Chua Zhu Lian
KUCHING: Amid two weeks of relentless selling, most major equity indices around the world including Malaysia fell into bear territory which analysts say leads to valuations becoming very attractive for investors.
Stock market valuations have become much more attractive after the massive correction, opined Vision Group partner Chua Zhu Lian, and this is further substantiated by the buybacks by majors shareholders and listed companies.
“However, we cannot rule out that the market may continue sliding because of margin calls and the will to preserve cash in such a challenging operating environment,” he told The Borneo Post in an email interview.
“The worst may not be over as this crisis is largely driven by an unexpected pandemic, a black swan event catching many governments off-guard. Sentiment on the ground remains weak with uncertainties looming on the real economic impact from the pandemic and massive lockdown.”
Thus, Chua said government policies at this point of time will be very crucial to help the nation overcome this crisis.
“A lot of monetary value has evaporated from the stock market in a short period of time and this has definitely put investors in a very cautious mode,” he added.
“Although there has been very aggressive financial stimulus around the world, market reactions remained largely mixed as there is still a lot of fear in the market.
“The key issue will be sentiment. If the sentiment turns positive again when the people are convinced with the positive reinforcement policies, then we will see a recovery.
“If not, the market weakness may continue to prolong. Putting aside the negativity, I personally see this as an opportunity of a lifetime to purchase stocks at attractive valuations.”
In his opinion, Chua advised investors to be conservative and avoid leverage, pick the strong horses in the market and hold on tightly to ride on the market recovery.
“In the long run, the market will always be a weighing machine and the best opportunities have always been found in times of crisis.”
On this point, MIDF Amanah Investment Bank Bhd (MIDF Research) in a strategy report yesterday saw that the FBM KLCI is either nearing or may have even reached its midway bottom.
“Based on China’s recent experience, most of the rest of the countries of the world would see sequential improvements beginning April in the number of new Covid-19 cases,” it said.
“And with that, month-on-month recovery in the economy due to pent-up demand as more and more movement restrictions are relaxed or even uplifted.
“Consequently, the world’s equity markets may react positively to this development hence engendering the midway rebound. In this regard, the China equity indices have already outperformed its peers during month-to-date in March attributable to the improvement in the number of Covid-19 cases in the country.”
Nonetheless, despite the liquidity injections (both fiscal and monetary) worth trillions of dollars by various governments and monetary authorities, we reckon it would take a bit of time for the real economy to fully recover from the great Covid-induced pause.
“Thus, in the ensuing months, the economic data may continue to deteriorate. During this period, we may see the next wave of selling in the equity market,” it advised.
“Nonetheless, our baseline scenario is that the domestic (as well as the world) economy would skirt an outright recession the technical-type notwithstanding. Hence the possibility for a relatively shallow and quick second downward thrust.
“Basing on our baseline scenario, the support and resistance levels (remainder 2020) for the FBM KLCI are pegged at 1100 and 1500 points respectively. Meanwhile, the duration of the market downturn may last until the third quarter of this year.
“We reiterate our FBM KLCI year-end 2020 target of 1,480 points.”
“However, if the world’s economy were to enter into an outright recessionary period (which implies lack of policy traction in regard to both the monetary and fiscal measures taken by the authorities), we may see a deeper and more protracted second downward thrust.”