Recovery to pre-Covid levels seen next year

Because of MCO 2.0, Malaysia will probably go through some uneven recovery, says expert

by ASILA JALIL / pic by AFP

THE economy is expected to recover and get back to pre-Covid levels only by 2022, slower than other neighbouring countries, due to the reimplementation of the Movement Control Order (MCO) as the rise in the number of daily infections continues.

UOB Asset Management (M) Bhd (UOBAM) CIO Francis Eng said Malaysia sees other countries in Asia recovering to pre-Covid levels in 2021, but MCO 2.0 in Malaysia is still fluid and unpredictable.

“Because of what we are experiencing now in Malaysia, it will probably go through some uneven recovery.

“We think Malaysia will get back to pre-Covid levels possibly by 2022. Ideally, we want to get back to pre-Covid levels in later part of 2021, but the situation is highly dependent on MCO 2.0 and how fast we can get Covid-19 under control,” he said during the online media briefing of UOBAM market outlook on Asia’s Shariah and environmental, social and corporate governance (ESG) sectors yesterday.

Eng said the recovery is also highly dependent on the measures that would be put in place if the number of daily infections continues to rise, as well as the duration of the movement restrictions.

The new round of MCO will also affect the decision of Bank Negara Malaysia (BNM) to cut the lending rates in the future as a preemptive measure to mitigate the impact of the virus onto the economy.

Eng said it is possible for the central bank to reduce the rate once more this year if the MCO is extended.

BNM’s Monetary Policy Committee decided to maintain the Overnight Policy Rate (OPR) at 1.75% last week as it projected the growth trajectory to improve in the second quarter onwards.

However, Eng said another slash in the OPR would not make Malaysia’s bond market less attractive to foreign investors, as other fixed income markets are seeing negative yields.

“We are in an environment where interest rates are really low. There are trillions of bonds with negative yields, so there is a lot of liquidity out there looking for a home.

“Even if the yield does come off, the yield pick-up in Malaysia is still attractive enough,” he said.

Eng said the FTSE Bursa Malaysia KLCI is forecast to hover around 1,680 by year-end, together with a dividend yield that will give a total return of just under 10%.

For GDP, he said there may be a risk for the official forecast of between 6.5% and 7.5% to slip this year due to the MCO.

As for the technology sector that has seen a rally last year, Eng said it will continue to outperform this year’s record due to its promising outlook.

“One of the reasons is that we are increasingly adopting the use of technology in our daily lives, so that will drive up demand for technology devices, benefitting many of our Malaysian manufacturers.

“The second reason is that we are of the view that the trade war between the US and China will continue and if that is so, the trade diversion we are seeing will continue to be relevant and Malaysia will stand to benefit from this diversion. The sector will continue to outperform,” he said.

Meanwhile, UOBAM also launched the United-i Asia ESG Income Fund (UiAIF), which seeks to provide retail investors with income dividend and capital appreciation over the medium to long term through sustainable investments.

The fund invests in a diversified portfolio of equities and debt instruments issued by companies across the Asian region, excluding Japan, that is Shariah-compliant and adopts ESG considerations into their practices.

“The launch of the UiAIF is timely as the Covid-19 pandemic has given everyone a good reason to reassess the importance of being sustainable in what we do and how we invest.

“At UOBAM, we have enhanced our research and investment processes with the integration of ESG considerations and by pairing fundamental analysis with the use of technology, such as artificial intelligence, for our portfolio construction,” said UOBAM CEO Lim Suet Ling.

The fund is available in ringgit, Australian dollar and US dollar, with an initial minimum investment of RM1,000, A$1,000 (RM3,110) and US$1,000 (RM4,050) respectively.

Read our earlier report