KUALA LUMPUR (Oct 27): The double whammy of the resurgence of Covid-19 cases and looming political uncertainties have dampened market sentiment on Bursa.
Adding to the gloomy outlook are the external risks, including the rising Covid-19 infections in the West, especially the US where the average number of new cases hit a record of 68,767 in the past seven days, plus the US presidential election on Nov 3.
The FBM KLCI was almost flat at 1,494.61 points yesterday, after it dived to an intraday low of 1,482.15 points. Still, yesterday was the fourth consecutive day that the benchmark index stayed below the 1,500 points level.
Given the uncertainties on the horizon, investment analysts are anticipating the benchmark index to end the year around the 1,400-level.
After it hit the peak of 1,611.42 at end-July, the benchmark index has been on a gradual fall. Year-to-date, the FBM KLCI is now 5.93% lower from 1,588.76, although it still outperformed other regional indices with smaller drop.
"When there is uncertainty, there will be selling pressure and some companies may be more affected than other companies, especially those that depend on public contracts," Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng told The Edge when asked about the outlook of the local stock market.
Ang commented that it is difficult to gauge the market direction, at least in the near term, in view of the possible changes of the political landscape and the Covid-19 pandemic.
Political uncertainties have enveloped the country once again, eight months after the change of government, as Prime Minister Tan Sri Muhyiddin Yassin proposed to the King to declare a state of emergence last Friday.
After Yang di-Pertuan Agong Al-Sultan Abdullah Ri'ayatuddin Al-Mustafa Billah Shah conferred with the Council of Malay Rulers, he declared that there is no need for a state of emergence for now. The King stressed the importance of tabling the national budget at a time the country is battling with the Covid-19 pandemic. He also warned the members of Parliament not to disrupt the stability of the current government.
However, the dust has not settled. Speculation is rife that Muhyiddin is facing calls for him to resign.
MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof said the downside risks outweigh the upside risks.
"Chiefly amongst them is the Covid-19 pandemic, which could lead to new lockdowns in affected countries. This will have an impact on our economy," said Imran.
Other than the resurgence in Covid-19 cases, the other downside risks, he said, include the US presidential election and geopolitics.
"In terms of corporate earnings, we believe that earnings should improve in 2H20 (second half of 2020) in tandem with improving economic conditions. Nevertheless, pockets of weakness will persist. For example, banks may continue to see higher provisions," Imran said.
"There is also the possible impact of the ending of the loan moratorium which the visibility is still low on how this will impact banks' asset quality and lending," he added.
Over in the US, Imran commented that any uncertainty in the country will have a bearing on US financial markets and the global markets as well.
He, however, is more sanguine about 2H21, saying that he is more inclined to believe that the Covid-19 pandemic situation will improve as the vaccine is expected to be found by 1H21.
Commenting on upside catalysts, Malacca Securities Sdn Bhd head of research Loui Low expects the upcoming national budget to provide some buying impetus.
"The catalysts include infrastructure works being dished out in Budget 2021, while LSS4 (fourth round of the Large-Scale Solar power plant) or green incentives, which will boost the solar energy market," said Low.
On the upcoming earnings season, Low expects upside surprises in certain segments such as furniture, technology and gloves.
He also noted that market participants are looking forward to the upcoming Budget 2021 to look out for any new catalysts moving forward.