Healthy Market Correction Despite Losses

The local stock market continued its losing streak led by falls in glove stocks as investors took profits after a significant rally since March this year.

But analysts have shrugged off the “correction” and expect the market to continue with its upward momentum soon.

Equitiestracker Holdings Bhd head of research Peter Lim Tze Cheng reckoned that the selloff in local equities was a “healthy correction”, in line with the US stock market.

“I am seeing this more of a correction, albeit a healthy one, rather than a new bear market in the making.

“One major boost would be the discovery of a vaccine for the coronavirus (Covid-19), ” he told StarBiz.

The benchmark index FBM KLCI closed 6.6 points to 1,490.12 points yesterday, a day after it posted one of its sharpest single-day drop in recent times, falling 22.6 points or 1.49%.

This was despite the US market Wall Street retracing its losses a day earlier.

The local stock market has been in the red since the beginning of the week, as investors offloaded their positions to book in some profits before the loan moratorium comes to an end this month.

Peter pointed out that the end of the loan moratorium could have contributed to the selloff in the market.

“In addition, the correction in the US market coincides with this timing, ” Peter said.

The six-month moratorium, as well as cuts in interest rates, were touted as a major factor for the local retail-driven liquidity in the stock market since April.

StashAway co-founder and chief investment officer Freddy Lim expects the Malaysian market to remain subdued as the end of the moratorium could see a dip in overall consumption.

He thinks the consumer and hospitality sectors would still remain low.

“We believe banks will experience relief but undergo margin pressure as the economy will remain subdued, with interest rates being lowered, ” he said.

Yesterday, Bank Negara decided to maintain its overnight policy rate (OPR) at 1.75%. The OPR is at its historical low of 1.75%, with a total of a 125-basis-point cut having been made thus far this year.

Freddy reckoned that the market will continue with its upward momentum, driven by the Federal Reserve’s quantitative easing (QE) programme and low-interest rate environment.

“The stock market rally in the last six months was due to the Fed’s QE and their new policy stance of maintaining a low-interest rate to allow for higher inflation.

“Investors are likely to continue to put their excess savings into the equity markets, ” he said.

Under the current low-yield environment, however, Freddy said investors would be shifting into high-yielding stocks, as well as commodities such as gold as the opportunity cost of investing in the commodity is negligible due to negative rates, inflationary pressure and the declining US dollar.

“In the last six months, the stock rally has been confined to shares, mainly in high-tech and some others that benefit directly or indirectly from the pandemic, such as pharmaceutical and rubber glove companies.

“On this argument, high-dividend tech stocks will definitely be attractive to yield-hungry investors, ” Freddy said.

Source: The Star

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