THE key concern surrounding stock investors today is likely to revolve around the prospect of delayed recovery due to the Delta variant and still-high COVID-19 cases, despite the increasing rate of daily vaccinations.
Such is the observation of CGS-CIMB Research from its marketing exercise for its 2H 2021F economic and strategy outlook to around 220 investors last week.
“COVID-19 remained the key source of uncertainty for the economic outlook, marked by fears over a shrinking fiscal space and policy options should the country’s gross domestic product (GDP) growth fall short of our forecasts of 3.9% in 2021F and 4.7% in 2022F,” explained head of research Ivy Ng Le Fang in a Malaysian strategy note.
“Investors were keen to understand where government resources would be directed at for the national recovery plan and sources of financing.”
Ad expected, CGS-CIMB Research noted that its non-consensus forecast of three overnight policy rate (OPR) hikes in 2022 was met with some resistance as clients fretted over the persistence of the Delta variant wave, potential economic scarring and tentative recovery prospects, limited fiscal space, as well as developing political instability.
“There were no major pushbacks on our outlook for a lacklustre 3Q 2021 followed by a re-rating in 4Q 2021 when the economy is expected to fully re-open,” noted the research house. “Some investors we spoke to were concerned that the recovery could be delayed to next year due to the emergence of the Delta variant which may keep COVID-19 cases high.”
This comes amid the persistently high COVID-19 cases in the Klang Valley despite 51.5% of the adult population in the region having completed their vaccination as of Aug 9.
“We believe that it may take one to two more weeks before (we see) a reduction in transmission or hospitalisation, and deaths from COVID-19 become more evident,” suggested CGS-CIMB Research.
“This is because 28% of total vaccines administered up till Aug 9 were completed over the two weeks leading up to Aug 9. According to Centre for Disease Control and Prevention (CDC), it typically takes two weeks after vaccination for the body to build immunity.”
The research house further highlighted potential earnings risks for the REIT, manufacturing, gaming, consumer and tourism-related sectors in the current 2Q 2021 results season that are due to disruptions in operations given the various movement control measures.
“As for ESG issues, we are of the view that there could be some progress in terms of resolving the forced labour issues in 1H 2022,” projected CGS-CIMB Research.
“In terms of politics, all eyes will be on UMNO and the Prime Minister who plans to put himself through a vote of confidence in Parliament in September (between Sept 6 and 30).” – Aug 11, 2021
