Analysts urge those with excessive liquid assets to consider channelling them into investments that can yield returns

by PRIYA VASU/ pic by TMR FILE

THE Covid-19-induced economic uncertainty has triggered a wave of saving among Malaysian households, with many squirreling away cash for rainy days amid the lurking spectre of pay cuts and unemployment.

According Bank Negara Malaysia’s (BNM) data, bank deposits in current account and savings account (CASA) surged 10.3% and 12.6% in March and April 2020 respectively.

Meanwhile, currency in circulation (M1) stood at RM466.2 billion in April 2020 compared to RM425.3 billion in the same month last year, reflecting a year-on-year (YoY) growth rate of 9.6%.

“People just want to hold on to cash. That’s it. There was too much uncertainty during the early days of the Movement Control Order (MCO),” Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told The Malaysian Reserve (TMR).

“We do not think businesses and households are putting a complete stop to their spending plans. It’s just that they may want to conserve more cash in the event of calamity in the economy.”

Across the world, businesses and firms of all sizes have implemented various cost-cutting measures, including pay reductions and layoffs, to mitigate the effects of pandemic containment measures.

Malaysia’s MCO, which came into effect on March 18, saw a near-complete halt in economic activities with the main curbs being on all non-essential activities.

Even though the Conditional MCO will be relaxed from tomorrow (June 10) onwards, with the Recovery MCO, the aviation, travel, hospitality and entertainment-related sectors — among others — will continue to be affected by the preventive measures such as social distancing and crowd control.

BNM is expecting the economy to shrink as much as 2% or increase to 0.5% in 2020 before recovering in 2021, but much of this hinges on domestic consumption — a key economic driver even prior to the MCO.

Note that consumer sentiment, as measured by the Malaysian Institute of Economic Research’s (MIER) Consumer Sentiment Index (CSI), plunged to a 32-year low of 51.1 in the first quarter (1Q) this year.

Fears of unemployment add to the list of reasons for belt-tightening as consumers heed the adage of “cash is king”, Mohd Afzanizam added.

The country’s unemployment rate jumped to 3.9% or 610,000 people in March and will continue to rise, with the Department of Statistics Malaysia expecting the rate to come in at between 3.5% and 5.5% for 2020.

“If businesses and households freeze their spending entirely, it will paralyse the economy. However, we could still see total loans growing 4% YoY during April, whereby lending growth to households and non-households grew by 3.3% and 5.1% respectively,” Mohd Afzanizam said.

Yet, pent-up demand for goods and services is unlikely to be released in the short term as consumers are aware of the lingering economic uncertainty, particularly in the 2H20 as the impact of the MCO is still unfolding.

“Every decision one makes will definitely involve opportunity cost. If one holds excessive liquid assets, the opportunity to gain return from investing into other investment products would be missed out,” FSMOne (Fundsupermart) assistant portfolio manager Jerry Lee Chee Yeong told TMR.

He advised households with higher savings to channel their assets into investments that could yield returns.

“If one has sufficient savings for rainy days, consider putting one’s money to work. Although people always say ‘cash is king’, holding on to too much cash on hand or in fixed deposits during a period of high inflation could hurt investors.

“Investors should understand that either taking risks excessively or not taking any risks at all will hurt them over the long run,” Lee said.