Volatility looms for Malaysian stocks, ringgit

Between last Monday and Thursday, the index dropped a total of 125 points before eking out gains the following day


MALAYSIAN equities are set to face another volatile week ahead, with last Friday’s gains expected to be erased soon enough as the Covid-19 pandemic shows no sign of respite.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) surged 6.85% or 83.56 points last Friday to close at 1,303.28, marking its biggest move since jumping 11.5% in September 1998, while the MSCI AC Asia-Pacific Index rose 2.57%.

The gains reaped last Friday aren’t expected to last long after US markets ended one of their worst-ever weeks since the global financial crisis.

The Dow Jones Industrial Average shed 4.6% and the S&P 500 lost 4.3%, while the Nasdaq Composite Index slipped 3.8%.

The surge last Friday was a long overdue technical rebound, Rakuten Trade Sdn Bhd VP of Research Vincent Lau said.

“It is likely short lived. Covid-19 is shutting everything down,” he told The Malaysian Reserve (TMR), adding that he expects this week to be another round of rough five trading days.

Last Friday’s gain was the first for the local gauge in six days, after losing close to RM110 billion in market value amid a global market rout.

Bursa Malaysia’s movements over the course of last week were in line with global market sentiment, as investors sold equities in favour of cash and safe havens. Between last Monday and Thursday, the index lost a total of 125 points before eking out gains the following day.

Last Friday’s session saw gainers outnumbering losers 895 to 145 with trading volume reaching 5.02 billion lots worth RM4.3 billion.

On a Friday-to-Friday basis, the FBM KLCI lost 41.47 points to settle at 1,303.28 from 1,344.75 previously.

Many investors are seeing the situation as “game over” for markets, and even the US Federal Reserve’s emergency rate cut can’t salvage things, iFast Capital Sdn Bhd assistant research manager Tan Wei Yine wrote in a note last Friday.

“The stormy climate across the global economic landscape is here to stay, at least until the sky is clear of clouds of Covid-19,” he said, adding that investors are recommended to only add positions progressively into investment opportunities that have surfaced amid recent sell-offs.

As for the ringgit, analysts anticipate further pressure on the local currency on the coming days.

The ringgit ended lower against the US dollar last Friday at 4.3947/4012 from 4.2750/2800 the week before.

It breached the 4.40 mark last Thursday before retreating slightly, backed by higher oil prices.

In addition to the US dollar liquidity squeeze which is ravishing local currency markets, AxiCorp Financial Service Pte Ltd chief market strategist Stephen Innes said the ringgit fell for the sixth consecutive day due to Malaysia’s Movement Control Order (MCO), which has already hammered the tourism sector.

“There are more significant negative knock-on effects on demand of big-ticket items as unemployment rises.

“As such, markets repriced the curve lower, which has been nothing short of dramatic as markets expect the central bank to drop interest rates to 1.5%,” he said in a note.

Following a recent slew of rate cuts by central banks worldwide, analysts expect Bank Negara Malaysia to reduce the Overnight Policy Rate again in May.

Last week, the central bank slashed the Statutory Reserve Requirement ratio for banks to 2% from 3%, and said it would allow principal dealers to recognise Malaysian government bonds of up to RM1 billion.

The measures will inject some RM30 billion worth of liquidity into the banking system.

Innes also said the market’s quick reaction suggests that traders expect a significant hit to growth, although this view is compounded by China’s high-frequency activity data coming much weaker than expected.

“Because the yuan is holding up against ‘the basket’ the People’s Bank of China may be more inclined to let the yuan weaken above 4.17 against the US dollar, which would then put additional pressure on the ringgit,” he added.