• Equities in a classic recession-recovery mode. We remain assertive on further recovery taking shape in both stock market and the economy as we raised our KLCI target to 1,700 points. The Malaysian stock market is displaying recovery pattern as seen in mid-2009 when the KLCI rose powerfully from its March-2009 lows. Similarly, Malaysian stocks have seen a strong rally from the pandemic-driven bottom in March 2020 – with the KLCI and Emas Index up by an average of 32%, whilst the Financial Index has risen by 27%.
• Malaysia’s fiscal efforts will avert a crisis. We reiterate our view that Malaysia – and the world – was confronted with a biological and not a financial crisis. The stark difference between the 2 scenarios is visibility, once the world emerges fully from lockdowns. Malaysia has in total announced measures amounting to RM295bn to assist business and individuals. We think the fiscal initiatives, coupled with sharp decline in infection rates, are sufficient in ensuring a financial crisis is averted.

• Risk of second wave minimal, sharp recovery on the cards. The government and frontliners have done extremely well in ensuring that infection rate (and deaths) stayed low and Malaysians remained safe even at the peak of the Covid-19 pandemic. Confidence will be gradually restored as business activities are opened up fully from June 10. We believe that for as long as Malaysia remains steadfast in its efficient system of handling the virus, the risk of a second infection wave happening is minimal, if any. The virus recovery process is crucial in ensuring consumer spending returns, thus aiding economic expansion from 2H20.

• “New world” dawning. The stock market has been reinvigorated by local investors, pushing up Bursa’s volume to record levels in recent weeks. With super low real interest rates, perennial low returns elsewhere, weak property market, money has found its way into the stock market again. Key sectors of healthcare, IT, digital, consumer, telco, are being looked at differently as they spearhead a “new world” which will be influenced by stricter health discipline, WFH scenario, need for broadband, plus higher cashless and on-line purchases. We also see quality companies emerging stronger during the initial period of recovery and could see expansion in valuations.

Source: BIMB Securities Research - 10 Jun 2020