Potential impact of the COVID-19 to Malaysian Capital Markets

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Kuala Lumpur, 14 February 2020 – Principal Asset Management Berhad Group (formerly known as CIMB-Principal Asset Management Berhad) have been closely monitoring the situation regarding COVID-19.

Globally, the financial market has taken a dip in the wake of the COVID-19 outbreak as investors become nervous about a world-wide epidemic.

For Malaysia, we believe tourism-related sectors such as airport and aviation will be affected by the fall in tourism in the near term,” said Munirah Khairuddin, Chief Executive Officer of Principal Asset Management for Malaysia.

“We maintain our barbell approach on high yield sectors like REITs and utilities and increasingly favour cyclical growth sectors like banks, plantation, oil and gas, and the technology sectors.”

As of 30 January 2020, we have nearly 7,837 confirmed cases and 170 deaths globally, the vast majority of whom are in China.

This epidemic is expected to affect businesses and financial markets, but it may ultimately have more impact on sentiment than a lasting negative for the economy. It’s our belief this is an event, not a trend for the marketplace.

For example: 1 – The SARS outbreak back in 2003 saw the global stock market tumble but stocks recovered once the outbreak was contained.

The S&P 500 dropped approximately 10% from the start of the year until mid-March but finished up more than 26% for the whole year.

Similarly, Hang Seng index (15 Nov 2002-12 Mar 2003) fell about 10% before recovering.

The index ended 2003 up 35% while the MSCI Asia-ex closed 40% higher despite the high death toll and lingering economic weakness due to the epidemic.

China’s response to the novel Coronavirus outbreak has been proactive and transparent, in contrast to its slower reaction during the spread of SARS.

SARS (Final) Wuhan (30 January 2020)
Number of confirmed cases 8096 7837
Number of deaths 774 170
Fatality rate 9.60% 2.10%

 

The outbreak, which comes just after Washington and Beijing signed a partial trade deal, creates uncertainty for businesses that manufacture and source materials in China.

History has guided the turning point for sentiment will come if the vaccine is invented and escalation of the virus decreases.

The negative sentiment in the short-term will affects businesses particularly in the consumer, transportation, restaurant, tourism, and retail sectors.

That said, with the online channel now accounting for 20% of total retail sales, this can increase to partially offset the impact on the overall retail sales number. Commodities such as oil will also be affected in the near term amid concerns of slower global growth and lower demand.