Kenanga foresees higher market risk in 2H21

by LYDIA NATHAN / pic credit: kenanga.com.my

KENANGA Investment Bank Bhd has projected a higher market risk for the second half of 2021 (2H21) as the investment environment remains risky compared to a year ago.

Its research head Koh Huat Soon said the heightened market risk is due to the country’s weak fiscal balance sheet, the prolonged impact of further lockdowns and political instability.

“Since the Covid-19 pandemic hit, the government has spent so much on aid and stimulus packages, with plenty of resources put in to support the economy. It’s been 18 months so far and the longer we deal with this, the less room for error,” he said during the virtual Kenanga Third Quarter of 2021 Market Outlook briefing yesterday.

According to Koh, government finances are stretched after borrowings and the government had to dig into other sources like the National Trust Fund to manage the fiscal deficit. This fund was created in 1998 in order for the government to have access to emergency funds, but so far RM5 billion has been used to fund the vaccination programme, leaving about RM14 billion remaining.

Malaysia is more vulnerable to shocks as the fiscal balance sheet is considerably weaker today than before, with a fiscal deficit at its highest ever level of RM95 billion to RM100 billion, or 6.3% of the country’s GDP.

Additionally, Koh said the passing of Budget 2022 poses some challenges due to the political issues currently being faced, as well as doubts on its capacity to fund the spending.

“We have lowered the FTSE Bursa Malaysia KLCI price-earnings from 15.6 times to 14.3 times. This was also because of US tapering and inflation expectations, capital inflow softening and the vulnerability of sovereign bond yields,” he added.

Kenanga Investment Bank economic research head Wan Suhaimi Wan Mohd Saidie retained Malaysia’s GDP growth forecast at 5% to 6% despite the announcement of the National Recovery Plan.

Wan Suhaimi said the possibility of extension of the lockdown and slower recovery of the economy is material due to the new Covid-19 variants discovered lately.

“We foresee the pandemic stabilising by year-end once the vaccination programme gains ground. We expect to see a rebound in the manufacturing and construction sector,” he said.

Kenanga likes Gamuda Bhd in the construction space and anticipates reopening of economies will benefit Genting Group, whose overseas resorts have done well and are expected to pick up here due to the pent-up demand.

He expects Bank Negara Malaysia is likely to maintain its Overnight Policy Rate at 1.75% today, underscored by the extended fiscal support, ongoing vaccination drive and the prospect of recovery.

Wan Suhaimi said despite the falling US Dollar Index and high Brent crude oil price, the ringgit remains weak and volatile in the near future.