KUALA LUMPUR: AmBank Research expects volatility on Bursa Malaysia to remain strong driven by the global spread of the Covid-19 coronavirus and the collapse of the Pakatan Harapan (PH) government.
In its strategy report on Tuesday it said on the global front, the spread of Covid19 outside China is expected to further raise fears with investors dumping global equities and other assets perceived as risky in favour of safe haven assets.
“With the continued fear that Covid-19 pandemic would disrupt the global supply chains, global growth as well as trade, this will further rattle global markets including our market, ” it said.
AmBank Research said global manufacturing data was showing the negative effects of the Covid-19 outbreak. This shows the importance of the Chinese economy in the world supply chain, which has been significantly disrupted.
As for Malaysia, the ongoing political scenario would continue to weigh on the markets with Tun Dr Mahathir Mohamad now acting as the interim Prime Minister.
“As the interim Prime Minister, there will be no time frame for how long he can be the prime minister. With all the powers attached to the office of the prime minister, it includes being able to appoint cabinet members if he chooses to do so, ” it pointed out.
Besides the focus on the political scenario, with the Covid-19 pandemic fear, it has also raised eyebrows as to whether the stimulus package supposed to be unveiled on Feb 27 to address the ongoing impact from coronavirus will materialise.
On the stock market, AmBank Research said the FBM KLCI tumbled 2.69% to 1,490.1. During the day, the local bourse traded within 1,487 – 1,510.
“Our market turned out to be the second worst performer in the region as a result of a double blow, that is domestic politics and global impact from the Covid-19, ” it said.
The local bond market witnessed a strong sell-off at the initial period of the day, with the MGS curve up 18 to 20bps. However, the market recovered by about 12bps midday.
The MGS curve ended 5 to 11bps higher. As for the closely watched 10-year MGS yields, it rose 11.5bps to 3.03%.
In contrast, global bonds demand rose firmly in-view of the risk-off environment with the UST10-year nosediving by 10.08bps to 1.37%. Hence, the domestic political scenario outweighed the fear of coronavirus resulting to higher yields.
On the local currency, both the onshore and offshore US dollar-ringgit depreciated by 0.79% to 4.225 and 4.233, respectively. And the ringgit turned out to be the second worst performing currency after rupiah which fell by 0.81% to 13,872.
Cumulatively, the Asian ex-Japan currencies depreciated by 0.3% against the dollar as investors scrambled for safety amidst the ongoing Covid-19 conundrum.
“With the five-year CDS used to measure risk aversion, rose 16.3% to 42.4bps by end of the day, while trading between 36.65 to 42.4bps, it is expected to rise further today due to ongoing domestic political challenges added with global market fears over coronavirus.
Uncertainties about the interim government and the Covid-19 fallout, AmBank Research expects the local market to see more selling pressure, looking at another 2 to 4% drop.
“At the same time, bonds yields curves will also be on the upside between 5 and 15bps. On the ringgit outlook, it is expected to trade between 4.23 and 4.25 levels with the upside touching 4.30 levels, ” it said.