26 May 2020

The 6 Reasons explaining why did Bursa Rally despite the Looming Recession

Just as curious as you did, most investors are scratching their heads now. If you're the one who cut your stock holdings in mid-March, and by keeping more cash on hands, waiting for better timing to re-enter the market again, then you must continue to read on.

When writing this, the global stock market has just had an amazing rally in April & May despite a looming recession ahead. Do you feel puzzled and frustrated by this?

Here, we pointed out the 6 reasons that spark-off the current rally:

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  1. Freezing of short-selling
    The temporary suspension of short selling was announced in March and subsequently extend to end-June, this measure managed to calm down the overall market, especially on those small & mid-cap counters. These are the counters that mostly traded by retail investors.

  2. Moratorium of Loans
    Announced in March also, the moratorium of 6 months was given to all housing loans and hire purchase loans. I can't deny that some of the people daring enough to pour the money into the stock market.

    Click here to read our earlier post on "[Deferment of Loan] With or without compound? Interest-free? House vs Car loan?"

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    Malaysia benchmark OPR

  3. Lower and Lower Interest Rate
    In order to mitigate the lockdown effect on the whole economy, Bank Negara Malaysia lowered its overnight policy rate by 50bps to 2.0% during its May meeting, bringing borrowing costs to the lowest since March 2010. The central bank also pledged to take further action if needed to support the economy.

    Meaning, the interest rate very likely will go even lower this year.
    Meaning, your fixed deposit rate will be getting lower and lower.
    Meaning, instead of leaving your money in FD, many people already started to channel it into the stock market seeking returns.

  4. Thanks to all the 'gurus' out there
    We can't deny that there are many good 'gurus' or 'sifus' out there, but there are even more fake ones lingering around, charging you exceptional fees, giving you fake hopes, and most importantly, giving you the confidence level to take actions and jumping into the sea of the stock market.

    Barring any unforeseen circumstances, the tagline is 'investing at your own risks'. By charging you $$$ or $$$$ yearly fee, they will give you stock 'tips'. Frankly, I don't like this kind of method. I prefer to learn fishing myself, instead of paying money to join the club and wait for someone to give me the fish.

    Glove counters year-to-date return on 22 May 2020

  5. Exceptional Gains of Glove Counters
    Continuing from the above factors, then come to the spark-off point, glove makers have surged on the back of rising demand for their products in the wake of the global pandemic outbreak. Exceptional strong demand pushes the average selling price of gloves and the backlog of orders has been stretched to multi-months now.

    In anticipation of very positive earning results for the next few quarters, retails investors are pushing the share prices of these counters to multi-year or historical highs, thus garnering the lofty valuations currently.

    This is just a sparking flame, which has been setting the fires on the next reason below.

    Joe Jonas Relief GIF - Find & Share on GIPHY

  6. The optimism of MCO is going to ends
    Although we're in CMCO stage currently, most of us already feeling the relief of moving freely (albeit with some restrictions), people are going to back to work, almost all of the businesses are resuming their operations.

    Generally, the overall market thinks that the worst is already passed, and we're looking forward for the re-opening of the whole economy which is very crucial for the share prices to go up.

    Oil & Gas counters are one of the beneficiaries if the economy re-open, judging from the recovery of global oil prices, hence local O&G counters enjoying the rally lately. And, most of the O&G counters are the darling of retail investors too due to their 'cheap' and volatile share prices for them to make quick gains (hopefully).

[Extra Info]

How do you know that retail investors are swimming in the market?
Answer: Look at those top 10 or top 20 active counters daily. If it was dominated by those small-cap counters, then it's the sign of retail investors.

Then, the next question is "The Bottom of the Market already behind us?" and "How long can this rally continue?"

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