Concerns loom of ‘the very loose nature’ of the National Recovery Plan

WHILE the Government sounds confident in executing the four-phase National Recovery Plan (NRP), analysts and market observers remain uncertain on Malaysia’s economic outlook especially in 2H 2021.

This is especially if the recovery phases do not go as planned, according to TA Securities Research.

“In fact, the Government mentioned that they could only decide to move to the next phase under the NRP when all three main threshold indicators are successfully met (see chart),” argued economists Shazma Juliana Abu Bakar and Farid Burhanuddin in an economic update.

“Indeed, the Government could even extend any phase as necessary until the country is able to meet the conditions set by the indicators.”

With only two weeks left till the end of the full movement control order (FMCO) (June 28), TA Securities Research observed that the country has not fulfilled any three of the mentioned indicators, thus making it challenging to move into Phase 2 by early July 2021.

“The average daily cases of COVID-19 are still above the 4,000 threshold with the latest statistics of 5,419 new infections detected (June 15), bringing the country’s cumulative confirmed infections to 667,876,” justified the research house.

“In addition, health authorities have repeatedly warned that hospitals and intensive care units across the country are struggling to cope with the influx of patients.”

Moving forward, TA Securities Research does not expect any immediate economic stimulus to be announced by the Government which has to-date doled out seven economic packages with total cumulative stimulus work RM380 bil or an equivalent of 24.2% of the country’s gross domestic product (GDP).

The Government has estimated economic losses of RM1 bil daily throughout the current movement control order (MCO 3.0).

“Based on our sensitivity analysis, that RM28 bil losses would lead the Malaysian real GDP to increase by only 6.1% year-on-year (yoy) in 2Q 2021,” projected TA Securities Research. “This is compared to our initial estimation of RM1.5 bil daily losses.”

Meanwhile, Hong Leong Investment Bank (HLIB) Research opined that the five-month timeline of the transition from Phase One to Four is longer than its expectation.

“For comparison, last year’s migration from MCO (started March 18, 2020) to conditional MCO (May 4, 2020) to recovery MCO (June 10, 2020) took a total of 2.75 months,” observed head of research Jeremy Goh.

“Nonetheless, the longer duration of this transition is understandable considering that cases are now much higher versus last year.”

While the market may see some near term weakness owing to this longer reopening transition, HLIB Research reckon that this more structured plan with objective thresholds should help control the pandemic in a more sustainable manner.

Coupled with an expected significant increase in vaccination rates in 2H 2021 (due to back loaded supply deliveries), the research house is hopeful for a more permanent return to normalcy come year end.

“On a brighter note, businesses should experience a gradual recovery from July onwards (Phase 2) owing to increased headcount capacity to 80% from 60% and expansion of the ‘positive list’ permitted to operate,” suggested HLIB Research.

“We maintain our end-2021 FBM KLCI target at 1,660 (16.5 times CY2021 PE (price-to-earnings ratio).” – June 16, 2021

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