Bumpy roller-coaster ride for equities in 2020

The FTSE Bursa Malaysia KLCI saw its steepest fall in March. — Bernama pic
The FTSE Bursa Malaysia KLCI saw its steepest fall in March. — Bernama pic

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KUALA LUMPUR, Dec 30 — A decade low to stunning recovery and some bumpy rides in between, Malaysia’s equities market saw it all in the year that was filled with unprecedented challenges.

When the Covid-19 pandemic first shook China in February, analysts had placed an outlook that the virus outbreak would put economies under pressure and worst hit the local market one month later. 

The benchmark index, the FTSE Bursa Malaysia KLCI (FBM KLCI) recorded its steepest fall in March, when it slumped to an intraday low of 1,207.80, the lowest mark in 11 years. 

This was due to the rapid spread of Covid-19 across the world, wreaking havoc in its wake, with declining oil prices, weak consumer data, and closure of international borders which leaves cyclical stocks especially airlines, automobiles and consumer chains under heavy pressure. 

The downturn not only witnessed the sharp contraction in local equities but also global benchmarks such as the US Dow Jones Industrial Average, Singapore’s Straits Times Index, Hong Kong’s Hang Seng Index, Japan’s Nikkei 225, and Asia’s emerging market benchmark, the South Korean KOSPI.

On the local market, the sharp fall had led regulators to implement a freeze on short selling to reduce market volatility as retail participants leapt to record high, driven by the six-month blanket banking moratorium that was given to all Malaysians. 

Besides Covid-19, the local political scenario, US Presidential election, inflation, economic outlook, global interest rates, oil and other commodity prices, as well as the global equity performance were the highlights. 

However, in every downturn, there is a silver lining. 

After the sharp downturn in March, the FBM KLCI had steadily staged a rebound to surpass the 1,690 level before the market heads to a quiet year-end. 

This was driven by virus containment success and the decline in unemployment data as the movement restrictions were gradually lifted, as businesses resumed operations and started embracing the new normal. 

The 30-stock market bellwether which now stands at RM1.07 trillion in terms of market capitalisation, moved between 1,207.80 to 1,695.96 during the 52 weeks, and recorded an annual return of 4.77 per cent, despite the downturn in March, with a healthy market price-earnings ratio of 23.21 times. 

As at December 28, international investors had sold equities worth RM24.6 billion net this year, and as the year-end approaches, foreign investors have turned net buyers during the window dressing period, targeting oversold stocks. 

From the technical perspective, the index is heading towards a full recovery from before the brouhaha due to the US-China trade tensions that led to a global market slide in 2019. 

On the overall market, the healthcare index, on a year-to-date performance, increased more than 200 per cent to become the best performing index for the year. 

Glove counters, namely Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd, and Kossan Rubber Industries Bhd, all recorded more than 400 per cent surge in their share prices, mainly attributed to the high demand for gloves. 

Besides healthcare, technology stocks have also seen an upside as Covid-19 pushed digitisation and digitalisation efforts on every front, from individuals to businesses as they embrace the new norm. 

The technology index saw a 100 per cent surge from the start of the year till date, and the uptrend is expected to continue at a steady pace.  

While the healthcare and technology sectors continue to record gains, the energy index has been under pressure until air travel returns to normal. 

The index, which dipped about 30 per cent this year, will continue to be volatile at least until the end of the first quarter of next year, with an upward momentum. 

As of today, the Brent crude oil price is hovering at US$51 (US$1 = RM4.04) per barrel and is heading towards a recovery towards the level recorded on Jan 1 this year at US$62 per barrel. 

With the bullish uptrend in place, an economic recovery is on the horizon with mass vaccination against Covid-19 taking place globally. Analysts are hoping that the dark clouds that have been cast on the global economy will soon pass. 

The Finance Ministry, in its 2021 economic outlook, has forecast that Malaysia’s gross domestic product will expand between 6.5 per cent and 7.5 per cent in 2021 after a contraction of 4.5 per cent this year. 

“However, this could hinge on two major factors—successful containment of Covid-19 and recovery of external demand,” said the report. 

Analysts meanwhile remain cautious on the outlook especially in the first quarter of 2021 as Malaysia is facing challenges in managing its hospital capacity in treating the Covid-19 cases.

“The process of containment plays a vital role for now especially in attracting foreign inflows. Besides that, political stability is also crucial in retaining confidence. 

“This is in line with expectations that the 15th General Election might be called once Covid-19 is under control which is expected to be in the second quarter of 2021,” an analyst told Bernama. 

She added that the current overbought position on certain index linked stocks will be corrected once short selling is lifted come Jan 1.

“Once the technical correction takes place, the index could reach an upside of 1,740 next year, barring any unforeseen circumstances,” she said.

Meanwhile, Public Investment Bank said the market remains relatively undervalued from a risk-reward perspective, considering the record-low interest rate environment.

“We believe the fervour should continue going into the first half of 2021. There are potential speed bumps along the way, the decisive one being foreign capital flight as a result of sovereign rating downgrades, though this possibility remains remote for now.”

The market remains a trading-oriented one amid the ongoing Covid19 pandemic which may rage on well into late-2021 despite the number of vaccines coming on-stream.

Hence, the investment bank’s end-2021 FBM KLCI target is at 1,750 points. — Bernama

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