Short-term blip for stocks


PETALING JAYA: Knee-jerk selling over lockdown fears dragged down the FBM KLCI by almost 11 points and pushed 843 stocks into the red, but this did not come as a surprise for many investors.

After several rounds of movement control orders (MCO) since last year, the market seems to have learnt to predict and accept, to an extent, the effects of the restrictions on the economy and business activities.

Analysts said the stock market weakness should likely be short term in nature and encouraged investors to buy on the dip.

The focus remains on stocks related to the recovery play and those that are least affected by the lockdown.

The analysts have largely retained their year-end target for FBM KLCI, mostly near 1,700 points. Yesterday, the index closed at 1,583.55 points.

The expectation is that while the market will be seeing some selling pressure due to the new lockdown, it would not be as painful as 2020.

According to MIDF Research, the depth of the economic fallout from the fourth MCO beginning today is relatively more contained. It only expects a “transient” impact on macroeconomic output as well as corporate earnings.

“Assuming two months of MCO with a combination of Phase 1 to 3, we foresee the gross domestic product (GDP) growth for this year to be lower at 4.6% year-on-year (y-o-y) compared with our previous forecast of 6.2% y-o-y.

“Moreover, the potential fallout from (the lockdown) is expected to be felt only in the second and third quarter of this year. In this regard, it must be highlighted that our output growth estimate for the final quarter of the year remains unchanged at 3.1% y-o-y.

“Therefore, the adverse impact of (the lockdown) on corporate earnings may similarly cease in the final quarter of this year, ” it said in a note yesterday.

MIDF Research maintained its year-end target for FBM KLCI at 1,700 points.

Affin Hwang Capital Research pointed out that corporate earnings in Malaysia fell by 22% to 52% y-o-y in the first and second quarters of 2020, following the Covid-19 containment measures and global economic recession.

This time around, another steep drop at such magnitude seems unlikely.

This is considering the cost-cutting measures already implemented while more essential services are allowed to operate.

Affin Hwang Capital Research also believes that a market selldown similar to the magnitude seen last year may not be repeated.

It pointed out that the FBM KLCI is already trading at price-to-earnings (PE) multiples near “-2 standard deviation of its five-year mean”.

In addition, foreigners are also already “underweight” on the FBM KLCI given the continued year-to-date outflows. Nevertheless, the research house said the vaccination programme that is already underway would support market sentiment.

“The strict lockdown will help the government on achieving its goal of containing the virus, in our view.

“Moreover, if the government’s vaccine timeline is accurate, we think that this will finally form the bottom for the FBM KLCI, ” it said.

Affin Hwang Capital Research added that its 2021 year-end target for the FBM KLCI stands at 1,730 points for now.

Meanwhile, UOB Kay Hian Malaysia Research said that it has turned more defensive, judging from the latest developments.

“Nevertheless, we maintain our view that the market will trend up by the fourth quarter of 2021, as the nation gets closer to the targeted herd immunity achievement by February 2022.

“Our current end-2021 FBM KLCI target is at 1,680 points, which values the market at 14.7 times 2021 PE, ” it said.

The research house expects the new lockdown to have a more prominent economic impact than the previous movement restrictions.

This is because many businesses, including small and medium enterprises, have been impacted by over a year.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

Stocks , market , Bursa , FBM KLCI , lockdown ,


Next In Business News

Foreign selling on Bursa accelerate to RM562.61mil
Weak sentiment drags Bursa Malaysia lower
Trading ideas: Sime Darby, EcoFirst, Seremban Engineering, KTB, Axis-REIT, BHIC
Sabahan accounting duo CKP empower team and clients by staying ahead of the tech curve.
SFO in livestock project with Green Valley Dairy
Robust cybersecurity infrastructure needed to prevent attacks
More small and mid-cap IPOs expected
TNB Research, Sedania to explore harnessing energy from Johor dam
The Week Ahead
PIE on track to achieve RM1.3bil revenue

Others Also Read