KUALA LUMPUR (June 24): Given the current flood of liquidity in the equity market, MIDF Research has not discounted the possibility of a "market bubble burst" following the recent rebound in the FBM KLCI.
MIDF Research senior analyst Imran Yassin Md Yusof said that although the rebound may look sustainable at the moment, he is of the belief that it may not last for long.
"Of course there is a possibility for the bubble to burst because eventually, the market will follow fundamentals, and [corporate] earnings prospects are not that great.
"So yes, we do think that there is going to be another downward thrust," he said today during MIDF's Live Webinar entitled "Surviving & Embracing Malaysia's New Normal".
After falling nearly 400 points to a low of 1,219.72 points in mid-March due to the Covid-19 pandemic, its lowest since the global financial crisis in October 2009, the KLCI has been observed to project a rebound, erasing nearly all its losses this year.
Yesterday, the composite index closed at 1,507.04 points, representing a jump of 23.5% since the lowest point in March.
Imran said his team had calculated that over US$14 trillion (RM59.84 trillion) in stimulus programmes and packages, both in terms of fiscal and monetary, from countries around the world had been injected into the global economy.
This, he said, resulted in some sort of a disconnect between the underlying lacklustre economic growth prospects and the liquidity-driven bullish stock market.
"What we expect, as I said earlier, [is that] the market will follow fundamentals and earnings sooner or later. With more bad numbers coming out, we expect that will put downward pressure on the market," Imran added.
In terms of investment strategy, Imran advised his investors to look for companies that are fundamentally strong, and in a typically defensive sector if possible, as well as dividend-yielding.
He pointed to the tech sector as the sector that might be the most resilient during the current economic uncertainty, given the fact that there is still a lot of technology adoption that companies need to embrace.
Meanwhile, MIDF group managing director Datuk Charon Wardini Mokhzani highlighted that prolonged liquidity in the financial market may also worsen wealth inequality.
"The people with money are just getting richer because if we have the money to put into the market and invest in assets, we are the only ones who will be making more and more. And that money was originally supposed to help the guy with no money, but for some reason, that money ended up in the market.
"Unfortunately, it does mean that the rich get richer, which again, in the long run, is not sustainable," he added.