KUALA LUMPUR: Bursa Malaysia has bottomed out and has been on a rally since late March and this is expected to continue into mid-April, market specialists said.
The prospect, however, is partially dependent on the Organisation of Petroleum Exporting Countries (OPEC) and other oil-producing countries like Brazil, Canada and the United States maintaining production cuts.
Market experts said good news related to the containment of Covid-19 in Europe and the US would also fuel the local bourse to exit a bear territory.
OANDA senior market analyst for Asia Pacific Jeffrey Halley said a strong production cut of more than 15 million barrels of oil daily should see emerging markets such as Malaysia to continue their rally.
Halley expects Bursa’s key FBM KLCI to break the 1,400 points next week.
“Stock markets remain acutely vulnerable to bad news and we could easily see more panic selling days as the world is undoubtedly in a recession now. Thus any gains in stocks should be treated with caution,” he told the New Straits Times (NST) when contacted yesterday.
Halley, however, said a disappointment from either oil production cut or good news would stop any rally and likely see an aggressive downward correction.
FBM KLCI began uptrending on March 24 (1,291.14 points) and settled at 1,369.92 points on Tuesday. The index eased 0.62 per cent yesterday (Wednesday) at 1,361.39 points
“Although the rally was seen in the past few days, it looks very much like a bounce within a bear market,” he added.
He cautioned that the situation would get much tougher globally over the next few months.
Halley said consumer staples and utilities continued to be investors’ favourite sectors as defensive plays in the stock market.
“Basically investors need to look at companies whose products consumers need to use in everyday life, regardless of the underlying economic situation,” he said, adding that power, water, telephone, internet, and food were the necessities.
He cautioned that an extended Movement Control Order (MCO) would affect Bursa as it sucks the life from any incipient recovery rally and set up falls to lower levels in the future.
Malaysian Association of Technical Analysts adviser Nazarry Rosli said all fear factors had been discounted by the market, especial during the first phase of the MCO.
“The FBM KLCI hit rock bottom when it was hovering around 1,200 points. The Dow Jones also reached its bottom. But now we are slowly seeing a gradual uptrend of the stock market,” he told the NST.
Nazarry said the economy would be back on its footing even though it might take a while before it can go back to normal situation.
“With all initiatives and stimulus packages provided by the government, we believe the MCO will help to contain the virus spread.
“Although the MCO extension may not be good for the local stock market, it will not be prolonged for more than two weeks,” he said.
According to data from Bloomberg Intelligence, Top Glove Corp Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd, Supermax Corp Bhd, Maxis Bhd, Time dotCom Bhd, Digi.com Bhd and Telekom Malaysia Bhd were the leaders in Bursa’s Top 100 Index between January 2 and April 8, 2020.
The index was dominated by glove producers namely Top Glove, Hartalega, Kossan Rubber and Supermax.
Their share price gained 36.60 per cent, 33.05 per cent, 24.46 per cent and 19.42 per cent respectively during the period.
At closing today, Top Glove settled at RM6.42 per share or five sen lower, Hartalega (RM7.27 or 12 sen higher), Kossan Rubber (RM5.14 or one sen lower) and Supermax (RM1.66 or two sen lower).
Meanwhile, Rakuten Trade Sdn Bhd vice president of research Vincent Lau believes the local bourse had passed its panic-selling pace as the key index was gradually on recovery mode.
Lau said Bursa would continue to look for further directions, depending on how the Covid-19 crisis can be contained and the US Dow Jones market development.
He said consumer-driven stocks should be resilient including gloves manufacturers, telcos and consumer staples.
Halley said firms must conserve cash, stop buybacks and look at either reducing or suspending dividends to weather the challenging period.
“Reducing overheads through lay-offs are also, sadly, somewhat inevitable, although that depth will vary on a sector by sector basis.
“Companies should also avail themselves of cash grants to support business that may be available,” he said.
Haley said accessing cheap borrowing looks wonderful on paper but should be treated with caution.
“Cash is king and the interest rate on borrowings, whether high or low, is not an important issue to your average small medium enterprises. Making payroll and paying invoices, as well as getting paid, is,” he said.