Suspension of stock market would amplify panic

Especially since there is nothing fundamentally wrong with the functioning of the markets, says analyst


RADING of Malaysian equities will not be halted amid the Covid-19 pandemic as closing markets would only stir greater panic, said the country’s regulators.

In a joint statement yesterday, the Securities Commission Malaysia (SC) and Bursa Malaysia Bhd said they will maintain continuous trading and market operation to facilitate investors to manage their risks and opportunities during this period.

“It is important for the markets to remain open, as closing the markets would neither mitigate nor address the underlying causes of market volatility. Instead, it will create greater uncertainty and adverse market sentiment by denying investors’ access to their investments,” they said.

The SC and Bursa Malaysia noted that there are business continuity measures in place, including backup sites, recovery facilities and alternative communications channels to operate the market in a pandemic situation.

“Market management measures (eg circuit breakers, static and dynamic price limit) are in place and known to participants to manage excessive volatility.

“Robust clearing funds, margins and deposits are also in place to ensure clearing and settlement risks are managed,” SC and Bursa said.

This came after the Association of Stockbroking Companies of Malaysia chairman Datuk Dr Azman Manaf called for the temporary suspension of Bursa Malaysia as a defensive measure to prevent further slide in the stock market.

However, analysts opined that such a move would only stir panic and have long-term adverse effects on the market.

As the Philippines became the first country to halt stock, bond and currency trading in response to the widening Covid-19 pandemic, market experts don’t suggest Malaysia to jump on the bandwagon.

StashAway Malaysia Sdn Bhd country manager Wong Wai Ken said it would not be a good policy for Bursa Malaysia to stop trading due to Covid-19, since there is nothing fundamentally wrong with the functioning of the markets.

The fall in stock prices and the benchmark index is not a valid reason to close the markets, although it may be detrimental for investors’ portfolios in the short to medium term.

“Suspending trade to stop the decline would have long-term adverse effects on the market, as it could be seen as a form of capital control, where investors’ funds are frozen and not being able to liquidate,” he told The Malaysian Reserve (TMR) yesterday.

Rakuten Trade Sdn Bhd VP of research Vincent Lau also shares the same sentiment as he believes suspending trading would only cause more volatility when the market reopens.

Both Lau and Wong reckon that there are other measures that the exchanges can take to curb volatility among which banning short selling for a limited time, which could serve such a purpose.

Banning of short selling is cur- rently being done in Italy, France and Belgium.

“As of now, our stock market has not hit a circuit breaker, but should we shut down the financial market, it may overwhelm investors when trading resumes.

“Such a thing would then cause the stock market to hit multiple circuit breakers,” Lau told TMR.

The closures of the Philippines stock market took effect on Tuesday, according to statements from the Philippine Stock Exchange and the Bankers Association of the Philippines.

Following the two-day shutdown period, its stock market fell by 30% upon resumptions, the biggest intraday loss in 33 years.

Trading was halted shortly after the stock exchange reopened at 9:30am after the main index breached the 10% decline required triggering a circuit breaker, according to Bloomberg data.