The Malaysian Market Is Crashing Now
The title of the article says it all. The KLCI has basically been on a freefall the past couple of weeks due to the political blunders by the ruling government. The article here will summarise 4 main points that you should take away from the market now.
KLCI is down mainly due to political instability and the escalating Covid-19 cases … even with lockdowns.
There are 4 main events that have lead to the state of the market now. The Malaysian market was at a strong level of 1,590 on 18 June 2021 as cases were coming down. However, the situation deteriorated significantly considering that factories were still allowed to operate at almost full capacity. This lead to an explosion in clusters where cases increased rapidly from 5,000 per day to 7,000 in just a week. UMNO subsequently withdrew their support for Perikatan Nasional and called for the removal of Muhyiddin as the prime minister and that lead to another drop in KLCI. Things were improving after that but cases soon got out of hand again, breaching 15,000 by the third week of Jun 2021. PN then subsequently declared that the emergency was over without consulting the Agong or tabling it in Parliament, and that provoked fresh rounds of political backlashes against Perikatan Nasional.
Looking at the bigger picture, the KLCI is on its way down and could reach the lowest point in more than a year.
Technically, the KLCI went higher than the pre-pandemic levels (Jan 2020) at the end of 2020 and the beginning of 2021. However, the market has taken an unfavourable turn since Apr 2021, with Covid-19 cases rapidly growing. The current 1,491 level has been the lowest it has been for a year since Nov 2020 and looks poised to hit that target if current conditions persist. For investors still invested in the market, this might be a good time to take a hard look on whether you want to exit to cut loss. For investors looking to enter, this might be a good time.
The market is expected to be weak at least until September 2021 with political factors dominating headlines and lockdowns still in effect
Firstly, Perikatan Nasional has bought itself some time until Sep 2021 to finalise the number of parliamentary members still supporting the coalition. UMNO has again reiterated that they will withdraw support for Muhyiddin and is seeking his removal as the Prime Minister. In any case, expect lots of political back and forths until September 2021.
Considering the high Covid-19 cases, expect lockdowns to be still in effect until Sep 2021. The first barrier is for cases to decrease to 4,000 daily for the economy to move into phase 2 of the lockdown. However, this seems unlikely anytime soon considering that we just registered 19,000 cases yesterday, where we will probably hit above 20,000 cases soon.
However, it does seem like investors are not taking into account the rapid vaccination progress right now
About 23.0% of Malaysians are now fully vaccinated, with the government expecting 80% vaccination rate by Dec 2021. Malaysia’s rate of vaccination accelerated in June 2021 until now, registering +18.0% improvement in just 1.5 months. Hence, investors need to take into account that the rate of infections of Covid-19 would be decreasing moving forward, just not now. Most importantly, Klang Valley needs to reach vaccination rates of 70% as soon as possible considering that it consists the majority of cases nationwide.