• KLCI remains in bear market territory. Malaysian stock market continued to hover near 9-year lows as the KLCI closed little changed for the week. The index remains in bear market territory, having fallen approx. 22% from its April 2018’s record high of 1,895. A net outflow of RM1.2bn was seen last week, bringing the past 2 weeks’ outflow to a staggering RM2.4bn. The local market is dominated by local institutional buying, not surprisingly, of RM927m, followed by retail with RM261m.

• BNM cut rates, but growth risk remains firmly on the downside. As expected Malaysia’s OPR was reduced by 25bps to 2.50% last week as BNM provides a more accommodative monetary environment amid the global Covid-19 outbreak. The MPC statement said it would continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation – meaning a further cut this year is likely.

• Is the US emergency rate cut a mistake? Markets have perhaps almost forgotten the word “crisis” as global markets have been in uptrend, fuelled by US equities, since 2009. Although the global economy may escape recession, US S&P 500 has dramatically fallen by 14% from its 19 Feb’s record high. The 10-year US treasury stood at a record low of 0.7% on Friday as investors’ fear buying sent bond prices higher. This came on the heels of the Fed’s emergency 50bps rate. Recall that the Fed’s previous rate cuts in 2001 (Jan 2001, -50bps) and 2008 (Jan 2008, -75bps) failed to save the US from entering recessions. We think the Fed’s recent big rate cut leaves it with less room to fight potential recession ahead.

• Global financial markets are in crisis. As written last week post-February earnings, we expect Malaysia’s risk premium to stay elevated as investors assess Covid-19 impact and government’s ability to manage the country under an extremely challenging economic condition. Recovery in stock prices is always a long and arduous process, ie it took 3 years for the KLCI to surpass its prerecession high of 2008. Under the current scenario, we recommend a defensive and high yielding stocks strategy. We continue to like Kossan, GHL, Time, whilst we prefer a more cautious approach to our 2 recommended stocks Yinson (oil & gas) and MPI (semicon).

Source: BIMB Securities Research - 9 Mar 2020