• Stocks retreated as oil weighs on sentiment. Stocks retreated last week with the KLCI falling back by 2.7% as turmoil in the crude oil market caused selling pressure. The index had risen to a 5-week high of 1,428 points but saw selling from late Monday after the immediate month WTI crude oil futures fell to -USD37 a barrel, the first time in history oil price turned negative. The market fell further on Friday following the government’s decision to extend MCO by another 2 weeks. Net foreign outflow of Malaysia’s stocks nearly doubled to RM1.1bn, and the accumulated net foreign outflow stood at RM10.2bn as of last week as opposed to RM11.1bn for entire 2019.

• MCO extended, looks set to stay until end of May. We were not entirely surprised by the MCO extension to 12 May, but there was not any clear guidance on whether this would be the last 2 weeks of restrictions. The government has extended lockdown 3 times since its first decision on 16 March. We now expect MCO to be enforced until endMay as risk of new outbreak, from government’s perspective, would rise if restrictions are lifted during Hari Raya. In total we think there will be 1 quarter of MCO/lockdown for Malaysia, which will have negative impact on corporate earnings and the economy (the PM had said on Thursday that each day of lockdown costs Malaysia RM2.4bn).

• Oil weighs heavily on market. Malaysian stock market historically, has always had one eye on oil price movements, and oil prices have also influenced the ringgit in the past, i.e. correlation between Brent and USDMYR is -0.8. Indeed the ringgit has slipped up against most currencies the past 2 weeks, creeping towards the year’s low vs USD occurred in March. EM currencies, particularly those reliant on commodity exports, could remain weak ahead, with larger budget deficit of near 5% of Malaysia’s GDP exacerbating ringgit outlook.

• All eyes on central banks meeting. As discussed previously, weak earnings and economic data showing a drawn-out recession will cause anxiety for the markets ahead. The KLCI is still 15% below its 2020 high and appears remote from a staging a V recovery. This week, investors will be looking for indications from the US Federal Reserve and The European Central Bank – both holding their scheduled policy meetings this week – on how deep the recession is expected and their outlook for recovery (last week, China cut LPR by 20 basis points to 3.85%).

Source: BIMB Securities Research - 27 Apr 2020