KLCI could test 1,315-1,375 this week as sell-off continues


INVESTORS are expected to continue dumping local equities this week as new developments of the Covid-19 crisis emerge, coupled with oil price volatility brought on by historic lows in global oil demand.

Brent crude fell 4.14% to US$31.48 (RM135.68) per barrel last Friday despite the agreement by the OPEC+ to cut production by 10 million barrels per day.

While the Group of 20 meeting, which took place last Friday, communicated a supportive motion on the need to stabilise the oil prices, some countries did not pledge a specific production cut.

On the local front, Malaysia announced another extension to the Movement Control Order (MCO) until April 28 which will continue to pressure local businesses.

Thus, the FTSE Bursa Malaysia KLCI (FBM KLCI) is seen trading in the range of 1,315 and 1,375 points this week, with a downward bias driven by uncertainty over the prolonged MCO, independent financial consultant and investment analyst Leong Hoe Kit said.

“The market may start to digest last week’s news flow and take heed of the developments in other developed markets, especially the US market.

“If the Covid-19 scenario in the US or Europe unexpectedly turns much uglier, investors may see the FBM KLCI to be challenged on the 1,315 support level. A close eye needs to be kept on these foreign news-flows,” he told The Malaysian Reserve (TMR).

Should global oil negotiations produce a positive outcome and oil prices start to move northbound, the local benchmark gauge could mirror the developments and reach the 1,400 range, he added.

The FBM KLCI closed 0.89% lower at 1,357.5 points last Friday, after the announcement of the MCO extension.

Meanwhile, the ringgit could trade in the RM3.30 to RM3.40 range against the US dollar this week, riding on the OPEC+ output cut.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the OPEC+ decision to slash production could be seen as less optimum in rebalancing the crude oil market, as it has not gathered support from non-OPEC members.

“There are other moving parts in the equation such as non-OPEC parties (that are needed) to really partake in rebalancing the market, which is likely to be in a glut as global demand is not going to be forthcoming.

“We could see retracement in oil and gas-related stocks. Notwithstanding, the strong resolve by the US Federal Reserve to provide more cash injection to the financial system is likely to help the smooth functioning of credit markets,” he told TMR.

At home, the government’s decision to allow certain sectors to resume operations during the MCO should help mitigate the output loss to the economy, thereby reducing the risks of further contraction, he added.

The government has said it will provide wage subsidies up to three months for small and medium enterprises, cash transfers to eligible recipients via the Prihatin Nasional aid and Bantuan Sara

Hidup, and loan moratoriums. While carrying out its duty as a safety net during this time, the administration must also consider the risks of extending the MCO again, Leong cautioned.

“The government plays a crucial role in finding the fine balance between the mutually exclusive competing objectives of protecting its rakyat’s health and generating economic activity.

“The MCO is definitely harmful to businesses, especially smaller ones as they will feel the strain immediately, but majority of them would survive if the entire MCO period is not more than two months. Any longer than this then we may witness further cutbacks on staff and maybe more small businesses shutting down,” he said.