• Another strong week amid plans to reopen economies. Stocks continued to rise as infection cases showed signs of flattening with China and several European countries planning to ease lockdowns. The KLCI continued its upward momentum, adding 3.7% for the week to 1,407 points – gaining 12% in total over the past month. Net foreign outflow however, continued for the week at RM639m, but the market benefited from healthy buying from local institutional funds. Retail investors’ buying saw a pause, having seen net participation of near RM300m during the previous week.
   
• World entering recession, China saw weak 1Q GDP. The IMF predicted that the global economy will contract sharply by -3.0% yoy in 2020 (2019: +2.9%), far worse and more severe economic recession than the Global Financial Crisis. During the week, China’s release of its 1Q20 GDP of -6.8% was within a broad range of estimates, but its customs trade data for March were better than consensus – exports value declined 6.6% yoy, much better than 17.2% contraction during February. The first country to impose lockdown (Wuhan province), China is widely seen as the first economy leading the way for recovery.
   
• Oil price back to below USD30. Crude oil prices fell amid disappointment with oil producers’ efforts to reduce global production as OPEC+ agreed to reduce global production by 9.7m barrels per day in May and June. The drop in oil prices suggests that, despite the latest production cuts, there is huge oversupply due to the dramatic decline in global demand. At its peak, Vitol expects that oil demand could drop by c.20m bpd yoy, while IHS Markit sees 2Q20 oil demand to decline by 14m bpd yoy. We maintain our projection that oil price will average USD30/bbl for the year.

• Current rally may run its course soon. We advocated buying selected thematic stocks last week as the market gained momentum ahead of infection charts flattening. The market has indeed risen and appeared to have pricedin negative news coming out in the near-term. Our base case had taken a scenario that the world would start easing movement restrictions from May. Although we think the KLCI may have seen its bottom for 2020, we still think a significant retracement is still on the horizon as economic news could likely disappoint and risk of further virus outbreaks is still moderately high.

Source: BIMB Securities Research - 20 Apr 2020