By Chee Jo-Ey
THE markets will be in for a rough ride that will probably drag into the second half of the year as the epicentre of the Covid-19 pandemic shifts from China to Europe and now the US, which is the biggest economy in the world.
Collapse in demand due to lockdowns around the world has affected financial and commodity markets. Jobless claims in the US skyrocketed to six million, showing that the US economy has been badly hit. This negative feedback loop will continue to roil markets.
According to the World Health Organisation (WHO), the Covid-19 pandemic is expected to peak in mid-April in Malaysia.
Even after the entire Covid-19 crisis subsides, the market will still need time to recover. The effects of the pandemic will only blow off after the Movement Control Order (MCO) is lifted and the pandemic contained.
Sunway University Business School economics professor Dr Yeah Kim Leng said: “Markets will continue experiencing ups and downs dependent on the developments of the Covid-19 situation and can reverse very quickly despite the gains we see now. The global economy is in uncharted territory with further disruptions expected. It will likely be worse than the 2008 global financial crisis.”
US markets rose about 2% overnight as oil price rallied after President Donald Trump said Saudi Arabia and Russia will end their price war. Earlier, European stocks had climbed with energy counters leading the gains after the oil price jumped about 20%.
On the local market, the FBM KLCI gained 8.24 points to 1330.90 points on Thursday. Following the bullish performances in global markets, JF Apex Research believes that the KLCI could rise towards its resistance of 1,370 points following the surge in oil price.
The markets’ performance will depend on the progress of the pandemic and Malaysia in particular, the oil price as well as foreign investors view oil as a huge contributor to our growth and earnings.
The FBM KLCI had on April 2 traded lower to 1,316.94 as market participants continued to stay on the sidelines in anticipation of a lower market. However, non-follow-through selling interest at 1,316.94 prompted supportive buying interest to chip in. This lifted the benchmark index to 1,332.61 before settling at 1,330.90.
In the broader market, gainers outnumbered losers with 671 stocks ending higher and 203 stocks finishing lower. That gave a market breadth of 3.30 indicating the bulls were in better control, according to Alliance DBS.
JF Apex Securities Bhd research analyst Lee Chung Cheng said: “The market has not bottomed out and we’re not past the worst yet judging by the current state of the Covid-19 situation. Most likely results in the upcoming quarterly reports in May will be ugly for companies except for those in sectors like healthcare and utilities.”
Seeing that there is a need to sacrifice economic activities to curb the pandemic, most economies will be under severe risks of experiencing sharp declines. The severity will depend on each country’s ability to flatten the curve. Markets are likely to undergo wild swings because of these economic disruptions that basically result in a shutdown of the economy.
“The expected time required to find a vaccine for the pandemic is between 12 and 18 months and we can assume that to be the duration of economic volatility we will experience. Until a vaccine is found, markets remain volatile.
Uncertainties like whether the disease epicentre will continue to shift to Africa or populous South Asian countries like India or threats of possible second and third waves will weigh on the economy and these known unknowns will continue to plague economic forecasts,” said Yeah. — April 3, 2020