The stock market experienced a knee-jerk reaction at first and panic selling occurred

by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL

INVESTORS are expected to reduce their exposure in the equity market after the government declared state of emergency to battle the Covid-19 pandemic.

Yesterday, the Yang DiPertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah made the state of emergency proclamation as rising Covid-19 cases took a toll on the country’s healthcare system.

FTSE Bursa Malaysia KLCI plunged to 1,590.71 points before recovering to close the day’s session 5.2 points lower at 1,612. Hong Leong Bank Bhd, Nestle (M) Bhd, Fraser and Neave Holdings Bhd were the biggest losers in a topsy-turvy trading day.

Malacca Securities Sdn Bhd head of research Loui Low said recovery-themed stocks may take a back seat during the emergency period after the strong performance in the past two months.

He added that the healthcare-themed stocks may return into inventors’ radar.

“Investors may take a cautious stance to reduce their exposure at the start, but bargain hunting activities should emerge quickly and we might anticipate healthcare-related stocks to charge higher.

“They are having higher certainty in their earnings in the upcoming quarterly results in February,” he told The Malaysian Reserve.

He also believed the market will stabilise later into the week as further details of the emergency declaration are revealed and the political instability sentiment has worn off.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said investors will be more cautious for the medium term before sentiments normalise.

“The stock market experienced a knee-jerk reaction at first and panic selling occurred. The reason being is that the civilian government will continue to function during the state of emergency.

“The emergency proclaimed by the King is not a military coup and curfew will not be enforced as announced by Prime Minister Tan Sri Muhyiddin Yassin,” he said.

Adam added that investors would have their eyes again on the technology sector as the emergency declaration calls for work-from-home arrangements to continue, particularly in the five states and the Federal Territories that are under the Movement Control Order (MCO) 2.0 beginning today.

Aberdeen Standard Investments (M) Sdn Bhd country head Gerald Ambrose said the emergency declaration would hold back earnings recoveries and pose a threat to the equity market.

“If the market is a reflection of reality, then the state of emergency would delay all the excitement of an earnings recovery in 2020 out to 2021, which is not good for the equity market.

“However, the last time we had MCO in 2020, the market rallied strongly, driven by retail investors trading from home. The same might happen this time, but it depends if there will be an economic stimulus package,” he said.