PETALING JAYA: While the second round of the movement control order (MCO 2.0) may likely be less damaging than the previous one in March 2020, experts believe that the retail and consumer-related sectors would be among those most affected by the restrictions.
Not only that, sectors that have been benefiting from the market’s recovery play such as banking and construction may also see slightly delayed recovery in their earnings performance.
It is, hence, crucial for investors to take a cautious approach in choosing the right sector to invest as the country entered the MCO 2.0 on Jan 13.
In a strategy note, CGS-CIMB Research said the implementation of MCO 2.0 would lead to higher corporate earnings risk, while the state of emergency effective until Aug 1 could negatively impact foreign investor sentiment on Malaysia.
“We maintain our end-2021 FBM KLCI target of 1,759 points but expect the market to be more volatile on concerns over earnings and political risks, ” it said.
CGS-CIMB Research has pointed out that the MCO 2.0 could negatively impact brewers, the consumer and gaming sectors, real estate investment trusts, airlines, airports and banks.
However, it does not expect the new restrictions to significantly impact FBM KLCI earnings if the MCO 2.0 is not extended beyond two weeks.
Meanwhile, PublicInvest Research said the Malaysian stock market remained a trading-oriented one with volatile swings to be expected.
It, however, recommends investors to take significant market weakness as an opportunity to accumulate. The research house considers the energy, financial services and healthcare sectors as attractive currently.
“While near-term weakness is to be expected, we reckon some form of stability on the political front will actually be positive for the market in the medium term.
“Our 2021 year-end FBM KLCI closing (forecast) remains unchanged at 1,750 points, ” it said.
Following the enforcement of the MCO 2.0, PublicInvest Research expects the market’s longer-term cyclical recovery plays to be delayed even further, although prospects continue to be on track.
These include sectors such as banking, oil and gas, and construction.
“We see no changes to fundamentals and retain our “overweight” stance on the manufacturing, technology, furniture, oil and gas, and rubber glove sectors, ” it said in a note.
With daily Covid-19 cases recorded at four digits since end-Nov 2020, Prime Minister Tan Sri Muhyiddin Yassin has announced a three-layered implementation of movement restrictions nationwide from Jan 13 to 26.
Six key states, which contributed over 60% of the national economy in 2019, would come under the MCO whereby inter-state and inter-district travels are banned. These are Selangor, Penang, Johor, Sabah, Melaka and the three federal territories (Kuala Lumpur, Putrajaya and Labuan).
Secondly, conditional MCO will be enforced in Pahang, Perak, Negri Sembilan, Kedah, Terengganu and Kelantan. Recovery MCO will be implemented in Perlis and Sarawak.
UOB Kay Hian Malaysia Research said in a note that while there is a good possibility of the MCO extending beyond Jan 26, the impact would be less acute and short-lived on market sentiment.
“This comes as investors look forward to the reopening of the economy in the second half of 2021, amid mass dispensation of effective vaccines.
“Sectors or companies under our coverage which are impacted by the MCO include the number forecasting operators and non-essential retailers, ” it said.
The research house also recommended investors to seize opportunities to accumulate stocks on any sell-off in the market.
“While we expect a flattish return for the FBM KLCI, most of the stocks will deliver positive returns as they will benefit from the reopening of the country’s economy and borders once there is adequate dispensation of Covid-19 vaccines by the second half of 2021.
“However, market returns will be uneven through the year, and we envision another consolidation period towards mid-year with the expiry of loan repayment moratorium for the B40 income earners and banks’ rescheduling and restructuring programmes, ” it said.
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