Historic MOU boosts investor sentiment but moratorium woes stroke concerns

ADHERENCE to content of the recent historic memorandum of understanding (MOU) inked between Prime Minister Datuk Seri Ismail Sabri Yaakob and Pakatan Harapan (PH) (the largest Opposition bloc) will lead to political stability while enabling parliamentary and institutional reforms which will be positive for Malaysiia in the medium to long term.

Moreover, this is also a sign that the 15th General Elections (GE15) would unlikely to be held before July 31 next year, thus providing a sense of comfort to stock market sentiment, according to CGS-CIMB Research.

“However, this is partially negated by the potential earnings disappointment for banks,” opined head of research Ivy Ng Lee Fang in a strategic note. “The Finance Minister has issued a statement instructing banking institutions to immediately work on the exemption of interest payments for loans under moratorium.”

This will involve recipients of the moratorium from the bottom 50% of Malaysians in terms of income classification for a period of three months in 4Q 2021.

“Our banking analyst estimated that this could reduce our net profit forecasts for banks by 5%. Overall, we view this event as neutral,” projected the research house.

In the MOU on Transformation and Political Stability inked on Sept 13, the Government promises a series of reforms and a time frame to achieve them. In return, PH promises not to use its votes to block Budget 2022 if the reforms proceed on schedule and that it is consulted on the Budget Bill.

Additionally, PH said it will continue to play the role of the Opposition except in the above-mentioned circumstances. While the Government also promises not to dissolve Parliament before July 31 next year, any violation of the agreement will render it invalid.

Elsewhere, CGS-CIMB Research expects investors to look ahead on signs of recovery as the Government rolls back on movement restrictions in the coming weeks.

As of Sept 13, 65.4% of Malaysia’s total population had received at least the first dose of the COVID-19 vaccine while 53.5% had received two doses. On top of this, Malaysia’s new COVID-19 cases fell to 15,699 yesterday (Sept 15), the lowest in 50 days.

Moreover, there are also plans to reduce the number of standard operating procedures (SOPs) in the National Recovery Plan (NRP) from 181 to only 10 soon as the country transitions to the endemic phase.

“This will likely revive business activities and corporate earnings in 4Q 2021F, in turn potentially boosting sentiment on recovery stocks,” added CGS-CIMB Research. – Sept 15, 2021

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