KUCHING: Growth forecasts for gross domestic product (GDP) in 2020 has been lowered to four per cent as the first quarter of current year 2020’s (1QCY20) Covid-19 tainted projection is looking vulnerable to cuts.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted on the virus impact on Malaysia’s economy after the country’s fourth quarter of current year 2019 (4QCY19) gross domestic product (GDP) of 3.6 per cent came in well below its expected four per cent.
“According to Bank Negara, ‘growth was affected by supply disruptions in the commodities sector’ that affected market sentiment,” Kenanga Research said in its investment strategy report.
“There are really two forces at work here; First is the concern that the underlying economy was weaker than expected even before the impact of Covid-19 set in (as revealed by the sluggish 4QCY19 GDP) and second, the adverse impact of Covid-19 itself.
“With the 1QCY20’s Covid-19 tainted projection looking vulnerable to cuts, we lower our 2020 GDP growth forecast from 4.3 per cent to four per cent.
“And so, with the raised probability of another 25 basis points (bps) overnight policy rate (OPR) cut, plunging tourist arrivals and general sluggishness in retail spending, the view looks challenging for our stock market.”
That said, Kenanga Research projected that Covid-19 will not be around for long.
“We see the Covid-19 impact as transitory in nature,” the research arm said.
Kenanga Research recapped that the casualties in terms of deaths and confirmed cases so far remain concentrated within China whereas cases outside China accounted for just 1.1 per cent of total.
The research arm also highlighted that in the SARS experience, markets actually rebounded around the time when the number of daily cases peaked.
“With Covid-19, while experts have been hesitant to call a peak, it does appear the daily new cases are trending lower from the current peak of Feb 4.
“While it must be said that it has resulted in extended post-Chinese New Year factory or establishment closures which disrupted the supply chain, work is returning albeit
Kenanga Research noted that among sectors most vulnerable to the current weakness are banks, which make up 36 per cent of the FBMKLCI by weight and over 40 per cent by earnings, as OPR gets cut another time and concerns grow over a potential rise in credit charge.
“Others that are more directly impacted are tourism and retail or consumer plays which are likely to recover as sharply as they have fallen.”