• Stocks suffered heavy sell-offs, closing January at 4 and half-year low. Malaysian market fell in tandem with global stocks, as fears of China-driven coronavirus hit the region. Having started the year positively, the KLCI fell by 3.6% in January, closing at 1,531 points, the lowest level since Aug 2015. Malaysian market was routed by foreign selling, amounting to RM660m last week. For the month of January, net outflow was RM138m versus RM1.2bn in Dec 2019. Small and mid-cap stocks fared worse as the FBM Small Cap Index and FBM Mid 70 fell 3.9% and 6.3% respectively for the month.

• Risk-off sentiment resulted in rout and demand for save haven. Emerging market stocks also fell sharply, with MSCI EM Index down 3.8% in January, whilst MSCI Asia Ex-Japan fell by a similar quantum. The 10-yr US treasury yield has fallen from 1.92% at end-2019 to 1.57% last week as investors fled to safety. Meanwhile, MGS 10-yr yield declined to 3.13% from 3.31% during the same period. Gold is re-testing the USD1,600 level as fear and uncertainty grips financial markets.

• Most sectors were down, healthcare rose sharply. Top losers during the month were commodity-related stocks, ie oil and gas and palm oil which are expected to be major losers as commodity prices fell during the week, and the travel sector. The largest KLCI losers are Petchem (-15% YTD), MAHB (-11%) and Genting (-9%), while for Hijrah Shariah, FGV (-20%), SP Setia (-18%) and AirAsia (-16%) fell the most. The 3 largest glove stocks, ie Hartalega, Top Glove and Kossan rose sharply during the month.

• Short-term outlook remains gloomy. Markets in Asia were weak across the board and appear to be headed for another uncertain month in February. With the Coronavirus scare still in early stage, financial markets are gripped with fear that have triggered wave of selling in risky assets. This risk-off sentiment would continue, in our view, until the spread of the virus halts or slows. On the flip side, previous global health outbreaks do have tendencies to last only for few months and not have significant impact on global economic growth.

Source: BIMB Securities Research - 3 Feb 2020