• KLCI closed lower as global stocks rose. Malaysian market fell for the past week on lower-than-expected 4QGDP data released on Wednesday, as US and Europe stocks rose to another record high. The KLCI lost approx. 10 points last week by another 7 points Monday to close at 1,537. There was some spill over regional funds buying, as foreign participation eked out a small net inflow of RM71m versus an outflow of RM328m the previous week. Also worthy to note that until week 7 of 2020, retail investors have been net buyers of Malaysian stocks with RM555m, offsetting net selling by local institutional (-RM160m) and foreign investors (-RM395m).

• Weak Malaysia GDP causes concern amid coronavirus. The weaker-than-expected 4Q GDP dragged full Malaysia’s GDP to 4.3% for the full year of 2019. While consumer continued to contribute strongly to the economy (refer our report 12 February 2019), the external side (exports) and public spending remained weak. The biggest concern is how deep and how long would the impact of the coronavirus or Covid-19 would have an impact on the economy especially for 1H20.
   
• Bond rates falling – lower rates for longer theme is back stronger. The bond market has seen the 10-yr MGS yield falling steeply from a high of 3.44% to 2.87% currently. The bond market is giving indication that Malaysian interest rates (the OPR) could fall further in the near-term. The fall in MGS yield is in tandem with lower 10-yr US Treasury yields which now stands at 1.6%, and testing lows seen in 2016 and 2012 when yields fell to 1.5% level.
   
• We remained stock specific, but see themes in high yield, consumer staples. In summary the rise of China as an economic power during the last 10 years has contributed vastly to regional economic expansion, hence the deeper effect on regional financial markets this time around. During a low interest rate environment and slowing economy, we think several sectors could fare better as investors turned risk averse on local equities. We favour high-yield, consumer staples and possible domestic/fiscaloriented sectors such as construction and selected oil & gas.

Source: BIMB Securities Research - 18 Feb 2020