MCO extended to May 12 but with certain relaxations

Sub-Title:  
Bank Negara Malaysia expected to cut Overnight Policy Rate by another 75 basis points 

By Stella Goh – As published in Inve$t Malaysia 24 April 2020 issue

On Thursday (23Apr) the PM announced the further extension of MCO to May 12 but with two groups of people being allowed to travel. The first group are students who have been in their campuses being allowed to return home but only after taking the Covid-19 test. The other group are those who had been in their relative kampungs since March 18, when the MCO was first implemented, will be allowed to return to their own homes.  
 

On Monday (20Apr), the FBM KLCI surged 5.78 points or 0.41% from previous Friday’s close of 1407.34 to 1413.12 but has reversed the trend and fell to 1381.89 on Wednesday (22Apr) as a confluence of weak crude oil prices and pandemic fears continued to pummel the global equity market. As at Friday (24Apr) 10:00 am, the FBM KLCI was at 1372.08. 

FBM KLCI

Malaysia’s inflation rate fell only 0.2% YOY to 120.9 points in March with much credit going to the lower fuel costs. However the drop was countered by the rise in housing, utilities, food and non-alcoholic beverages. The full year headline inflation forecast is expected to be at zero % based on weak oil prices, discounts on household electricity and overall weak demand.    

Bank Negara Malaysia (BNM) is expected to reduce the Overnight Policy Rate (OPR) by 50bps in May, followed by a further 25bps cut in the second half of 2020 in anticipation of a contraction in the country’s economy and subdued inflation in 2020. The reduction in the Overnight Policy Rate (OPR) is intended to provide more accommodative monetary environment to support the projected improvement in economic growth amid the price stability. The Monetary Policy Committee (MPC) will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. In anticipation of the interest rate cuts and slower loans growth due to the challenging business environment, banks’ earnings outlook are expected to be slashed.    

On Monday the US crude oil futures plunged by almost 300 percent to its historical lowest. For the May delivery of US benchmark crude, the West Texas Intermediate (WTI) sank to a new low of minus $37.63 a barrel, a staggering level which essentially means the producers would be paying buyers to take oil off their hands. This resulted in the oil and gas (O&G) stocks on Bursa Malaysia to take a beating after the US crude oil price collapse. 

This week, with the weak crude oil prices hogging the news, the Ringgit against the USD was 4.3600 on Thursday (23Apr) from 4.3745 on Monday (20Apr).  

Malaysia’s Real GDP projected to grow at a rate of 9% in 2021

Subtitle:
IMF projects Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021

By Stella Goh – As published in Inve$t Malaysia 17 April 2020 issue

On Monday (13Apr), the FBM KLCI shed 1.47 points or 0.11% from previous Friday’s close of 1357.50 but reversed the trend to continue to surge up to 1386.53 on Thursday (16Apr). As at Friday (17Apr) 10:00 am, the FBM KLCI continued its strong upward trend to 1407.93. 

Malaysia has the highest household debt to Gross Domestic Product (GDP) in Asia and has exceeded several high-income nations including United States (66%) and Japan (59.3%). According to Ambank Group’s Chief Economist Anthony Dass, the GDP outlook for 2020 will be much slower balancing between technical and full-fledged recession that will cause an increase in household debts. Ambank’s sensitivity analysis shows household debts against GDP could range between 82.3% and 88.6% this year and GDP to range between 0.4% to -2%. The relief measures unveiled by the government and central bank are expected to provide some short-term relief to the households. 

According to the International Monetary Fund (IMF), it has projected Malaysia’s real gross domestic product (GDP) to grow at a rate of 9% in 2021, the fastest among the Asean-5 countries which are expected to see a combined GDP growth of 7.8%. Besides Malaysia, the Asean-5 countries include Indonesia, Thailand, Philippines, and Vietnam which are set to expand by 8.2%, 6.1%, 7.6% and 7% respectively. IMF also forecasts Malaysia’s economy to contract 1.7% as the Asean-5 countries’ GDP shrinks 0.6% in 2020. The global growth is expected to rebound to 5.8% in 2021, reflecting the normalization of economic activity from a very low level. However some aspects that underpin the rebound may not materialize and the outcomes could be far worse depending on the course and extent of the Covid-19 pandemic. 

Malaysia’s Industrial Production Index (IPI) climbed 5.8% in February to a two-and-a-half-year high but it is unlikely to be sustained due to the Covid-19 pandemic. It results from an expected weak global demand coupled with supply chain disruption and factories closing temporarily during the Movement Control Order (MCO) periods. According to Malaysian Industrial Development Finance (MIDF), the outlook for the first half of year will be cloudy with major and emerging economies’ IPI remaining sluggish. Movement Control Orders and lockdowns in major economies such as US, Europe and Asia will impede global demand and exports. The plunge in global crude oil prices would also add pressure on the oil-exporting economies such as Malaysia, Australia, and Saudi Arabia. As a result of the gloomy outlook, MIDF is expecting the country’s IPI to contract in 1Q and 2Q of 2020. It has reviewed its IPI forecast from 1.5% to -2.8% y-o-y for 2020. 

The International Monetary Fund (IMF) in its recent World Economic Outlook April 2020 that was launched on Tuesday (14Apr), projects that Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021. The labour force will be affected in 2Q2020 because many companies and particularly SMEs have been buffeted by both external headwinds and the internal MCO and its extensions. However MIDF maintains its confidence that the jobless rate will be remain below 4% for the whole year of 2020 as some of the stimulus measures announced by government may moderate the pressure. 

This week, the Ringgit has weakened against USD to 4.3668 on Thursday (16Apr) from 4.3283 on Monday (13Apr).  

KLCI past 1 year

Malaysia’s GDP may shrink to a low of -2% in 2020 amid Covid-19 pandemic

Subtitle:
World Trade set to plunge as COVID-19 pandemic upends global economy

By Stella Goh – As published in Inve$t Malaysia 10 April 2020 issue

On Monday (6Apr), the FBM KLCI gained 11.04 points or 0.83% from previous Friday’s close of 1330.65, while trading volume across Bursa Malaysia neared six billion shares as Asian equities ended higher. Investors seemed to favor the possibility that the increase in new Covid-19 cases had slowed down and anticipated a truce in the Saudi Arabia-Russia crude oil price war as announced by POTUS. But the impasse so far has increased supply of the commodity and sent prices lower.  

Bank Negara Malaysia (BNM) warned that recession seems imminent if Malaysia’s GDP shrinks to a low of -2% in 2020 due to the economic impact of Covid-19 pandemic while Malaysia’s Movement Control Order (MCO) will pose a dampener on domestic economic activity. According to BNM governor Datuk Nor Shamsiah Mohd Yunus, the projected GDP for 2020 is expected to be between 0.5% and -2%. Spillovers from the global slowdown and the pandemic containment measures will result in large output losses in the first half of this year (1H20). As for oil, according to BNM assistant governor Marzunisham Omar, prices are expected to range between US$25 and US$35 per barrel this year. During MCO period, the domestic economy will be operating at around 45% of capacity. The labour market is expected to be considerably weaker as well.  

The Malaysian government announced an additional fourth stimulus package worth RM10 billion (US$2.3 billion) to help struggling small-and-medium-size enterprises (SMEs) affected by the Covid-19. The benefits include expanded employees’ subsidies, a special grant for micro SMEs, waiver of interest rates for the Micro Credit Scheme and a levy cut on foreign workers. The government also announced there is a rental exemption or discounts for SMEs operating on premises owned by government-linked companies and tax breaks for landlords that give rental discounts or exemptions. 

According to the World Trade Organization (WTO) Director General Roberto Azevedo, this crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives. The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic. These numbers are ugly and there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. He urged Governments to lay the foundations for a strong, sustained and socially inclusive recovery. He presented two scenarios. In the optimistic scenario, the global merchandise trade could fall 13% in 2020 and rebound 21% in 2021 compared with a 0.1% contraction in 2019. While the gross domestic product (GDP) could contract by 2.5% in 2020 and grow by 7.4% in 2021. In a pessimistic scenario, the volume of global goods trade could drop by as much as 32% this year with the possibility of 24% increase next year. In this situation, world GDP could shrink by as much as 8.8% in 2020 and expand by 5.9% in 2021. If the optimistic scenario is achieved, the WTO projection will rival the modern peacetime record, which was set in 2009, when world merchandise trade volume declined about 12% and global GDP contracted 2%. If the pessimistic scenario is realized, it could be the most severe drop in global commerce since the Great Depression. 

As at Thursday (9Apr) the Ringgit had strengthened to RM4.3189 against the US dollar from RM4.3638 on Monday (6Apr). As at Friday (10Apr) 10:00 am, the FBM KLCI was at 1355.98. 

Site last updated November 13, 2020 @ 4:49 am