This article first appeared in Capital, The Edge Malaysia Weekly on April 6, 2020 - April 12, 2020

IT is only the first quarter of 2020 and, already, there is complete pandemonium on the world stock markets.

In the US, the bull ran its course, with the New York Stock Exchange recording the worst quarter in its history — the Dow Jones Industrial Average closed at 21,917.16 points on March 31, tumbling 6,621.28 points, or 23%, year to date (YTD).

Across the Atlantic, it was a Black Monday déjà vu for the UK as the FTSE 100 experienced its worst quarter since the 1987 crash. The benchmark index crashed to 5,671.96 points, down 1,870 points, or 25%, YTD.

This is just a snapshot of the carnage abroad.

At home, the FBM KLCI reported its worst quarter since the 2008/09 global financial crisis, giving up 237.87 points, or 15%, YTD to close at 1,350.89 points on March 31.

As far as first-quarter performances go, it was the index’s weakest since 2008. Back then, the FBM KLCI lost 197.51 points, or 14%, in the first quarter to close at 1,247.52 points on March 31.

At the time, the reason was the global financial crisis, which was triggered by the collapse of the US subprime mortgage market. Today’s crisis was totally unexpected — a health disaster triggered by the Covid-19 pandemic.

In Malaysia, however, it is an unfortunate trifecta of an epidemic disease, the plunge in crude oil prices and a political crisis that led to a tumultuous 1Q2020.

Health crisis

On March 11, the World Health Organization (WHO) declared Covid-19 a pandemic, owing to its severity and the alarming rate at which it was spreading. The novel coronavirus outbreak is the first to be declared a pandemic.

The past two coronavirus outbreaks — Severe Acute Respiratory Syndrome, which broke out in 2003, and the Middle East Respiratory Syndrome outbreak in 2012 — were not characterised as such.

As at last Thursday, Covid-19 had infected more than 980,000 people in 203 countries and territories around the world. Initially, it was China that had the most number of cases, at 81,589 , but as at last week, the US had surged ahead with a frightening 228,727 reported cases.

Already, more than 50,000 deaths have been recorded worldwide, with Italy recording the highest number — 13,915.

The spike in the number of cases has prompted most of the affected countries to impose a lockdown on their citizens or restrict their movement. In Malaysia, a Movement Control Order has been in place since March 18 and is expected to be lifted on April 14, if the number of new cases recedes. As at last Thursday, the country had recorded a total of 3,116 cases and 50 deaths.

With the world’s two largest economies — the US and China — registering a staggering number of cases and putting their economies in either full or partial lockdown, economic activity and supply chains across the globe have been thrown into disarray.

Not surprisingly, economists warn of an impending global recession. According to a CNBC report, financial markets could see their worst crisis since the 1929 Great Depression.

Plunge in crude oil prices

It is not just the stock market that is in turmoil — commodities too are reeling from the impact of the pandemic. Covid-19 has led to global restrictions on travel, thus grounding most airlines and causing demand for fuel to come crashing down.

Because of a disagreement between oil producers Saudi Arabia and Russia on the quantum of oil production cuts needed because of the slump in demand, Brent crude futures have been hammered.

Prices crashed to US$34 per barrel on March 9 — a level not seen since February 2016 — and continued their descent to US$23 per barrel as at March 31, representing a drastic 65% year-to-date decline.

Meanwhile, crude palm oil prices, which were on the road to recovery towards the end of last year, have not been spared. Spot CPO prices have declined 21% YTD to RM2,392 per tonne.

Political crisis

On the country’s political front, a brewing crisis triggered by the so-called “Sheraton Move” on Feb 23 and the resignation of Tun Dr Mahathir Mohamad as the prime minister a day later led to the collapse of the Pakatan Harapan government.

Panic selling ensued on Bursa Malaysia and, on Feb 24, the FBM KLCI finished below its 1,500-point level for the first time in nine years, at 1,490 points.

The Perikatan Nasional coalition has since taken over as the ruling government after Tan Sri Muhyiddin Yassin was sworn in as Malaysia’s eighth prime minister on March 1.

Combating a pandemic

With the fear that the Covid-19 pandemic could unleash the mother of all recessions, 1Q2020 saw governments worldwide scrambling to pump gargantuan amounts of money into their economies.

The US has led the way in terms of absolute value, with an eye-popping US$2 trillion rescue package aimed at aiding unemployed workers and hard-hit industries while Singapore unveiled a S$48 billion resilience package.

Not to be outdone, the Perikatan Nasional government decided to combat the forecast mother of all recessions with the mother of all stimulus packages — one worth a whopping RM250 billion.

The package comprises RM128 billion for public welfare, RM100 billion for small and medium enterprises (SMEs) and RM2 billion to boost the economy. The package also includes an earlier smaller RM20 billion package that was announced by the Pakatan Harapan government.

The latest package contains a six-month automatic moratorium on loan repayments for SMEs and individuals.

However, direct fiscal spending of the RM250 billion package amounts to only RM25 billion, which, according to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, will widen the fiscal deficit from 3.4% of GDP in 2019 to 4% this year.

As for the stock market, the Securities Commission Malaysia and Bursa jointly announced that short selling would be suspended until April 30 to mitigate potential risks arising from heightened volatility and global uncertainties.

A bright spot?

With the MCO extended until April 14 and most companies considered non-essential having to shut down during the period or operate with only half their usual workforce, the first-quarter earnings of Bursa-listed companies, with the probable exception of healthcare-related stocks such as glove makers, are looking bleak.

However, it is not all gloom and doom. In a March 18 note, AmInvestment Bank says there is a bright spot in the “seemingly unabated fall in the FBM KLCI”.

“Assuming the FBM KLCI falls by another 100 points from its current level to 1,150 points, this will bring it in line with the MSCI EM Index’s 10-year (2010 to 2019) average price-earnings ratio of 13.3 times.

“This will put Malaysia back on the radar screen of international emerging fund managers, who currently generally feel less excited about Malaysia, owing to its high valuations,” the research firm says.

Although another bitter pill to swallow, perhaps that risk-on sentiment is the antidote required to draw international investors back to the market.

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