The KLCI has rebounded from its year low to a mere 1% away from its year to date high.

To be clear the rebound is due to domestic liquidity instead of foreign buying into the market.The foreign funds have been running🏃 away from KLCI from the beginning of the year. In a way there is some benefits as there is less likelihood of a crash due to foreign funds dumping shares.

However, it looks like the domestic liquidity is ample to support the market. This could be due to an environment of low interest rates or a lack of alternative investment choices spurring the surge in domestic flow.

As of today, the market has rebound mainly due to a rally in glove makers, bypassing banks, which have been badly impact by the virus outbreak and the collapse in oil price.

However, interest has started shifting back towards banking stocks on expectations of an economic recovery trickling in from the third quarter (as previously stated, stock market is always forward looking🔮).

KAF Equities in a recent strategy report noted that the sector’s price to book multiples have fallen below 2008 global financial crisis. It said similar to previous recovery cycles, it expects bank stocks to have a rebound.

But for the short-term, expect more negative news📉 flow on the earnings front in the next quarters due to the rising credit costs from deterioration in asset quality.

Retail sentiment🤔 can easily turn, and the worst of the earnings and non performing loans/bankruptcy news📰 flow is still ahead of us