Malaysian equity market

During the week (June 9–12, midday), the FBM KLCI retraced 19.90 points (pts) or 1.28% to 1,536.43 pts, in response to a major selloff in the

US market on concerns over a potential second wave of Covid-19 infections, coupled with the US Fed’s forecast of a sluggish recovery, and hence Fed funds rate shall remain near-zero through 2022 (weighing down on the dollar and banks’ earnings outlook).

These eclipsed Malaysia’s transition to the recovery movement control order (RMCO) from the conditional MCO from June 10, coupled with the unveiling of the short-term Economic Recovery Plan (Penjana) by Prime Minister Tan Sri Muhyiddin Yassin on June 5.

Foreign investors remained net sellers in the local market. Thus far in June 2020 (up to June 11), foreign investors have sold a total of Rm1.7bil worth of Malaysian equities, bringing the year-to-date (YTD) net outflow to Rm15.0bil.

However, the selling was relatively well absorbed by local institutional and retail investors, with a participation rate of 48.0% (vs. 45.8% in May) and 38.2% (vs. 36.8% in May) respectively.

Meanwhile, as foreign investors lightened their positions, their participation rate fell to 13.8% (vs. 17.5% in May).

Similarly, foreign investors sold Rm0.4bil worth of Malaysia Government Securities (MGS) in April 2020 (the latest available number), after peaking at Rm12.5bil in March 2020. YTD, the net MGS outflow was Rm16.7bil.

A buoyant market boosted Bursa Malaysia’s average daily value traded to Rm6.1bil in June (vs. Rm4.3bil in May) while turnover velocity surged to 94.0% (vs. 70.0% in May).

During the week, only two out of 13 sectors in Bursa Malaysia recorded gains.

The top-performing sector was Technology (+5.4%) as investors generally believe that a prolonged low interest rate environment is conducive to growth stocks.

Meanwhile, the worst-performing sector was Energy (-7.9%) on the back of lower oil prices amidst rising inventories and concerns over the reimposition of lockdowns that could lead to another collapse in demand (in the event of a second wave of Covid-19 infections), which has led to the extension of production cuts by Opec+ to July 2020.

In the coming week, investors will keep a close eye on:

(1) Malaysia’s April monthly labour statistics on June 15;

(2) China’s May Industrial Production Index on June 15;

(3) Bank of Japan monetary policy statement on June 16;

(4) US May core retail sales on

June 16; and

(5) Malaysia’s Consumer Price

Index on June 24.