By SHAZNI ONG & ASILA JALIL/ Pic By TMR
BURSA Malaysia-listed financial counters lost as much as RM61 billion in market capitalisation since the start of March 2020, as investors continue to flee markets amid the Covid-19 pandemic.
While the central bank’s move to cut the Statutory Reserve Ratio (SRR) to 2% effective today will shore up system liquidity, investors are likely to continue their selling spree as weak sentiment clouds the promise of operation continuity for lenders.
The total market cap of nine financial counters fell 25.52% to RM239.06 billion on Wednesday (March 18) from RM300.07 billion on March 1, wiping out RM61.01 billion in market value, Bloomberg data showed.
The nine stocks comprise Malayan Banking Bhd, AMMB Holdings Bhd, RHB Bank Bhd, Hong Leong Bank Bhd, Affin Bank Bhd, Hong Leong Financial Group Bhd, Public Bank Bhd, Alliance Bank Malaysia Bhd and CIMB Group Holdings Bhd.
CIMB suffered the biggest decline in market value, having witnessed a 30.5% or RM14.59 billion drop to RM33.24 billion from the RM47.83 billion recorded on March 1.
Alliance Bank followed closely with a 30.45% or RM1.09 billion fall to RM2.49 billion, from RM3.58 billion on the first day of the month.
In third place was Public Bank, which lost 23.85% or RM15.83 billion to settle at RM50.55 billion, against RM66.38 billion on March 1. The bank is often more susceptible to sell-offs due to its high foreign shareholding.
Shares of the country’s second-largest bank by market capitalisation also fell the most over the period, plunging 23.9% or RM4.08 to RM13.02 from RM17.10 on the first day of the month.
The Bursa Malaysia Finance Index also fell for the seventh straight day yesterday, plunging 4.09% or 464.03 points to 10,885.45 points.
Year-to-date, the index is down 29.61%. It’s heading for its biggest decline in at least 10 years after losing 15% so far this week and 30% in the current quarter.
Banking stocks aren’t the only losers, however, as investors have been selling heavily across all sectors amid the rising number of Covid-19 cases in Malaysia that prompted the government to implement the Movement Control Order.
The benchmark FTSE Bursa Malaysia KLCI recorded a sixth straight day of losses yesterday, slipping 1.56% to 1,219.72. The gauge is down 23.23% YTD.
Though the Order has been welcomed by many amid the spike in cases, the closure of non-essential businesses and services will further impact an already battered economy.
Malaysia’s GDP — which grew 4.3% in 2019, the slowest in a decade — is expected to weaken particularly in the first-quarter of 2020, the central bank has warned.
Following the announcement of a RM20 billion economic stimulus package to prop up the domestic economy, Bank Negara Malaysia (BNM) said the SRR will be lowered by 100 basis points (bps) from 3% to 2%, effective today.
Each principal dealer will also be able to recognise Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) of up to RM1 billion as part of the SRR compliance. The flexibility given to the principal dealers will be available until March 31, 2021.
“These combined measures will release approximately RM30 billion worth of liquidity into the banking system,” BNM said in a statement yesterday.
The cut is the right move as financial markets have become “jittery” due to the Covid-19 pandemic, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.
“Therefore, at the current juncture, ensuring sufficient liquidity is the utmost important priority so that the financial intermediation process such as borrowing and lending activities will not be disrupted following the risk aversion,” he told The Malaysian Reserve.
Bank Islam’s estimates from January’s eligible liabilities revealed that the amount of liquidity to be injected should be in the region of RM15 billion, Afzanizam added.
“Perhaps the recognition of MGS and MGII of up to RM1 billion as part of SRR compliance may have boosted the total amount of liquidity into the system,” he said.
The SRR ratio was previously slashed by 50bps in November from 3.5% to 3% — the central bank’s first cut in over three years. The reduction was aimed at maintaining sufficient liquidity in the domestic financial system, as well as facilitating effective liquidity management by banking institutions.
BNM also said the SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy, rather the Overnight Policy Rate (OPR) is the sole indicator used to signal the monetary policy stance. It slashed the OPR last month by 25bps to 2.5%, bringing the benchmark interest rate to the lowest level since May 2010. The cut was the second in three months.
Central banks around the world have also been reducing rates in an attempt to buffer the impact of Covid-19.
The US Federal Reserve’s emergency cut on Sunday was followed by Hong Kong, Taiwan, Turkey and Australia, among others, making it a high probability for BNM to make a third OPR cut when it meets in May.