Cautious on rebound

UOB Francis EngUOB Asset Management (M) Bhd chief investment officer Francis Eng said that the long road to recovery would hinge on the duration of the second movement control order (MCO 2.0) and whether stricter measures are enforced.

KUALA LUMPUR: The surge in Covid-19 cases in Malaysia could possibly delay the recovery in Malaysia’s economy to 2022, says UOB Asset Management (M) Bhd chief investment officer Francis Eng.

He pointed out that the long road to recovery would hinge on the duration of the second movement control order (MCO 2.0) and whether stricter measures are enforced.

“There is a possibility that we have to wait until next year for the economy to get back to pre-Covid-19 levels.

“However, it will all depend on how fast we can get the pandemic under control in Malaysia, ” he said during the virtual media briefing yesterday.

This is a less rosy outlook in contrast with the government’s expectations of the economy to grow at least 6.5% this year.

In 2021, Eng explained that Malaysia would go through an “uneven recovery” as the Covid-19 pandemic scenario is very uncertain and fluid.

Meanwhile, despite the current all-time low interest rate in Malaysia, Eng predicts that another overnight policy rate (OPR) cut could take place this year should MCO 2.0 is extended beyond Feb 4 or stricter measures are imposed by the government.

Last week, Bank Negara Malaysia maintained the OPR at 1.75%.

Should the interest rate cut take place this year, he said it would not make Malaysia’s fixed income market less attractive to foreign investors.

“We are now in an environment where the global interest rates are at very low levels, and there are trillions of bonds with negative yields.

“With a lot of liquidity out there, we think the yield in Malaysia is still attractive, ” he added

The benchmark Malaysian Government Securities (MGS) yield currently stands at 2.70%.

Despite the downgrade of Malaysia’s sovereign rating to BBB+ by Fitch Ratings last year, Eng said the country’s debt securities continued to attract foreign investors.

“The global low interest rate environment is very supportive to Malaysia’s fixed income market.

“Unlike the equity market, we have seen foreign investors fled Malaysia in the fixed income space, (but) foreigners continue to buy Malaysian fixed income securities, ” he added.

The total debt securities held by foreigners in Malaysia stood at RM223bil in December last year, up from RM219.4bil in November 2020 and RM217.5bil in October 2020.

Similarly, total debt securities monthly inflows also remained in the positive territory, with RM3.6bil recorded in December last year, up from RM1.9bil in November.

Eng also forecast that Asian markets are expected to rebound past pre-Covid-19 levels this year led by a rebound in China, the first major economy to recover from Covid-19.

Enforcement of government policies including fiscal and monetary policies and effective vaccine roll out would lend support to markets globally and put economies on the path of normalcy.

“This year, we are seeing a rollout of the Covid-19 vaccine and that is the first step to the path of normalcy for economies after experiencing the pandemic.

“Some countries in Asia would recover faster than others.

“But that depends on the handling of the pandemic and effective roll out of the vaccines, ” he noted.

In general, Eng expected markets to be less volatile this year due to the possibility of de-escalation of the US-China trade war as newly-elected US President Joe Biden would likely use a diplomacy approach with China.

Eng pointed out that the consensus forecast that earnings of companies in the Asia would exceed the previous high this year, which could be reflected in Asian markets.

“Every time there is earnings growth in Asia, we have seen positive returns from these markets.

“This trend has been observed since 2002. For 2021, there is expectations of earnings recovery and in turn, there will be positive returns in the Asian markets, ” he added.

He expected a sharp earnings rebound from sectors such as financial, consumer and property in the Asean region due to the reopening of the economies.

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