V-shape recovery ahead

Economic measures, consumer spending to bolster growth

PETALING JAYA: The Malaysian economy is poised to rebound in the second half of the year after a tough and challenging 2020.

Some economists are of the view that the country may see a V-shape economic recovery this year, underpinned by several factors like the global economic growth, pick up in the immunisation programme and improvement in consumer spending.

A V-shape recovery is where a sharp decline in the economy is followed by a rapid recovery back to its previous peak, bolstered especially by economic measures and strong consumer spending.

Being an open economy, the nation is no stranger to external shocks. Over the past two decades, it has braved out the 1997 Asian Financial Crisis (AFC), the 2000 Dot-com Bubble and the 2008 Global Financial Crisis (GFC).

Except for the Dot-com Bubble, Malaysia’s gross domestic product (GDP) contracted significantly by 11.2% year-on-year (y-o-y) and 5.8% y-o-y during the AFC and the GFC respectively, as compared to a decline of 0.4% y-o-y during the 2000 crisis.

One common feature between these past recessions is that they all showed a V-shape economic recovery – where a sharp decline in the economy is immediately followed by a rapid recovery within three to five quarters.

With more signs of green shoots in the economy, TA Securities Research predicts that a V-shape economic recovery is underway this year, with a GDP forecast of 6.4% y-o-y.

Bank Negara is projecting a GDP growth of between 6% and 7.5% y-o-y for this year.

The research house opines that the strength of an economic recovery would partly depend on sentiment level since consumer spending accounts for almost 60% of the country’s GDP.

Last year, the Malaysian Institute of Economic Research statistics showed that Consumer Sentiment Index (CSI) improved from 51.1 in the second quarter (the lowest since 1988) to 91.5 and 85.2 in the subsequent third and fourth quarter, respectively, since the movement curbs were gradually relaxed along with the reopening of more economic activities.

Similar situations have occurred in past crises.

TA Securities also noted the potential recovery plays in the banking, building materials, consumer, oil and gas (O&G), plantation and tourism-related sectors.

For the banking sector, it foresees consumer and business confidence to improve. As financial institutions are also well backed by stronger capital and liquidity buffers, along with benign asset quality, it foresees room for richer valuations ahead.

It maintains an “overweight” stance on the sector with a “buy” call on Public Bank (target price or TP: RM5) and Hong Leong Bank (TP: RM23).

As for the building materials sector, the research house expects steel price in the second half of the year to be well supported by the healthy demand after taking into account fiscal stimulus globally and pent-up demand from steel-using sectors.

It is “overweight” on the sector with top “buy” picks for Chin Well (TP: RM1.63) and CSC Steel (TP: RM1.72).

On the consumer front, it expects consumer companies to deliver stronger sets of results, driven by recovery in consumer spending coupled with the low-base effect.

It is “overweight” on the sector with focus towards tobacco, food and beverage and industrial sub-sectors to capitalise on the favourable risk-reward, as these businesses are subject to less operational uncertainty of complete closure.

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