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Bursa rallies despite shrinking US economy

PETALING JAYA: The local stocks staged a rally despite news that the United States and eurozone economy shrank as business and household activity froze from the measures to contain the coronavirus pandemic.

Stocks on Bursa Malaysia were mainly in the positive zone with 629 gainers compared to 298 losing counters.

The benchmark index FBM KLCI, which measures 30 top companies on Bursa Malaysia, closed 27.48 points higher or almost 2% to 1,407.78, following the surge in the US index Dow Jones overnight by more than 500 points.

Interestingly, oil counters were topping the volume list namely SAPURA ENERGY BHD, Velesto Energy Bhd, HIBISCUS PETROLEUM BHD and BUMI ARMADA BHD as crude oil prices staged a recovery.

The US crude oil measure by West Texas rose 15.2% or US$2.29 to US$17.35 per barrel, while international benchmark Brent, which is more related to Malaysia, gained 8.7% or US$1.97 to US$24.51 per barrel.

Rakuten Trade Research vice-president Vincent Lau reckoned that the fresh optimism in the market was driven on hope for a viable Covid-19 treatment or vaccine.

He pointed out that although the US economy is shrinking, investors are optimistic that a recovery is on the way as more countries around the world including Malaysia were gradually opening up their economies.

“We expect the second-quarter corporate results would not be good and that the market hasn’t seen the full impact of the movement control order (MCO), ” he told StarBiz.

He pointed out that the number of retail participation in the local stock market are one of the highest over the last two years.

“Retailers have been buying stocks at RM4bil net in just four months compared to RM600mil in the same period in 2019 and RM1.2bil in 2017, ” Lau explained.

He said the extension of the short-selling ban by the regulators has helped to buffer the market.

Moving forward, Lau expects the market volatility to continue and will likely trade sideways due to a decline in corporate earnings.

Meanwhile, former investment banker Ian Yoong said the positive results of a potential vaccine for Covid-19 have set the stage for a major rebound in the global economy, notwithstanding the impending global recession and the negative corporate earnings for 2020.

“Investors are looking ahead to 2021, ” he told StarBiz.

He expects the vast majority of listed companies will report lower profits and even losses for 2020.

“There will be a few listed companies that will require restructuring. Investors, retail investors in the main, are less cognisant of this. We are riding this wave of exuberance, ” Ian said.

The gross domestic product of the US fell 4.8% in the first three months of this year, while the eurozone’s economy could shrink 3.3% compared to a year ago, according to preliminary data.

It is worth noting that both the US and European governments only started to impose lockdown on households and businesses in March.

The numbers indicate that the economy could shrink more in the second quarter of this year.

Earlier, Prime Minister Tan Sri Muhyiddin Yassin said the Malaysian economy loses RM2.4bil in revenue every single day under the MCO. The MCO, which is supposed to end on April 28, has been extended to May 12.

As of yesterday, Malaysia has been on its 44th day of the MCO, which is equivalent to RM106bil in losses in revenue to the Malaysian economy.

To cope with the economic fallout, the government has announced a stimulus package worth RM260bil in line with other economies around the world.

According to TA Securities head of research Kaladher Govindan, analysts’ consensus estimated that Malaysian corporate earnings would shrink by 6.5% this year.

In an interview earlier, he said the stock market could potentially see more losses in the coming months due to the multiplier effect of economic consequences from the coronavirus pandemic.

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