EVEN amid the spiralling number of COVID-19 cases in the country, a total lockdown is never perceived positively not so much because it impedes movement but more so as it violates the sense of freedom.
In this regard, Hong Leong Investment Bank (HLIB) Research attempted to speculate if the ongoing movement control order (MCO 2.0) could possibly end on Feb 10, four weeks since it began on Jan 13 and right before the Lunar New Year.
To re-cap, Health Director-General Tan Sri Dr Noor Hisham Abdullah has hinted during a virtual media conference that “if we implement the MCO for four weeks until early-February, followed by a conditional MCO (CMCO) for three months, we hope we can reduce the number of COVID-19 cases to double figures”.
“This news alongside recent relaxations (eg business hours extended from 8pm to 10pm and interstate travel for long-distance spouses) led us to believe that the bias is towards an early reopening rather than prolonged extension,” suggested head of research Jeremy Goh.
“Nonetheless, in our view, should MCO 2.0 be lifted early-February, mass interstate travel will likely remain banned in the near term (similar to MCO 1.0 which ended on May 3 but interstate travel was only allowed from June 10).”
Currently, every state in Malaysia (except Sarawak) is now under MCO until Feb 4, possibly still a moving target depending on the case count.
According to Goh, the potential lifting of MCO 2.0 in early February – followed by a transition to conditional MCO – is a near term positive for the economy, hence should lift market sentiment.
He expects sectors that were hardest hit by MCO 2.0 to rebound, namely: automotive (visitor recovery to showrooms); brewery (out-of-home drinking); consumer staples (higher purchases from HORECA [hotel, restaurant and cafe business sector] channels); media (adex revival); property (reopening of sales gallery) and retail (higher footfall, including for mall-based REITs).
“However, given our expectation of interstate travel to remain banned, tourism-related industries (i.e. aviation, hotels, Genting Malaysia Bhd) may continue to face challenging times,” noted Goh.
“For healthcare, the lifting of MCO 2.0 may not necessarily see a recovery of previously delayed non-critical treatments, given the possible stigma that private hospitals can now accept COVID-19 patients.”
While there is lower concern of tighter or prolonged MCO 2.0, the high case count may continue to constrain mobility and demand going forward, thus posing downside risk to Malaysia’s gross domestic product (GDP) forecast.
“We empathise with the Government which like many other countries is caught in between a rock and a hard place; opening too soon has resurgence risk while prolonging would hit the economy,” HLIB Research pointed out.
“Hence, we opine that Bank Negara Malaysia (BNM) will reduce the overnight policy rate (OPR) by another 25 basis points to 1.50% in 1H 2021.”
Likewise, the research house is lowering its end-2021 FBM KLCI target to 1,740 (from 1,780) which still implies a decent 10% upside from current levels.
“While our recovery thesis remains (albeit delayed), the path will be a choppy one given opposing news flow between positive vaccine developments and a still elevated COVID-19 count (both globally and at home),” added HLIB Research. – Jan 29, 2021
