Stimulus package a soothing balm for Malaysia

AmInvest Research said that on a brighter scenario where the Covid-19 outbreak and political impasse are to come to an end sooner than expected, it believes potential market rerating catalysts could come from investors’ revived appetite for risk assets, particularly, emerging market (EM) equities including Malaysian equities.

KUALA LUMPUR: AmInvestment Research has described the 2020 Economic Stimulus Package, launched by interim Prime Minister Tun Dr Mahathir Mohamad as a soothing balm to the rakyat, businesses and the economy as a whole, that have been affected by the recent Covid-19 outbreak.

In its research note issued on Friday, it said the global epidemic has disrupted everyday life, human mobility, global supply chains, commerce and tourism.

The rakyat from all walks of life including taxi drivers, tourist guides, medical personnel, immigration staff and Bantuan Sara Hidup (BSR) recipients will receive cash handouts, ranging from RM200 to RM600.

The salaried workforce will enjoy a higher take-home pay with the temporary reduction in Employees Provident Fund (EPF) contribution to 7% from 10% for nine months from April to December 2020.

“We are looking to downgrade our end-2020 FBM KLCI target by 90 to 140 points to 1,530-1,580 (from 1,670 currently).

“The downgrade is to factor in: (1) a one multiple cut to 16.5 times from 17.5 times (0.5 time each to reflect the negative impact from the Covid-19 outbreak and the political impasse); and (2) up to 3% downgrade in our 2020 FBM KLCI earnings forecast following the 4Q2019 reporting season (which should bring our 2020 FBM KLCI earnings growth to only 3–4% from 7.6% currently),” it said.

AmInvest Research said that on a brighter scenario where the Covid-19 outbreak and political impasse are to come to an end sooner than expected, it believes potential market rerating catalysts could come from investors’ revived appetite for risk assets, particularly, emerging market (EM) equities including Malaysian equities.

However, this would hinge on (1) the US Fed is to maintain its narrative of not tightening monetary policy (which shall keep the dollar’s strength in check); (2) the sustained high equity valuations in developed markets (DM), prompting investors to look elsewhere for opportunities, including EM equities; and (3) the US-China trade tensions are to continue to ease.