trade counterparts, relative to the ringgit, he added.

“It would not be surprising if BNM cuts interest rates again very soon in light of the recent heightened threat to the economy from the coronavirus outbreak (our new PM has just mentioned that Malaysia is in for the long haul after the second wave of Covid-19 cases in the country).

“BNM believes in allowing the ringgit to float and would probably only intervene in the foreign exchange market if there are signs that the ringgit would move towards 4.5000 or beyond.