This article first appeared in Capital, The Edge Malaysia Weekly on April 13, 2020 - April 19, 2020

THE stock market looks like it has regained its footing since the market bellwether, the FBM KLCI, closed at 1,219.7 points on March 19 — its lowest since 2008. Notably, trading activity has been on the rise as well. Between April 2 and 8, trading volume on Bursa Malaysia was consistently above five billion trades a day.

Retail investors, in particular, have been active in the stock market in recent weeks, notes Rakuten Trade head of research Kenny Yee. He believes many retail investors are now bargain hunting, given how share prices have fallen over the last couple of weeks.

“It’s the retail investors who have been net buyers. It is possible that many have been waiting for such an event in the stock market (where prices are much lower) to make their move,” he says.

From April 1 to 8, retail investors’ net buying amounted to RM301.7 million compared with RM279.1 million by local institutional investors.

Where local institutional funds are concerned, some believe the Employees Provident Fund (EPF) has been actively acquiring shares in the stock market. Others suggest that the retirement fund is merely on the prowl for bargain buys with prices now lower than they were a month ago.

“EPF, being one of the largest players in the market, has always been the stabilising factor for our market. When the market falls sharply, it makes sense for EPF to buy more as prices are much cheaper and it could get more shares for the same amount of monthly investment,” says TA Investment chief investment officer Choo Swee Kee.

Filings on Bursa between April 1 and 7 showed that the retirement fund’s top acquisition in terms of number of shares was IHH Healthcare Bhd. EPF acquired a total of 14.28 million shares in the company, upping its stake to 7.98% from 7.36% a month ago.

Other substantial acquisitions by the EPF during that period included Pavilion Real Estate Investment Trust (12.27 million shares),

S P Setia Bhd (11.28 million shares) and AMMB Holdings Bhd (10.59 million shares).

Since the FBM KLCI bottomed on March 19 at 1,219.72 points, it has gained 11.61% to 1,361.39 points on April 8. Likewise, other indices have also gone up. The largest gainer is the Small Cap Index, which rose 31.37% to 10,101.77 from 7,689.27 over the same period.

But the question now is: Can the stock market continue to rise or is it a dead cat bounce?

Yee does not think the rise is sustainable and believes that there could be more downside to come in the near future.

“I don’t think we are out of the woods yet. It is possible that we might break the previous low at the 1,200 level,” he cautions.

So far, the rebound has shown itself to be strong, says Choo. However, he does not rule out a dead cat bounce. But even if it is, he notes that there are opportunities for savvy and nimble investors to make money.

“There is some improvement in sentiment as the Covid-19 pandemic runs its course. It is no surprise that the number of Covid-19 cases will ultimately peak and thereafter decline.

“After this, investors would have to worry about the aftermath of the lockdowns, curfews, travel restrictions and so on. Markets may also be affected in the near future by news of a recession, weak companies collapsing and high unemployment,” he says.

While markets are still relatively low now, market watchers agree that it may be a good time for investors to buy stocks as valuations are at 10-year lows. For example, the KLCI’s current price-earnings ratio is 15.14 times, a discount of about 11% discount to its 10-year average of 14.15 times.

“It is a good time to pick up stocks now, especially if you are an investor with an investment period of more than one year,” says Lim Tze Cheng, head of research at ­EquitiesTracker Holdings Bhd.

He adds that investors can look out for sectors which will bounce back the fastest after the outbreak has been contained.

He thinks the semiconductor industry is one such sector as the world will continue to be propelled by digitalisation and automation.

Choo is of the same opinion. He says for the long-term investor, it is a good time to nibble or bargain hunt for stocks.

“Share prices have fallen sharply to levels [seen] almost 10 years ago. You will never know where the bottom is and you should not waste this opportunity by waiting too long. To mitigate further downside, investors should buy progressively to ­average their costs,” he notes.

He adds that the logical move for investors who believe the market would rebound once the Covid-19 fear is over, is to buy into sectors that are most impacted by the pandemic. This would mean buying into sectors such as tourism-related companies, airlines, airports and auto manufacturers.

Yee says once the pandemic has been curtailed, the number forecast operators (NFO) could see a significant rebound because of the pent-up demand.

“It has always been the trend that there will be a spike in NFO demand during an economic downturn. It is then that many would want to try their luck and have a go at it,” he says.

Nevertheless, he thinks investors should be cautious when buying. “Don’t be too gung-ho; accumulate stocks as they go down,” he says.

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