FBM KLCI to get lift from easing of MCO

The ringgit could experience a further lift with the restart of the economic engine which should buoy demand for Malaysian assets


THE resumption of nearly all key economic sectors that were restricted under the Movement Control Order (MCO) is expected to lift investor sentiment and support the ringgit as the central bank’s Monetary Policy Committee (MPC) decided on its Overnight Policy Rate (OPR).

The resumption of economic activities this week is set to attract renewed buying interest activities and further lift the local market, which will be trading on a shorter week, to observe the Wesak Day celebration on Thursday.

The FTSE Bursa Malaysia KLCI (FBM KLCI) has been on an uptrend since about six weeks ago when the MCO first commenced and has recovered from a low of around

1,207 points on March 19 to around 1,410 now — a 16% upswing, said Independent financial consultant and investment analyst Leong Hoe Kit said

“The Conditional MCO from today onwards, allows most industry sectors to restart operations and can be considered a virtual lifting of the MCO ahead of the May 12 expiry announced earlier.

“We can expect the enthusiasm from the small and medium enterprise businesses who are allowed to resume their business today to overflow into the stock market supporting its recent strength and the FBM KLCI might linger between the 1,375 and 1,420 points range this week,” he told The Malaysian Reserve (TMR).

He added that stronger and more stable crude oil prices could further firm up the local index.

Brent crude oil futures last traded at US$26 (RM111.80) per barrel and West Texas Intermediate futures at US$19.70 a barrel.

“We should not expect oil prices to rise too quickly in the near term and if the Brent crude oil can maintain its price between the range of US$23 and US$28 per barrel this week then the FBM KLCI should sustain its level this week.

“Additionally, any news on positive test results relating to the vaccine development for Covid-19 would be further welcome by the market,” Leong said.

However, any significant downturn in oil prices or other negative news like a sudden big surge in Covid-19 infections could derail the upward market trajectory with the benchmark, the FBM KLCI, falling to around the 1,340 range or even lower to the 1,300 psychological support level, he said.

Leong, expects Bank Negara Malaysia’s (BNM) MPC to cut its OPR by another 25 basis points (bps) tomorrow as a move to boost liquidity in the economy.

The central bank has already made two 25bps cuts this year, bringing the benchmark lending rate to 2.5% in March in light of weak global economic and financial conditions — with the OPR level to its lowest since 2010.

“If this does not materialise, BNM might announce a cut in Statutory Reserve Requirement, but I opt that an OPR cut would be a more effective stimulus tool in the current environment.

“It is possible the market may have priced in further stimulus from BNM given the economic impact of the MCO,” he said.

Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes the local equity market has priced in all the bad news for now.

“Should the reopening of the economy happen smoothly, with no persistent increases in the new cases, perhaps the equity market would have more legs to go up further.

“It is not going to be smooth sailing as there will be intermittent selldown in between as the uncertainties remain,” he told TMR.

Mohd Afzanizam noted that the rebalancing in the crude oil market is taking place, as with the OPEC+ countries will cut production this month as agreed in April.

“That could provide some boost to the oil and gas sector. The cut in the OPR, probably by 50bps may have an impact on banking stocks. In that sense, the FBM KLCI would continue to linger around the 1,400 points level in the immediate term,” he said.

The ringgit could experience a further lift with the restart of the economic engine which should buoy demand for Malaysian assets, FXTM market analyst Han Tan noted.

The release of Malaysia’s March export and import data, which are forecasted to show a -7.8% and -5% reading respectively, along with the expected 2.5% year-on-year contraction in the March industrial production data, are unlikely to have a major bearing on local unit performance, he added.

“From a technical perspective, a meaningful foray into sub-4.30 territory should see the ringgit and dollar exchange rate carving a path towards the 4.25 line, while a sudden surge in risk-off sentiment or dollar strength could prompt the currency pair to break back above the 4.35 mark,” Han stated. The ringgit closed at 4.2995 against the greenback last Friday.