Downward movement in KLCI likely temporary

FBM KLCI edged down with new virus strain emerging in Europe, which may potentially cause a slowdown in economic recovery


MARKET analysts expect the fall in the FTSE Bursa Malaysia KLCI (FBM KLCI) to be short-term as investors and global markets react to the discovery of a new Covid-19 strain in the UK.

Malacca Securities Sdn Bhd head of research Loui Low said the benchmark index is expected to recover by next week with a possibility of hitting the 1,650 to 1,660 mark.

“The FBM KLCI edged down with the new virus strain emerging in Europe, which may potentially cause a slowdown in economic recovery, which also results from the profit-taking after vaccine news came out in November.

“I think it may dip slightly lower at 1,600 to 1,620 levels and recover next week, and it may hit around 1,650 to 1,660. It is expected to be short-term unless Covid-19 cases continue to rise further,” he told The Malaysian Reserve (TMR).

Yesterday, the benchmark closed at 1,631.92, a drop of 15.97 points or 0.97%.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said the rubber counter’s performance, which had been the anchor of the local benchmark during the Covid-19 pandemic, has been deteriorating due to the outbreak at the Top Glove Corp Bhd and Kossan Rubber Industries Bhd’s manufacturing facilities.

“With the virus scare, FBM KLCI is supposed to perform better as there will be more demand for rubber gloves, but the recent reported cases at Top Glove and Kossan factories have disrupted the production and affected the counters,” he said.

Echoing a similar view, Adam said another plight on the coronavirus could send the financial market into a spiral of fear.

“The latest concerns in viruses could destroy hopes of economic recovery in 2021 and therefore reduce the demand for financing by businesses from banks.

“With the festive season kicking in, movement in FBM KLCI may be muted in the next two weeks and remain in the range of 1,630 to 1,640 points.

“If any further report of the mutated virus could lead to further downward movement in the index,” he said.

He added that a further rise in positive cases globally could lead to extended lockdowns remaining in play.

Health authorities in the UK on Sunday announced the discovery of a new Covid-19 strain that is said to be responsible for the faster spread of the coronavirus in London and the southeast of England.

Preliminary analysis suggests the mutation of the coronavirus, known as N501Y, allows it to spread 70% faster than earlier strains of the virus.