E&E could rebound post-Covid-19 as businesses adapt to new normal

The pandemic has given enlightenment to the importance of automation, not just in the industrial sector but in the services sector as well

by SHAHEERA AZNAM SHAH/ pic by BLOOMBERG

THE global electrical and electronics (E&E) sector could rebound in the aftermath of the Covid-19 pandemic, as businesses adapt to a new standard of operations.

With companies becoming more dependent on automation and technology in adhering to safety measures against the deadly virus, sales of semiconductor products will be higher than average in the next two years, United Overseas Bank (UOB) Ltd investment strategist Francis Tan said.

“The pandemic has given enlightenment to the importance of automation, not just in the industrial sector but in the services sector as well.

“Semiconductor sales, if compared on a year-on-year (YoY) basis, is a three-year cycle. Since bottoming in June last year, I expect it would see a strong uptake in the next two years,” he said in a virtual press conference yesterday.

Malaysia’s E&E exports fell 21.7% to RM25.91 billion in April, constituting 39.9% of total exports, according to government data released yesterday.

The YoY decline contributed to the contraction in exports of the country’s manufactured goods, which constituted 85.5% of overall exports.

For the first four months of 2020, exports of manufactured goods fell 4.5% to RM257.28 billion from a year ago, mainly due to lower volume of E&E products, metal, machinery, equipment and parts, chemicals and chemical products.

Malaysia’s overall exports plunged 23.8% to RM64.92 billion in April — the biggest decline since September 2009 during the global financial crisis.

Imports slipped 8% to RM68.42 billion, resulting in a trade deficit of RM3.5 billion. This was the first month of trade deficit since October 1997, the Department of Statistics Malaysia said.

Operations-wise, businesses would enjoy low interest rates over the next three years as the central bank takes measures to support firms in getting back on their feet, Tan said.

Policymakers likely won’t revert to a high interest-rate environment, judging by the US Federal Reserve’s (Fed) current rates — a benchmark for global monetary authorities. Markets expect policies to remain at low levels until 2023, he added.

“This is expected not just in the US, but in developed and emerging markets. Interest rates have plunged lower than during the global financial crisis, and we expect them to be supportive of the business environment.”

Tan said the Fed’s balance sheet, which has surpassed US$7 trillion (RM29 trillion), suggests the massive liquidity injection has eased credit and liquidity fears in the market, boosting equities over the past two months.

“The recent pick-ups in semiconductor stocks across European countries, America and Japan signal that we would see strong sales for the industry in the next couple of months,” Tan stated.

“For example, according to the S&P 500 Index sector performance, the IT counter has risen strongly to about 107.7 points in May.”