Second-wave pandemic fears pressure FBM KLCI

Weak economic data and slow recovery momentum abroad amid rising infection cases appear to hasten investor retreat from the local market


THE threat of the second wave of Covid-19 infections and a sharp sell-off of US equity derivative benchmarks fuelled a sharp sell-off on Bursa Malaysia yesterday.

Weak economic data showing rising unemployment figures in Malaysia and slow recovery momentum abroad amid rising infection cases appear to hasten investor retreat from the local market after the sharp technical retracement.

Weaker energy prices were another negative for the market digesting the resignation of Permodalan Nasional Bhd president and CEO Jalil Rasheed yesterday.

Rakuten Trade Research VP Vincent Lau said the spike in prominent US technology companies continues to divert liquidity from global equities to the US.

“It is a phenomenon that we have observed for quite some time. It has been selling for the longest time. Equities have seen to flow back to the US with the rise in FAANG stocks (Facebook Inc, Inc, Apple Inc, Netflix Inc and Google LLC) and the retraction is seen not just in Malaysia,” he said.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) closed 47.19 points or 3.05% lower at 1,498.8 points yesterday in tandem with weaker regional and global markets. Volume of securities traded hit 9.07 billion units worth RM5.32 billion with 1,107 securities lower

compared to 159 higher yesterday. The index was led lower by blue-chips like Public Bank Bhd which fell 38 sen to RM16.42, Hong Leong Bank Bhd down 50 sen to RM14.80, Top Glove Corp Bhd fell RM1.70 to RM15.20, Hartalega Holdings Bhd down 84 sen to RM11.68, while Malayan Banking Bhd and Genting Bhd down 21 sen and 23 sen to RM7.70 and RM4.18 respectively.

“The recent statements by the US Federal Reserve, as well as cues from China who is already in post-lockdown, suggest the economic recovery may not be plain sailing.

“We reckon the second down-ward thrust may later emerge, possibly in the third quarter, as the fuller extent of economic and corporate earnings impacts of Covid-19 become manifest,” MIDF Research noted in a recent research report.

“Fundamentally, we believe the unfolding reality may differ from what the liquidity-driven market is currently implying,” the research outfit of MIDF Amanah Investment Bank Bhd noted.

Lau added that the volatility in the markets is a result of investors focusing on the risk of a second wave of the coronavirus.

“With the current volatility, people are turning to the risk of the “second wave” fears. The US mentioned there will be no lockdown if there is a second wave to protect their businesses and that will pressure the market,” he said.

The World Health Organisation expects the Covid-19 could become endemic (ie, the virus would never go away), thus the risk of subsequent waves of infections remains present until the society develops herd immunity, said MIDF Research.

A Covid-19 vaccine may be found and ready only by the middle of next year at the earliest. Hence, social- distancing rules will likely remain in effect at least for the next 13 months.

MIDF Research opines a V-shape economic recovery could be achieved and sustained only if the virtuous economic circle of employment-consumption-revenue-investment-employment can be revived and safeguarded.

Without the Covid-19 vaccine, the economic consequence of social-distancing rules on consumption and investment will remain a drag to output revival and growth in the foreseeable future.

“As the fallout phase remains a lurking fear, we cut our FBM KLCI 2020 target to 1,320 points in early June. Thus, at this juncture, we are tacitly recommending a ‘Sell’ on the market,” MIDF report stated.