Economic uncertainties, virus outbreak push KLCI below 1,300 to 10-year low

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KUALA LUMPUR (March 16): Economic uncertainties and the Covid-19 outbreak pushed the FBM KLCI below 1,300 points to a 10-year low today.

The KLCI closed down 64.12 points or 4.77% at 1,280.63 today after plunging in afternoon trades with world equities as investors evaluated the effectiveness of global central banks’ monetary policies to mitigate the economic impact of the Covid-19 pandemic and after China reported its latest industrial output numbers, which fell below market forecast.

In theory, interest rate cuts are good for stock markets. However, the drop in US equity futures after the nation’s Sunday 100 basis-point emergency interest rate cut to between 0% and 0.25% appeared to have failed to assure investors that central banks’ measures are enough to mitigate the impact of the Covid-19 outbreak.

Inter-Pacific Securities Sdn Bhd head of research Victor Wan told theedgemarkets.com that he did not expect the KLCI to close at the current level. "Sentiment is very weak at the moment. We do not know when the market will bottom out,” Wan said.

Hong Leong Investment Bank Bhd wrote in a note today : "The Dow futures are declining at this juncture after a surprise move by the Fed [to cut] interest rates amid the ongoing worries over the Covid-19 impact on economic activities globally. Hence, we believe the trading tone for Asia’s stock markets will be negative and anticipate selling pressure to persist on the local front. Should the KLCI breach support along 1,300, the next support is located around 1,250.”

Across Bursa, 4.47 billion shares worth RM3.69 billion were traded. There were 1,041 decliners versus 97 gainers after a broad-based selling across Bursa. 

Notable decliners included tourism/travel-related shares such as Genting Bhd due to the Covid-19 outbreak.  Genting Bhd shares closed down 44 sen or 11.03% at RM3.55.

CGS-CIMB Securities Sdn Bhd analysts Ivy Ng Lee Fang and Nagulan Ravi wrote in note today: “We recommend investors to consider switching into the sectors most affected by the Covid-19 outbreak (for example, tourism/travel-related) — like the Genting Bhd group and Malaysia Airports Holdings Bhd — once the spread of Covid-19 decelerates globally (potentially in late-2Q20),” they said.

Meanwhile, Bursa top gainers were dominated by equity index-linked put warrants as investors bought these warrants to hedge against broader market losses.  

Plantation companies were also among notable Bursa gainers today on news Malaysia cut its export duty for crude palm oil (CPO) to 5% for April from 6% in March and as the ringgit weakened today past the 4.3000 level against the US dollar. 

A weaker ringgit bodes well for Malaysia’s CPO as it makes the commodity cheaper for global buyers. At 5pm, Sime Darby Plantation Bhd’s share price closed up 19 sen or 4.74% at RM4.20 while IOI Corp Bhd added four sen or 1.09% to RM3.71.

Asian share markets closed down substantially with US equity futures after the US emergency rate cut.

Japan’s Nikkei 225 closed down 2.46%, South Korea’s Kospi fell 3.19%, Hong Kong’s Hang Seng dropped 4.03% while Australia’s S&P/ASX 200 was down 9.7%.

It was reported today that in an emergency meeting on Sunday, the US Federal Reserve slashed interest rates to near zero and pledged hundreds of billions of dollars in asset purchases, saying the epidemic was having a “profound” impact on the economy. 

It was reported that central banks in Australia and New Zealand followed with their own measures, but could not stem a slide in global stocks. "S&P 500 futures tumbled 4.77% to their daily down limit shortly after resuming trading on Sunday night,” Reuters reported.

In China today, Reuters, quoting the country’s National Bureau of Statistics, reported that industrial output fell by a much larger-than-expected 13.5% in January-February from the same period a year earlier.

It was reported that the 13.5% drop was the weakest reading since January 1990 when Reuters records started, and a sharp reversal of the 6.9% growth in December, and that the median forecast of analysts polled by Reuters was for a rise of 1.5%, though estimates varied widely.