Two months ago, stock markets around the world were suffering severely. Our FBM KLCI too plunged below 1,300 points, its lowest in a decade. But in recent weeks, many of the stock markets have rebounded on optimism of an economic recovery. What about Malaysia’s stock market?
After hitting the bottom of 1,219.72 points on March 19, the second day of MCO, KLCI has rebounded more than 17% to 1,436.76 points on May 22. However, on a year-to-date basis, the KLCI is still “losing” 10.34%.
According to Bank Islam chief economist Mohd Afzanizam Abdul Rashid, the stock market has already priced in much of the negative news in mid-March. After weeks of being under MCO, we are now gradually reopening our economy. Let’s look at how various sectors have performed during this period:
The table above shows the performance of each sector’s index in 2020. As mentioned above, March 19 was the day when KLCI slipped to its lowest point during this Covid-19 period. Healthcare was the least impacted sector, with only 8.8% loss from the beginning of 2020 to March 19. On the other hand, energy, with 59.1% loss, was the hardest hit.
Most of the sectors have outperformed KLCI during the recent recovery period, with KL Healthcare, Technology and Energy indices bouncing back the most (ranging from 53.1% to 76.7%). On a year-to-date basis, healthcare has surged 61.17% whereas technology has recovered to its January level. Telecommunications & media with 1.79% year-to-date loss is expected to be another sector to gain back to its pre-Covid index level.
Healthcare stocks, particularly the glove counters, have drawn attention especially after health experts expressed scepticism over Covid-19 vaccine developments. This was according to Maybank Investment Bank Bhd remisier Jeffry Azizi Jaafar. Malaysia could benefit, as our rubber glove manufacturers are the largest suppliers with over 60 per cent of the global market share.
In the meantime, many of the technology stocks have made strong comebacks. Kenanga Research tech analyst Samuel Tan said the price-to-earnings and some price-to-book valuations for tech counters have fallen to 2015 and 2009 levels which has triggered some bottom fishing. Also, a net cash position has made many of them attractive during this cash-is-king period. With a new post-Covid normal, the demand for technology, including data centres, cloud storage and e-commerce may increase even with the idea of working remotely.
Some may claim that the stock markets are running ahead of the economy. We know businesses are restarting but the pandemic has not ended yet. Are investors underestimating the economic damage from the pandemic? Or, perhaps this is just a dead cat bounce? What do you think?
1. Is the stock market ignoring the economy? 2 May 2020, The Star
2. KLCI breaches 1,435 points with glove stocks back in spotlight, 20 May 2020, Malay Mail
3. Tech stocks still resilient during testing times, 30 April 2020, The Star