PETALING JAYA: There is bound to be another correction in the market and this could be worse than the first one in March.

Affin Hwang Capital’s senior associate director of equity research Loong Chee Wei (pic) said this would be due to the disappointment in corporate results.

He said the impact from the coronavirus (Covid-19) and the movement control order (MCO) were already starting to show for companies that were reporting their first quarter (Q1) results even though the period did not account for the full impact of the MCO.

“The full impact will mostly be felt in Q2 because in Q1, we only have less than half a month of impact from the MCO.

“Our projection for the FBM KLCI this year is 1,008 points. It could be more of a W-shaped recovery for the markets so at this point, the concern is there will be another correction, ” he said, adding that it might drag on until July.

Loong was speaking at a webinar entitled “Global & Malaysia Market Economy Outlook, Build Back Resilient Economy & Reshape Business Strategy” held by the Malaysia-China Chamber of Commerce (MCCC) yesterday.Bursa Malaysia’s benchmark index, the FBM KLCI, dropped to its 10-year-low of 1,219.72 on March 19.

As at Wednesday’s close, the index was at 1,376.93 points.

Loong believed that the market was underestimating the economic impact of the pandemic and the market had only priced in a slight drop in corporate earnings which would come as a negative surprise when actual results are released.

Corporate earnings in Malaysia took a 60% dip during the Asian financial crisis of 1998 to 1999 and by 49% during the global financial crisis of 2008 to 2009.

“We do see earnings being dragged down by banks, which has a big impact on the market as a whole because 35% of the market’s earnings come from the banking sector.

“We would also expect stocks with high foreign shareholding to see continued selling pressure if they disappoint in terms of earnings, ” he said, adding that counters with high foreign shareholding include GENTING BHD and MALAYSIA AIRPORTS HOLDINGS BHD.

Loong said another key theme is the concern over shrinking liquidity, which will make it difficult for companies to refinance existing debts, putting companies with high gearing at risk.

He added that the robust demand due to the pandemic will sustain the outperformance of the stocks.

Meanwhile, Affin Hwang is neutral on the consumer and health sectors and real estate investment trusts, expecting a recovery when the economy starts to recover in Q4.

Research for Social Advancement executive director Tan E Hun said there were opportunities in areas such as digital and creative business which may build on transitions accelerated through the pandemic, including strengthening cybersecurity.

She said the crisis had also shown the importance of agri-business and equipment manufacturing.

Global Entrepreneurs Exchange principal Mohd Shahreen Zainooreen Madros likened Covid-19 to a reset button for businesses globally, which was worse than World War II because it impacted everyone.

https://www.thestar.com.my/business/business-news/2020/05/08/another-market-correction-looming