By Chee Jo-Ey
PRIME Minister Tan Sri Muhyiddin Yassin had announced last Friday that most economic and social activities will be allowed to resume starting today under a Conditional Movement Control Order (CMCO).
However, we need to keep in mind that the last two days have seen new Covid-19 cases and the number has climbed back to three digits after maintaining two-digit numbers for 16 days.
The actual last date of the fourth phase of MCO is May 12 and already, some have sounded dissent against the seemingly rushed CMCO.
Several states including Selangor, Penang, Negeri Sembilan, Pahang, Sabah, Sarawak and Kedah have decided to not implement CMCO.
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar told FocusM, “The recent announcement to ease MCO restrictions is probably ill-advised. While it is necessary to open businesses since we cannot keep them closed for too long, it is not sensible to change policy abruptly as this can cause anxiety.
“The stance that several states have taken against the easing of the MCO does not add to market confidence. The markets will want to observe the numbers of Covid-19 cases subsequent to the new policy before they will revise their views. As it stands, a mood of uncertainty is likely to prevail.”
Sunway University economics Prof Dr Yeah Kim Leng said the lifting of the MCO is positive news to the market in general due to higher prospects of earnings recovery but the outlook remains tentative as there are still uncertainties over the infection trends.
The easing of MCO restrictions might uplift market sentiments as it means that companies will be allowed to resume operations on the condition that health and safety guidelines are met. Compliance with the standard operating procedure however can incur some costs which can result in lower profit margin.
In addition, some companies might not operate at full capacity as work from home is still encouraged. Some industries that operate might not see an immediate recovery because of constraints faced by sectors like hospitality, gaming and tourism that had seen a sharp fall in demand.
Demand will remain depressed for these industries and the recovery of stocks for those counters will remain bleak. It is only when cases are reduced to a greater degree like being seen in Taiwan and Vietnam that there would be a more sustainable recovery in the stock market.
The outlook of the stock market depends on the global environment and liquidity as well. Earnings prospects vary across industries and rely on how the economic landscape has been altered post Covid-19 due to changes in consumer behaviour, like a stronger demand for tech and digital services.
Generally, the news will lift market sentiments but there will be uncertainties and the market will continue to be subdued because of lingering fears over the infection rate continuing.
According to Yeah, gradually allowing sectors to operate is required to balance economic costs and public health.
“The government could have waited for the MCO to be over on May 12 to open up the economy so that we have a clearer picture of infection trends as now there are spikes in cases still. Meanwhile, states can allow economic activities to resume in certain districts that are not susceptible to the outbreak or green areas to reduce economic hardship,” he says.
Nambiar does not see the KLCI moving upwards soon although the revised MCO policy was perhaps introduced to help revive business confidence. “There would probably be lateral movement of the index at best though there will be questions as to whether the number of infected cases would rise which would prompt negative reactions,” he adds.
At 4.15 pm, the benchmark FBM KLCI shed 28.65 points or 2.04% to 1,379.13. – May 4, 2020
