Vaccine is the key

TWO words sent global markets and economies on a roller coaster ride in 2020 and it is the similar two words that will set the tone in 2021.

Covid-19 and vaccine will still be the main themes that shape 2021, dubbed the year of recovery as economies emerge from the pandemic beatdown.

The vaccine is literally the shot in the arm that is needed now because it provides not only the immunity to Covid-19, it is also the master key to the reset button to fully reopen economies and borders.

Various countries have gone through lockdowns and gradual easing of movement restrictions, only to reimplement lockdowns when cases spike or when there is a new outbreak.

Even before a new Covid-19 strain was discovered in the United Kingdom in December, governments across the globe have been vacillating between reopening economies or renewing lockdowns.

Bursa bounces: Looking at it from the stock market crash of March 19, the FBM KLCI has actually rebounded 33.41% on the back of the rally of rubber glove heavyweights and the influx of retail investors into the local bourse, which saw the total trading volume for 2020 hitting more than 1.8 trillion units, almost triple of that of 2019 at 613.59 billion.Bursa bounces: Looking at it from the stock market crash of March 19, the FBM KLCI has actually rebounded 33.41% on the back of the rally of rubber glove heavyweights and the influx of retail investors into the local bourse, which saw the total trading volume for 2020 hitting more than 1.8 trillion units, almost triple of that of 2019 at 613.59 billion.

The first option allows the economy to run without restrictions but may come at the expense of public health.

The second option protects the citizens from the pandemic but at the expense of the nation’s economy, which will eventually see the people being impacted by the laggard effects. Talk about a Catch-22 situation

But one thing that is for sure, the market and investors hate uncertainties, although traders will beg to differ.

As forward looking as the markets are, the bull run moments of 2020 should not be mistaken as an economic boom or recovery.

It was a year of a liquidity-driven rally which saw a disconnect between stock markets and the actual economy.

A lot of this had to do with the roll out of government stimulus packages, quantitative easing and the slashing of interest rates.

In Malaysia, the benchmark FBM KLCI rallied 2.93% to end the year 2020 at 1,627.21 points, beating all its Asean peers which were mostly in the negative except for Vietnam, which saw the VNINDEX jump 14.5%.

Looking at it from the stock market crash of March 19, the FBM KLCI has actually rebounded 33.41% on the back of the rally of rubber glove heavyweights and the influx of retail investors into the local bourse, which saw the total trading volume for 2020 hitting more than 1.8 trillion units, almost triple of that of 2019 at 613.59 billion.

Efforts that flushed liquidity into the market include the stimulus packages from the government of around RM300bil, the six-month blanket moratorium from April to September 2020 and four consecutive cuts to the overnight policy rate (OPR) by Bank Negara between January and July, bringing it to a 20-year low of 1.75%.

A cautious recovery

Affin Hwang Asset Management equity strategies and advisory director Gan Eng Peng equates 2020 to a 10-year market cycle cramped into one.

“It is a great year to remember. There were many market pivotal events – political coup, fastest correction, negative oil price, fastest recovery, biggest wealth creation through gloves stocks, bull market in a recession and record money pumped, among others.

“Projecting and positioning were constantly challenged as events whipsawed beyond outlier expectations, ” he says.

While the consensus out there is firm on an economic recovery in 2021, Gan says ironically, this will be the biggest risk to markets as risk assets have been driven by cheap and abundant money from low rates and quantitative easing.

Once the economic recovery firms up, the markets will start to factor in lower liquidity in the system.

“Given how well the markets have performed in 2020 and how much it has factored in the recovery, this change in liquidity condition is a major risk in 2021, ” Gan says.


Fortress Capital investment director Chua Zhu Lian is optimistic for the year but stresses that attention should also be paid to the laggard effects on the economy.

“I remain optimistic for 2021 as business activities resume back to normal and the potential of the commercialisation of a vaccine to help battle Covid-19 more effectively.

“But we shouldn’t ignore the laggard effects on the economy from temporary relief policies such as loan moratoriums and various stimulus packages.

“I believe the real impact to the economy will be felt more strongly in 2021, ” he says.

Kenanga Investors Bhd executive director and chief executive officer Ismitz Matthew De Alwis believes that 2021 should see a synchronised global recovery with all regions bouncing back from the Covid-19 induced recession in 2020.

It, however, remains fragile and predicated on a vaccine-led return to normal in business activities.

He says a key risk might be a premature tightening of policy by governments, which may start in China as its economy has been the first to recover.

“We could see some measures targeted at reigning in excess and credit growth which will slow the growth impulse to the rest of Asia.

“Nonetheless, we think these measures will be limited in scale and should not derail the global economic recovery, ” says De Alwis.

RHB Asset Management acting CEO Mohd Farid Kamarudin opines that Malaysia’s easing cycle has probably come towards its tail end.

“Given the lower inflation trajectory amid a weaker growth backdrop, it is still far for Bank Negara as well as other central banks to embark on a tightening cycle.

“Thus, interest rates will likely remain lower for longer at this juncture until a more fundamental recovery in growth rates is able to persist, ” he says.

Themes for the year

Chua favours Covid-19 recovery plays such as retail and technology, particularly semiconductors and its supporting industries, which will continue to make promising long-term investments.

“I think retail spending will gradually recover from the huge drop during the movement control orders while 5G and new working processes such as work from home will increase the demand in digital devices to ensure seamless productivity in the workplace and that will be a positive catalyst to technology-related supply chains, ” he says.

Kenanga is also in favour of the tech as it remains overweight on the sector.

De Alwis says the sector will see various drivers such as the rising adoption of 5G technology, electric vehicles and artificial intelligence in 2021.

“We are also overweight on cyclical or value sectors that might have suffered in the past but will benefit from the global recovery.

“This includes sectors such as commodities, industrials, financials and consumer discretionary, ” he adds.

His investment theme is a cyclical recovery and he says a barbell strategy is probably the most suited investment option under the current economic climate.

Gan felt that the easy money has been taken in 2020, looking at how tremendously well the Covid-19 recovery plays took place towards the end of last year.

He says there is a broad spectrum of correlated recovery plays in increasing risk and return profile being banks, airport, commodities, hospitality and tourism and airlines.


He adds that global manufacturers will continue to diversify their activities out of China as the trade tensions between it and the United States will not go away.

“Manufacturers will continue to search for alternative sources of supply outside China as well as physically setting plants out of China.

“This will continue to benefit tech and electronics manufacturing services (EMS) players although we recognise shares have priced this theme well already, ” says Gan.

Farid’s key themes for the year are economic recovery, global trade and cyclical sectors that will benefit as the economy recovers.

He shares the same view that Malaysia will benefit from the trade diversion as the tariffs imposed on Chinese companies by the US will not be removed immediately under Joe Biden’s administration.

“Green energy, technology, consumer discretionary and consumer staples as well as healthcare sectors are likely to benefit from new administrative policies within the US.

“We would expect a rotation from defensives into cyclicals and the return of global funds to Asian markets in 2021.

“Malaysia is expected to benefit but performance may lag in relation to other markets in the region due to less attractive earnings growth and political uncertainties, ” says Farid.

What the heads of research say

RHB Investment Bank regional equity research head Alexander Chia says 2021 is not only about recovery but also how sustainable it will be.

His strategy report states that although markets have been pricing prospects of a vaccine-induced recovery, the likely reality is that the global economic recovery from the pandemic will be a long slog.

He says the transitional period ahead of the widespread availability of vaccines will continue to see sporadic resurgence of Covid-19 transmissions that will lead to rolling lockdown measures being imposed from time-to-time.

“A surge in infection cases could worsen unemployment and slow the pace of recovery, as weak demand impacts corporate profitability.

“The roll-out of the vaccine – when it becomes available to more than just frontliners – to inoculate the global population, could be the biggest logistical and public relations challenge of our time, ” he says.

Chia also notes that fundamentals still matter and will come back to rule the roost, despite the robust liquidity fuelling the prices of risk assets.

“We remain constructive that 2021 will further cement the green shoots of recovery already emerging in the second half of 2020, on the back of continued supportive monetary conditions, fiscal stimulus initiatives, and vaccine availability that will hasten the return to normality.

“Given significant levels of sidelined cash, we reiterate our view that market corrections will likely be shallow as investors seek to reposition at lower levels.

“Conversely, the propensity for investors to take profit on sharp market rallies will remain elevated, ” he says.

AmInvestment Bank’s Joshua Ng expects Bank Negara to hold the OPR at 1.75% throughout 2021, in line with the accommodative monetary policy stance expected from key central banks in the world.

He says the sustained low interest rate environment, coupled with the recovery narrative, will continue to make equities an attractive asset class for local investors.

“We expect domestic liquidity from both institutional and retail investors to remain robust in 2021 and shall continue to neutralise foreign selling if any, as it did in 2020, ” says Ng.

TA Securities head of research Kaladher Govindan believes 2021 will be a strong year in terms of economic and corporate earnings growth, adding that the unveiling of the 12th Malaysia Plan should underline long-term plans and structural changes needed to make Malaysia more competitive and attract foreign direct and portfolio investments.

CGS-CIMB head of Malaysia research Ivy Ng says key concerns lie in the time required to ensure sufficient doses of vaccines to inoculate enough people to allow the lifting of lockdown measures.

“However, the market is forward looking and a convergence of strong liquidity and solid earnings growth momentum could boost market performance.

“Also favouring Malaysia is the weak US dollar, which could spark investor interest in emerging markets and increase foreign flows into Malaysia, where foreign funds are severely underweight, ” she says.

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