WHILE the easing of certain economic restrictions for fully-vaxxed consumers should accord some economic reprieve, the increasingly fluid political climate may overshadow good news leading to the gradual re-opening of the Malaysian economy.
Hong Leong Investment Bank (HLIB) Research is wary over the fact that the lingering political uncertainties may cast a dent on near term market sentiment.
“If true (the reports of Prime Minister Tan Sri Muhyiddin Yassin’s resignation), risk of policy continuity (most importantly on the vaccination roll-out and economic re-opening) may arise,” opined head of research Jeremy Goh in a strategy note.
“A quick glance at the seat distribution in Parliament seems to suggest that no single party or coalition has sufficient majority to form a government.”
The research house further noted that during the previous political crisis in February 2020 sparked by the “Sheraton Move”, the FBM KLCI fell -4.2% within the week when there was no ruling government in place.
Yesterday, Muhyiddin announced easing of economic restrictions in 11 business types for consumers who have been fully vaccinated (proof via digital vaccination certificate).
Phase One of the exercise entails car wash; electric & electronics; household & kitchen appliances; furniture; sports equipment; car accessories; car dealerships; morning & farmer’s markets; clothing & accessories; jewellery; and hair salons.
According to HLIB Research, the latest decision by the Government to allow more companies to reopen is supportive of the economy, thus providing upside risk to its revised 3.1% year-on-year (yoy) gross domestic product (GDP) forecast.
“Nevertheless, as cases and ICU utilisation remain elevated, including in Klang Valley (Aug 6-12 average: 112.2%), we remain cautious on the sustainability of the reopening amid tight hospital resources and heightened policy continuity risk,” justify the research house.
“Hence, we maintain our 2021 GDP forecast at 3.1% which sits at the lower bound of Bank Negara Malaysia’s forecast of 3-4%.”
Despite the positives from the re-opening measures, HLIB Research expects this to be overshadowed by the increasingly fluid political climate in the near term. To reflect this uncertainty, it slashed its applied market PE (price-to-earnings ratio) target from 16.5 times to 15.7 times.
“Correspondingly, our end-2021 FBM KLCI target is lowered to 1,580 points from 1,660,” added the research house. – Aug 16, 2021
