• Stocks rose on hope. Malaysian market rose last week, with the KLCI up at 1,343 or 3% for the week. The KLCI has now jumped by 11% since making a low of 1,207 for the year on 19 March 2020. Despite this sizeable gain, the index is currently hovering at mid-2010 level. Foreign funds continued to be net sellers of Malaysian stocks, although net outflow was reduced to RM631m versus RM1.8bn the previous week. The reduced net outflow allowed stocks to regain lost grounds. On a regional basis the KLCI continued to outperform – the index is -11% past month as opposed to MSCI Asia ex-Japan’s -15%.

• Historic stimulus package deployed simultaneously, driving up stocks globally. Malaysia turned on the fiscal taps on Friday adding to the 2 measures revealed earlier, which resulted in total package of RM250bn or 17% of GDP. Several countries have also responded with their largest relief measures on record, including Singapore (SGD48bn, 11% of GDP), Australia (AUD189bn, 10%), and the US (USD2trn vs USD900bn in 2009). All these have helped shore up stocks globally, but questions remain whether these measures are adequate to lift economic gloom by 2H20.

• Stocks went through a 3-step process during recessions. In the previous two recessions, we observed the KLCI behaved in similar patterns, i.e. decline of average 27%, then a swift rebound by 13%, followed by another decline steeper than the initial one of 34%. The exception was during AFC when stocks fell and rose by >60% in each occasion. Applying this process, the KLCI may yet experience another sizeable decline, and the current rise could be a false dawn as seen previously during recessions.
• Flattening the curve is “be all, end all” mission. There is a debate on-going if the current coronavirus-induced crisis is worse than the GFC or AFC. Each crisis is not identical, and on examining this, needs different approaches. In previous recessions, fiscal stimulus need to be timely and targeted and then lifted once recovery takes place. On the positive side, countries have responded quicker now than in 2008- 09. But fact remains – never since the World War has the world been literally shut down as seen today, with no exit strategies yet in sight (vaccine, herd immunity, lockdowns lifted). Our base case is for Malaysia’s infection curve to flatten by May and will hit the economy the hardest for 2 quarters. And at the moment it is too early for financial markets to rejoice, in our view.

Source: BIMB Securities Research - 30 Mar 2020