Market Daily Report: KLCI ends lower after afternoon slump as US dollar spike hurts ringgit

KUALA LUMPUR (March 18): The FBM KLCI closed down 17.57 points or 1.4% at 1,239.01 today, after slumping in afternoon trades with US stock futures and Asian equities, amid persistent concerns on the economic impact of the global Covid-19 outbreak which has led to movement restrictions in several countries.

In Malaysia, the government has imposed a 14-day movement control order from todayuntil March 31 to curb the spread of the Covid-19 infection. At 5pm, the KLCI ended at 1,239.01, after falling to its intraday low at 1,226.26, as the ringgit weakened past 4.3700 against a strengthening US dollar.
Across Bursa Malaysia, 3.49 billion shares worth RM2.89 billion were traded. There were 745 decliners and 221 gainers. Top decliners included the Public Bank Bhd and Malaysia Airports Holdings Bhd (MAHB).

MAHB's share price closed down 58 sen or 11.15% at RM4.62, as investors weighed Malaysia's  14-day movement control order on the airport operator’s business.

"Going forward, the extent of the (overall economic) impact will depend on the effectiveness of this two-week control order to manage the Covid-19 outbreak and whether more stringent measures or extended restrictions are required. At this juncture, we expect economic growth in the 1Q20 to be negatively affected with potential spillovers to 2Q20. The economic weakness is not confined to just the two-weeks of movement controls as the effects of Covid-19 have been felt by the tourism and retail sectors since February,” UOB Group economists and forex strategists wrote in a note today.

"Other concerns include deepening global risks related to Covid-19 and tightening of USD liquidity. We have revised down our growth outlook for the major economies including US, China, and EU. As such, we are also slashing our 2020 forecasts for Malaysia’s GDP growth to 2.4% (from 4.0% previously).

"Taking into account the expected growth slowdown and lower oil prices, we revise our USD/MYR forecasts to 4.35 in 2Q20 (from 4.11 previously), 4.30 in 3Q20 (from 4.08), 4.27 in 4Q20 (from 4.05), and 4.20 in 1Q21 (from 4.05),” they said.

At the time of writing, the ringgit weakened to 4.3717 against an appreciating US dollar.
It was reported that markets have crumbled this month, as investors liquidated nearly everything for cash — driving up the dollar’s value and the cost of borrowing the greenback abroad.

“It all stems from a shortage of US dollars,” Reuters quoted Gunter Seeger, senior vice president in investment-grade fixed income at New York asset manager PineBridge Investments, as saying.

Malaysia’s crude palm oil (CPO) is seen as a beneficiary of a weaker ringgit, as it makes the commodity cheaper for global buyers. It was also reported that Malaysia's palm oil plantations will stop operations for the next two weeks to comply with the government's 14-day movement control order to curb the Covid-19 outbreak.

The move led to anticipation of less CPO supply, which is good for the commodity’s price.
Hong Leong Investment Bank Bhd analyst Chye Wen Fei is however mindful of the impact from Covid-19 and lower crude oil prices on CPO. Cheaper crude oil at below US$30 a barrel, leads to expectation of lower demand for CPO-based biodiesel.

"We believe the tight near-term palm (CPO) supply could no longer mitigate the potential impact arising from Covid-19 pandemic (which has yet to show signs of easing at the time of writing) and crude oil price slump, which have prompted us to revisit our projected average CPO price assumptions for 2020-2021.

"We lower our average CPO price assumptions by RM150-RM200/tonne to RM2,350/tonne in 2020 and RM2,400/tonne in 2021, to reflect our less sanguine view on palm oil’s demand outlook,” Chye said.




Source: The Edge