The Volatile Trend Of The Malaysian Financial Market


By Wan Kamaruzaman Wan Ahmad

Never in my 40 years of working experience have I seen a market like what we saw in 2020. Indeed, 2020 was an exceptional year for the global financial markets. The COVID-19 pandemic and subsequent lockdowns have caused extreme volatility with wild daily trading ranges in all financial products. Panic selling and bargain hunting, profit taking and value investing, strategic positioning and opportunistic buying were daily norms of an active equity market that is trying to find a direction.

Despite the severe impact of the pandemic to many corporate earnings, the bull triumphed the bear, as markets recovered after an initial sell off to end on a positive note for 2020.

Equity – FBMKLCI

FBMKLCI started the year cautiously at 1588.76, but was gradually traded lower on the background of unstable local politics and heavy foreign selling. When the new PN government took over and initiated the lockdown to contain the pandemic, FBMKLCI hit an intraday low on 19 March at 1211.95, down by 23.7% from its opening level.The downtrend turned to a strong bull rally led by a new breed of retail investors that have an eye for undervalued stocks especially in the rubber gloves and pharmaceutical industries. With global markets recovering, cheap cost of money and a supportive stimulus and Budget 2021, FBMKLCI hit an intraday high of 1695.96 on 14 December before closing for the year at 1627.21, up by 2.42%.

This FBMKLCI uptrend is impressive as it is the first positive year since 2017 and second positive year since 2013!

Fixed Income

Briefly, the MGS and GII/Sukuk market rallied strong on the back of the pandemic that resulted in economic contraction and interest rate cuts domestically and globally.

The 3, 5, 10, 20 and 30y MGS were traded at 2.99%, 3.18%, 3.30%, 3.76% n 4.10% respectively at the start of the year. BNM slow but gradual OPR rate cut in 4 rounds by a total of 1.25% caused a rally in the local market with foreign investors increasing their participation.

Despite the series of rate cut from 3% to 1.75% currently, the full benefits of the rate cut was not felt across all tenors. The yield curve steepened resulting in the yield on the longer tenor to remain high in this low interest rate environment. At the end of 2020, the 3, 5, 10, 20 and 30y MGS was last traded at 1.87%, 2.11%, 2.63%, 3.38% and 3.83% respectively.

Currency – US$/MYR

Briefly, US$/MYR started the year at 4.0910. It was traded in a wide range between 4.0105 to 4.4200.
Ringgit initially weakened to 4.4200 from its opening level on the background of foreigners exiting our equity market and the on shoring of their investment to their own domestic market. Weak oil and palm oil prices during the start of the pandemic further accelerated Ringgit decline. Nevertheless, the strong performance of our export sector, rebound in oil and palm oil prices and general US Dollars weakness contributed to Ringgit strengthening to its highest level at 4.0105 on the last trading day to close the year at 4.0200.

Outlook for 2021

Equity – FBMKLCI

In a forward looking market with high average daily trading volume, the factors supporting FBMKLCI are as follows:

  1. Well diversified and resilience of the Malaysian economy with GDP growth expected at 6.5-7.5% in 2021.
  2. Reopening of the economy with better understanding in handling COVID-19 pandemic and future crisis.
  3. Ample liquidity supported by government stimulus measures such as Prihatin, Prihatin SME+, Penjana and Kita Prihatin.
  4. Low interest rate environment which most likely will continue until 2022.
  5. Low foreign shareholding of about 20% after approximately selling RM25 billion in 2020.
  6. Retail investors continuous support which represent more than 35% of market volume and purchases of more than RM12 billion in 2020.
  7. Local institutional support with more on shoring activities after buying more than RM13 billion in 2020. ‘Kita jaga kita’ mindset is needed.
  8. EPF iSinar withdrawal scheme in 2021 will continue to underpin FBMKLCI via consumer consumption and direct investment into the stock market
  9. Oil and palm oil current prices will continue to support the industry
  10. Better international relationship with a new US President will spur global recovery.
    Nevertheless, there is also the downside risk such as national election, geopolitics and continuous COVID-19 pandemic risk that needed close monitoring.

Fixed Income

Global economic recovery and opening of borders for travel with the availability of COVID-19 vaccine will probably take place in the second half of 2021. Hence, it will be too early for central banks to reverse its accommodative monetary policies this year.

BNM will most likely maintain the current OPR level at 1.75% throughout 2021. Therefore, MGS and GII will trade in a narrower range in 2021 as compared to 2020 with an upside biased to the current yield in the later part of 2021.

MGS will remain attractive for foreign investors seeking higher yields as US 10y Treasuries is currently at 0.95%, UK 10y GILTs is 0.19%, 10y JGB is 0.12%, 10y German Bunds is 0.57% and Australian 10y Bond is 1.02%.


Our strong and diversified export sector coupled with higher oil n palm oil prices will continue to support d Ringgit. Nevertheless, a tight trading range between 3.90 to 4.20 is expected throughout 2021.

The initial bias is for Ringgit to strengthen to 3.90 on the background of our trade surplus, lower investment by local institutions abroad, lower money transfers and demand for foreign currencies and the general US Dollar weakness. – New Malaysia Herald

About the writer: WKWA has 40 years working experience in the Malaysian financial markets as a currency trader, money broker, fund management and pension fund. His last position was as CEO of KWAP, a Malaysian government pension fund. His favourite sign-off is: Once a trader always a trader!

Note: The views expressed here are those of the writer and do not necessarily reflect those of New Malaysia Herald.

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