Stimulus boost for local equity market


  • Markets
  • Saturday, 28 Mar 2020

Rakuten Trade Research vice-president Vincent Lau believes that local stocks are taking a cue from the US stock market, which has been on a winning streak over the last three days on the anticipation of the US massive US$2 trillion stimulus package.

STOCKS on Bursa Malaysia have rallied more than 10% to 1,343 points this week as investors anticipated the multi-billion ringgit stimulus package by the government.

The week’s rally raises a question: Is the worst over for the local equity market?

Market observers reckon that the stimulus package announced yesterday would help buffer the local economy during the movement control order (MCO) period.

But, for the equity market, analysts say uncertainties will continue to plague the market as long as the number of people infected with coronavirus (Covid-19) is on the rise and more countries go into lockdown.

Hence it remains moot if the RM250bil stimulus will stabilise the local equity market. A market which has been hit since the beginning of the year from issues like the sudden change in the government to the worsening case of Covid-19 globally.

Here are some the comments on the outlook of the market for this year:

Longest on record

> UOB Asset Management executive director and chief executive officer Lim Suet Ling(pic above) reckons that the sharp fall in the equity market last week has put an end to the 11-year bull run, which is the longest on record. “This cycle can be deemed as extended and was due for a correction. The weeks ahead will likely remain choppy for global markets. But with the possibility of drop-offs in the number of new cases as more preventive measures are put in place, there is still the basis of a good case for a second-half rebound.

“Hopefully, we will be able to see the successes in controlling the spread of the virus replicated in Europe and the United States, ” she says.On the Covid-19 pandemic, she says it is a “black swan” that has many shocks (supply and demand) affecting the whole world.

“The Covid19 is not only a public health crisis but also a global economic crisis as activities worldwide shut down.

“We believe it will be a synchronized global recession and we conservatively project a “U” shaped recovery assuming Covid19 may be contained by 4Q2020, ” Lim says.

She adds that the aggressive response by central banks and governments around the world, using “extraordinary” fiscal actions to tackle the negative impact with the priority to save jobs, protect livelihoods and relieve companies’ cash flow, will bring confidence back to the economy.

Stock picking

> Former Second Finance Minister Datuk Seri Johari Abdul Ghani(pic above) expects the market to trade sideways as there is no catalyst at the moment.

“I believe that the market will remain at this level. That said, it is a good time to pick up stocks that have good fundamentals and cash flows, ” he tells StarBizWeek.

He points out that the impact of Covid-19 is still uncertain and difficult to assess. “We still do not know how long it will take for businesses to recover and how other countries will manage their Covid-19 issues.”

He opines though that it is going to be difficult to activate and stimulate any economy when the movement of the people is being restricted and countries are closing their borders.

> Rakuten Trade Research vice-president Vincent Lau believes that local stocks are taking a cue from the US stock market, which has been on a winning streak over the last three days on the anticipation of the US massive US$2 trillion stimulus package.

“At the moment, uncertainties are still lingering in the market stemming from the potential of MCO extension, with more countries going into lockdown and the increasing numbers in the Covid-19 cases, ” he says.

On a positive note, Lau reckons that the continuation in the mega infrastructure projects would help to buffer the economy at a time when consumer spending and local economic activities are on a decline.

Lau pointed out though that this week, foreign funds continued to be net sellers of Malaysian equities, with a net outflow of RM533.49mil.

Investor confidence

> Former investment banker Ian Yoong(pic above) says that the economic stimulus package will boost investor confidence.

“The selldown of equities will slow in the short term as the stimulus package addresses many concerns of the B40 and to a lesser extent the M40 as a result of the global economic slowdown brought about by the Covid-19 pandemic, ” he says.

He says the stimulus is the biggest supplementary budget ever in Malaysian history.

“This is the best economic stimulus package that has been announced by a government in Southeast Asia thus far. It has far-reaching benefits. The funding structure is innovative, ” he adds.

Interestingly, while investors are still testing the water and understanding if the market has bottomed out, one prominent US investor Ken Fisher points out that the market has already made a comeback.

According to the Fisher MarketMinder, economics isn’t the only thing driving stocks. Politics and sentiment matter, too. Modest growth, low political risk and not-too-hot expectations are a bullish recipe – and a pretty good reflection of where we stand today.

It adds while economic effects of business disruptions will likely be severe from the Covid-19 pandemic, it is worth remembering that stocks typically lead economic data, not the other way around.

“Markets typically anticipate the rays of sunshine stemming from improved activity well before society or pundits can see the light, ” it says.

Other notable investors in the US such as Carl Ichan were reportedly nibbling on some battered down stocks in the consumer sector such as Hertz Global and Newell Brands.

However, Ichan, with a current net worth of US$15.2bil, is also taking short positions in shopping malls to a tune of US$5bil. This is due to their debt obligations and the negative impact from Covid-19, reports indicate.

It is worth noting that the Dow Jones has rallied more than 21% over the last three days and reentered the bull market as investors anticipated the US$2 trillion stimulus package that was approved by the Senate earlier this week.

The US market expects that the massive stimulus will help curb the Covid-19 impact on the US economy that saw a record 3.28 million workers apply for unemployment benefits last week.

Along with the US$$2 trillion stimulus package, the Federal Reserve had on Monday said it would purchase unlimited amounts of government debt to help provide liquidity and also extend loans to big and small businesses. Note that, despite the 10% rally in the FBM KLCI this week, the benchmark index is still down by 15.5% year to date.

Over this weekend, investors will keep their eyes glued to a variety of things, ranging from the US market performance, Covid-19 numbers locally and overseas and try to figure the effects of Malaysia’s multi-billion stimulus programme.

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