Second half outlook – fears and hopes


  • Business
  • Saturday, 27 Jun 2020

For Wall Street, the first six months of the year was a period the market experienced the most volatile period as the sell-off that we had ever observed was the steepest ever in living memory while the subsequent rally that took us from the March low to where we are today was hardly imaginable three months ago. (File pic shows statue of the fearless girl in Wall Street.)

AS we usher in the month of July next week, we will be entering the second half (2H) of the year with expectation that it will be better than the first half (1H).

At the start of the year, none of us would have imagined how the first six months of the year will pan out. As a matter of fact, the level of optimism on the economic and market front was bullish with strong GDP growth, driven by ease of trade tension between the United States and China then.

For Wall Street, the first six months of the year was a period the market experienced the most volatile period as the sell-off that we had ever observed was the steepest ever in living memory while the subsequent rally that took us from the March low to where we are today was hardly imaginable three months ago. This of course was driven by the pace that the Federal Reserve had injected liquidity, which over the past four months totalled almost US$3 trillion, while other central banks or governments too have done the same, including us in Malaysia.

It is estimated that globally some US$18 trillion in liquidity has been injected into the economies and this translates to about 21% of global GDP and much of this is related to support for the financial system.

Based on where we are now, how will the 2H of the year be for markets and economies? While we live in hope that it will get better from here on, it remains a tough call for markets as there is still a lot of scepticism on the outlook going forward. After all, the International Monetary Fund (IMF) has just lowered global GDP contraction to 4.9% this year from its earlier forecast of a 3% decline. So what are our fears and hope for the 2H?

We fear the resurgence of Covid-19 cases globally, which has now surpassed the 9.7 million mark, and approaching double-digit million figures soon. We fear that even under the recovery movement control order (RMCO), while the number of cases have been under control in Malaysia, the numbers may jump if we take things for granted and do not observe the required protocols when moving around.

We fear the green shoots that we have seen in certain economic data points are nothing but simple bounces and may not be sustainable. Worse, they are celebrated by the markets as the market sees some of these data to be “better than expected” – never mind the fact that these expectations have already been drastically cut in the first place.

We fear that we may lose our day jobs as companies finally realise they either should cut down on their business operations due to reduced demand for their goods or services or for the simple reason that the business model is no longer sustainable.

We fear that once the six-month moratorium on loan repayment ends, we will not be able to service our obligations to the banks as our income is insufficient to pay for the mortgages and auto loans that we have.

We fear that the Budget 2021 to be tabled in November will be taxing for the rakyat as the government’s move to provide aid to the people suggests that the government needs to find new revenue sources to enable it to continue to support those in need.

We fear that Malaysians may have no choice but to go to the polls again as the political football game is not over yet as we cannot find a clear winner with a comfortable majority at parliament.

With fresh polls, markets and the economy will likely go into the abyss for one to two months as attention is shifted towards the general election outcome. We also fear that while corporate earnings, which are now expected to drop 15% this year, will remain disappointing and this will be another drag on the markets.

While it seems we have a lot to fear going into the 2H, the opposite is also true as the fear can inspire for a better or improved outcome for the future.

We hope the global community will be able to find a vaccine for Covid-19 and this will put to rest the impact of the virus to economies and markets. We hope that economic data points will not only be better than expected but higher than pre-Covid-19 period as then we know that we are on the right path. After all, with so much government’s assistance given out, it would be unthinkable that the economic data will remain weak.

We hope our employers will keep us with the company and with that we don’t have to worry when the moratorium period ends as we have the resources to meet our obligations. We also hope that Budget 2021 will remain rakyat-centric as this is not the time to be asking the people to be sacrificing their livelihoods at the expense of the nation’s coffers.

We hope that our politicians come to their senses and realise that they are representing the people in parliament and they need to protect the interest of the people and not themselves or the parties they represent. We hope that whatever the outcome may be if fresh polls are called, the politicians will respect the wishes of the people and stop frogging around.

Last but not least, the market has already lowered earnings expectations of our corporates by a significant margin due to Covid-19. We hope that corporate Malaysia will deliver not only the mellowed expectations, but please, do surprise us with better performance.

The views expressed are the writer’s own.

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