• Stocks off to a good 2Q start. Stocks rose as some encouraging trends on the coronavirus front gave hope that there is indeed light at the end of tunnel – although several countries remained in lockdown modes. The KLCI continued its upward momentum helped by reduced amount of net foreign selling – RM326m last week versus RM486m previously. The index closed at 1,357 for the week, or +2% driven by across-the-board rise in component stocks, but was largely outpaced by technology and export-oriented stocks. Retail investors remained the largest participants for the second straight week.

• How will the world cope post-coronavirus? As the world struggles to slow infections from the coronavirus, the global economy has come to near standstill since February. Both the US and hard-hit Europe countries have still not shown real signs that infections – and deaths – are slowing down. The resultant of this has been record fiscal stimulus packages announced by countries to shield the economy from falling into a crisis.

• Crude oil still holds the key. Previous bear markets/corrections have seen crude oil imposing its significance on the Malaysian economy which in turn affected the performance of the ringgit and portfolio movements. We observed that the 2 previous KLCI’s retracement of more than 20% in 2008 and 2016 saw Brent crude oil crashing by an almost 70%, while the ringgit lost at least 15% of its value against the USD. The price of Brent has cratered by about 50% this year, while the ringgit has retraced 7% against the USD. As in the past, we believe Brent movement will be one of the crucial factors in dictating Malaysian stocks performance.

• KLCI is currently pricing in a deep but short recession, buy into bargains. Malaysia extended its MCO for the second time, running until 28 April. The extension offered no real surprise to markets on Friday. Our base case for Malaysia’s infection curve to flatten by May and will hit the economy the hardest for 2 quarters remain in place. Our buy recommendation are GHL (Buy, TP RM2.15), Time dotcom (Buy, RM10.00), QL (Buy on Weakness, RM8.20), Yinson (Buy, RM7.70) and MPI (Buy, RM12.75%). We also favour “oversold” and yield stocks, such as Lotte Chem (Buy, RM2.20) which has seen its price fell by 60% this year and now offering DY of 5.6%, and Westports (Buy, RM4.40).

Source: BIMB Securities Research - 13 Apr 2020