Impact of COVID-19 and government interventions on Bursa Malaysia sectors
| DOI | https://doi.org/10.1108/JCEFTS-06-2022-0039 |
| Published date | 17 October 2022 |
| Date | 17 October 2022 |
| Pages | 99-118 |
| Subject Matter | Economics,International economics |
| Author | Yee Peng Chow,Young Han Tan |
Impact of COVID-19 and
government interventions
on Bursa Malaysia sectors
Yee Peng Chow and Young Han Tan
Faculty of Accountancy, Finance and Business,
Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia
Abstract
Purpose –The purpose of this paperis to examine the influenceof the daily growth in confirmed COVID-19
cases in Malaysia and governmentinterventions on the daily returns of financial times stock exchange Bursa
Malaysia Kuala LumpurComposite Index (FBMKLCI) and eight selected Bursa Malaysiasectorial indices for
the period January29, 2020 to March 31, 2021.
Design/methodology/approach –This paper adopts the multivariate generalized autoregressive
conditional heteroscedasticity model to determinethe effects for the entire study period andfour sub-periods,
i.e. pre-government intervention, movement control order (MCO), conditional MCO (CMCO) and recovery
MCO phases.
Findings –This paper finds no evidence of the effect of the dailygrowth in confirmed COVID-19 cases on
the returns of FBMKLCI and eight Bursa Malaysia sectorialindices for the full study period. However, the
former has exerted differenteffects over the four sub-periods. Sectors that are positivelyaffected for the MCO
period are financial servicesand real estate investment trust. Yet, these sectors are negativelyaffected for the
CMCO period along with the industrial products and services and technology sectors. Sectors that
consistentlydemonstrate statistically insignificantresults are construction, energy, plantationand utilities.
Originality/value –This study makes an initial attempt to investigate the influence of the COVID-19
pandemic on the returns of Bursa Malaysia sectorial indices over different phases of government
interventionsin Malaysia.
Keywords Bursa Malaysia, COVID-19, Government interventions, Sectorial indices,
Stock market performance, Volatility
Paper type Research paper
1. Introduction
Broadly speaking, outbreaks are inevitable,though not every outbreak achieves the gravity
of the novel coronavirus (COVID-19). Besides catastrophic health ramifications, this
outbreak has also jeopardized the financial marketstability due to the uncertainty and fear
looming among the investors. For instance, numerous stock markets globally have
experienced historical intraday decline and daily price rebounds, which reflected their
skyrocketing volatility. The global economic uncertainty is further exacerbated by
unprecedented government interventions such as nationwide lockdowns (Shankar and
Dubey, 2021).
Notwithstanding the preceding arguments, it is difficult to fully assess the economic
consequences of the pandemic on the financial markets since the lasting term of the
pandemic cannot be defined yet. Resultantly, the COVID-19 pandemic remains a widely
debated and explored topic (Ashraf, 2021;Heet al.,2020;Liu et al., 2020). Despite this, there
is still lack of comprehensive researchon the magnitude and asymmetric implications of the
pandemic on each constituent sector of a particular stockmarket. This paper contends that
Bursa
Malaysia
sectors
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Journalof Chinese Economic and
ForeignTrade Studies
Vol.16 No. 2, 2023
pp. 99-118
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-06-2022-0039
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firms in distinct industries or sectors may be confronted with unequal scale of losses or
gains, depending on their business nature. Thus, it is crucial to acquire greater insights
regarding the volatility precipitatedby the outbreak on the performance of the overall stock
market and each constituent sector, so that appropriate policies can be formulated to
mitigate any possible dauntingimpacts.
Furthermore, a complete economic rehabilitation from the pandemic predominantly
hinges on how efficient a country is in containing the outbreak, how quickly investors’
confidence is restored and whether firms are able to explore new business approaches to
overcome production shortfalls or sales decline. Therefore, the government plays a crucial
role in the economic rehabilitation process through various measures such as
pharmaceutical interventions and financial aids (Phan and Narayan, 2020). Additionally,
some governments have instituted lockdowns, such as Malaysia, where the authority has
enforced different phasesof lockdowns depending on the severity of the COVID-19 situation
in the country (Keh and Tan, 2021). Nonetheless, there is still a paucity of research being
conducted to gauge the effects of the government’s response policies on stock market
performance.
Hence, drawing on the unique case of Malaysia which has instituted distinct phases of
lockdowns, this research’s primary thrust is to examine the impact of the COVID-19
pandemic on the returns of FBMKLCI and eight selected Bursa Malaysia sectorial indices.
Additionally, we also aim to analyze the influence of government interventions on this
relationship by segregating the study period into the pre-government intervention phase
and different phases of government interventions during the pandemic, i.e. movement
control order (MCO), conditional movement control order (CMCO) and recovery movement
control order (RMCO).
The contribution of the research is twofold. First,this study contributes to the literature
on how financial markets respond to exogenous shocks caused by non-economic or non-
financial factors such as pandemics or health crises. Although prior research has
documented the effects of pandemics or health crises on stock market performance, these
studies are conducted based on earlier outbreakssuch as the Spanish Flu in 1918 (Burdekin,
2021;Barro et al., 2020) and the Severe Acute Respiratory Syndrome (SARS) outbreak in
2003 (Chen et al., 2009). 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.Hence, this paper furnishes a more comprehensive picture of the impact
of the outbreak on the market performance of eight Bursa Malaysia sectors to gauge the
response of these economicsectors to the pandemic.
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 consequencesof 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
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