BURSA Malaysia registered a record-high daily turnover of RM10 billion earlier this week but analysts warned a good run depends on the Covid-19 situation after Hari Raya.

After hitting the record on Monday, Bursa declined the next day but prospects remain good, with analysts saying investors will continue to ride on the optimism.

It also shows that investors are optimistic about the economy.

However, analysts warn the optimism depends on the Covid-19 situation, both in Malaysia and globally.

Phillip Capital chief strategist Phua Lee Kerk said confidence in the stock market was due to a better-than-expected first quarter performance of the economy, recovery of crude oil prices and holiday season.

Regardless, Phua said, the stock market will be affected if a second wave of outbreak starts.

“The optimism will continue until Hari Raya, which is this week. For the next week, we’ll have to look at the Covid-19 situation around the world. If the pandemic is under control, then it should sustain until after Hari Raya,” he said.

Some analysts have reportedly warned that investors are being too optimistic, but Phua said it depends on the pandemic’s progress to see if caution is warranted.

“Nobody knows what’s the current situation, so why the optimism? If say, there’s a second or even third wave of infections, then perhaps the pessimists are right.”

If there are no further waves of infection, Phua said, the markets will begin to recover and warnings of doom will prove to be an over-reaction.

On the increased purchasing trend of crude oil and gas, Phua said this is also directly affected by the pandemic, with weak economic activity dampening demand for raw ingredients of fuel.

“Saudi Arabia has cut production, and if Covid-19 comes under control and economic activities recover, the demand will recover as well.

“As long as there are no second or third waves of infections, the demand for crude oil will stabilise and so will its prices. This is all good for the stock market.”

Phua said the Malaysian stock market is primarily driven by retailers currently but it is unrealistic for big investors to wait until the pandemic blows over.

He added that it’s up to them to assess if this is a good opportunity for them to enter the market.

“If you wait until the market recovers, then it is already too late. You can’t go in too early either, so you need to make a judgment call and decide for yourself if it’s likely there will be a second or third wave of Covid-19 infections.”

Phua said most investors will look at the market situation before investing but there is no way to tell if the time is right.

He also said most of the trading taking place now concerned oil and gas stocks, which have large price fluctuations.

However, another analyst said buying shares in the oil and gas sector right now may prove unproductive.

Universiti Tunku Abdul Rahman associate professor of economics Wong Chin Yoong said some are looking at the current market as an opportunity, but if more waves of Covid-19 infections happen then they will be affected as well.

Wong said the Malaysian stock market is also similar to that of the US, where market performance does not line up with the economic situation.

“Like for the three months before the movement-control order (MCO) was implemented, when Covid-19 had yet to explode, the bursa was on a free-fall.

“When it rebounded strongly and stabilised in early to mid-April, the number of Covid-19 cases in Malaysia had not even started falling,” he said.

“You can’t reopen the economy right now, but the market is hot. People are still dying every day in the US, but the stock market gained by more than 20,000 points.”

Wong said this may be due to several factors, including the market’s anticipation of the worst-case scenario, and the rebound could be because the pandemic’s impact on the economy may not be as bad as expected.

Also, businesses have already started reopening and oil prices are also recovering, he added.

He said the influx of retail investors may not mean there is increased consumption as more businesses reopen, saying it could instead be just investors rushing in to take advantage of the situation.

Wong said the indications are neither good nor bad but show that investors are optimistic about the economy.

He also cautioned that not all stocks are performing well, even though the stock market overall is stable.

“At the end of the day, you have to return to the basic principles of investing in stocks. This does not apply to speculators, of course, since they are only buying and selling.

“If you want to invest, you need to see if it’s worth your money, and then evaluate its performance half a year later, see if the returns are adequate. You still need to do your homework,” Wong said.

He added that speculators don’t take into account long-term factors, but if the pandemic worsens, they will also be negatively affected.

Malaysia loosened some restrictions to allow people to go to work after curtailing the infection rates in the past weeks.

However, people are still prohibited from travelling out of state to celebrate Hari Raya Aidilfitri, which falls tomorrow. They are also only allowed to hold festive gatherings limited to 20 people.

This is out of fear that virus infections will start again if people are allowed to mingle again. – May 23, 2020.