Daily New Covid-19 Cases, the Movement Control Order, and Malaysian Stock Market Returns

Abstract

The Movement Control Order (MCO) not only restricts movement of human being, it also reduces firms’ financial profits and brings significant impact to stock returns. The objective of this study is to examine the relation between Malaysian stock market returns and variables related to the novel Coronavirus (COVID-19) pandemic outbreak. The FTSE Bursa Malaysia KLCI Index and eight selected main indices from 2 January 2020 to April 30, 2020, which includes the first three MCOs, are considered in this study. The results show that daily new confirmed COVID-19 cases and deaths had negative but insignificant impact on the returns on indices. Interestingly, MCO had significant and positive impact on all the indices’ returns while oversea financial risks had negative impact on these returns. Furthermore, it is found that the degree of impacts of MCO and oversea financial risks varied positively with the firm size of the indices’ constituent companies. China’s decision on unchanged loan prime rate on the 20 February 2020 was a favorable news to the Malaysia stock markets as indicated by the positive returns on all the indices. Similarly, the degree of impact of the China interest policy also varied positively with the firms’ characteristics. These findings are useful for investors in the Bursa Malaysia to manage their investment portfolios based on their appetites for risk.

Impact of COVID-19 and government interventions on Bursa Malaysia sectors

“…Nonetheless, several major market corrections were observed between the final trading week of February and mid-March 2020. This corresponded with the market corrections in other stock markets globally as investors feared the potential devastating economic consequences of the pandemic (Chia et al, 2020). The FBMKLCI responded negatively when the government announced the implementation of the MCO, where the index hit a historical low of 1,207.80 in a decade before closing at 1,219.72 on March 19, 2020.…”

“…Furthermore, majority of studies on the influence of the COVID-19 pandemic on stock market performance are executed for the overall stock market rather than at the sectorial level (Albulescu, 2021;Insaidoo et al, 2021;Ashraf, 2020). In the Malaysian context, there are only a handful of research being conducted at the sectorial level (Chia et al, 2020;Lee et al, 2020;Saad et al,…”

“…Moreover, majority of studies on the influence of the COVID-19 pandemic on stock market performance are performed for the overall stock market rather than at the sectorial level (Albulescu, 2021; Insaidoo et al , 2021; Ashraf, 2020). In the Malaysian context, there is a paucity of research being conducted on the effects of the pandemic at the sectorial level (Chia et al , 2020; Lee et al , 2020; Saad et al , 2020). Additionally, these research did not segregate the study period into distinct phases of national lockdowns.…”

“…Second, although extant literature has analyzed the influence of government interventions during the COVID-19 outbreak on stock market performance (Saif-Alyousfi, 2022; Elhini and Hammam, 2021; Ashraf, 2020), these papers either cover lockdowns without distinguishing them into distinct phases or focus on other government measures such as health programs and fiscal stimulus packages. Meanwhile, studies that are conducted on the consequences of the MCO declared by the Malaysian Government on stock market performance either only involve the initial MCO phase (Chia et al , 2020; Lee et al , 2020) or are not conducted at the sectorial level (Keh and Tan, 2021). Therefore, we extend previous work by also examining the subsequent MCO phases, particularly CMCO and RMCO, to ascertain the impact on the performance of Bursa Malaysia sectorial indices over the different phases of government interventions.…”

Movement Control Order Policy to Prevent the Spread of COVID-19 and Its Impact on Quarterly Growth and Its Components in Malaysia: A Synthetic Control Method for Policy Evaluation

“…Other studies find that the intervention measures had both positive and negative economic consequences. Chia et al (2020) found that the MCO negatively affected Malaysia's stock market indexes. However, interestingly the MCO had a significant positive influence on indexes revenues, with unfavorable consequences in terms of overseas financial risks.…”