Market earnings to slow in 3Q before rebounding in 4Q


POLITICAL uncertainty and prolonged lockdown in the country is expected to drag the earnings outlook for companies on Bursa Malaysia in the third quarter (3Q) before a rebound occurs in 4Q.

Maybank Kim Eng head of regional equity research Anand Pathmakanthan said the FTSE Bursa Malaysia KLCI (FBM KLCI) was the worst performing Asean index in the first half of the year (1H21) due to the sporadic lockdowns that led to a total lockdown in 3Q, coupled with the upheaval in the political sphere.

“We think 3Q will remain difficult for the market because of the continuing political issues and lockdown uncertainties which is driving a very negative narrative but 4Q should be very different.

“Hopefully, we have a resolution in September as Parliament reopens and then we can focus on the positives,” he said during the webinar titled “Asean Macro Outlook and Asean Strategy” held by Maybank Kim Eng yesterday.

The Parliament is scheduled to sit next month where Prime Minister (PM) Tan Sri Muhyiddin Yassin will seek to prove the legitimacy of his administration in a motion of no confidence.

The PM said in a special address yesterday the King had approved and consented to the motion, after he had an audience with the King on the same day.

Anand said there are many positives that will buoy the performance of corporates throughout the year despite the economic slowdown.

The resilience shown by the companies provide some downside to earnings provisions if the lockdown drags on longer.

“There are still decent earnings recovery this year despite the pressures we are feeling and a big reason for that is, because the FBM KLCI composition is quite skewed towards insulated sectors such as telcos, utilities, banks and petrochemicals.

“Earnings growth this year could still be above 20%,” he said.

Maybank Kim Eng macro research regional co-head Suhaimi Ilias said the political instability is going to have an impact on business investments and investor’s confidence, particularly the direct investments from local and foreign sources.

The biggest concern that arise due to the political turmoil is the position of Budget 2022 which is expected to be tabled in Parliament in October.

“The biggest concern right now is what will happen to Budget 2022 because if the government survives the confidence vote, I would take the view that it is a relief for the economy in the sense we can be sure the budget will be tabled in October.

“If the government loses, it will raise a lot of questions about Budget 2022 because the PM would have to reign along with his Cabinet members,” he said.

In the special Parliamentary sitting last week, Muhyiddin had said Budget 2022 would be tabled on Oct 29, while the 12th Malaysia Plan, which would include details of the National Recovery Plan and other recovery measures, would be tabled in Parliament on Sept 20.

The government may also propose for a rise in the statutory debt ceiling to 65% of GDP from the current 60% which will create the necessary fiscal space, said Suhaimi.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) told the Dewan Rakyat last week the country’s debt ceiling is expected to be further relaxed to support the economic recovery plans based on the country’s indebtedness and affordability.

He noted Malaysia’s statutory debt level has reached 56.8% but is below the limit of 60% of GDP.

As of June 30, the government has spent a total of RM55 billion, of which RM38 billion was from the Covid-19 fund last year.