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Malaysia: Potential earnings risk for REIT, manufacturing, gaming, tourism
KUALA LUMPUR: CGS-CIMB Equities Research has highlighted potential earnings risks for the real estate investment trust (REIT), manufacturing, gaming, consumer and tourism-related sectors in the current 2Q21 results season.
In its strategy note on Wednesday, the research house cited the disruptions in operations due to the movement controls to curb the Covid-19 pandemic as it remained the key source of uncertainty for the economic outlook.
“As for the ESG issues, we are of the view that there could be some progress in terms of resolving the forced labour issues in 1H22.
“In terms of politics, all eyes will be on Umno and the prime minister, who plans to put himself through a vote of confidence in Parliament in September (between Sept 6 to 30),” the research house said
It issued the report after spending the past week marketing its 2H21F economic and strategy outlook to around 220 investors where it shared its views regarding the weak 1H21 market performance and variables to watch for in 2H21.
It explained that the weak 1H21 was due to increased Covid-19 cases in the country, a slower-than-expected vaccination rate in 2Q21, multiple lockdowns in 1H21, political uncertainties and emergence of ESG concerns relating to issues of forced labour, climate change and governance.
“In terms of fund flows, domestic institutional investors went from being the largest net buyer in 1H20 to the largest net seller in 1H21.
“The investors we met were keen to find out which companies are likely to post disappointing earnings in 2Q, our view on interest rates, potential political scenarios as well as policy options available to the government if Covid-19 cases do not reduce after vaccinating 70%-80% of the population,” it said.
As at noon on Tuesday, the government reported that 25 million people have been vaccinated comprising 16 million with the first dose and nine million fully vaccinated with two doses.
The number of infections rose by 19,991 to 1,299,767. The death rate remained above 200 on Tuesday, bringing the total number of fatalities to 11,162 deaths.
As for the Covid-19, the research house said it remained the key source of uncertainty for the economic outlook, marked by fears over a shrinking fiscal space and policy options should GDP growth fall short of its forecasts of 3.9% in 2021F and 4.7% in 2022F.
Investors were keen to understand where government resources would be directed for the national recovery plan and sources of financing.
“Expectedly, our non-consensus forecast of three overnight policy rate (OPR) hikes in 2022 was met with some resistance as clients fretted over the persistence of the Delta variant wave, potential economic scarring and tentative recovery prospects, limited fiscal space, as well as developing political instability,” it said.
However, CGS-CIMB Research said investors were receptive to its view that Bank Negara was falling behind the curve in recalibrating monetary policy, especially if inflationary pressures emerge and the Federal Reserve proceeds with policy normalisation, could weaken the ringgit.
The government’s move towards a gradual re-opening and relaxation of restrictions for fully vaccinated individuals signal an inflection point towards economic recovery, barring a potential deterioration of the Covid-19 situation.
Source: https://www.thestar.com.my/business/business-news/2021/08/11/potential-earnings-risk-for-reit-manufacturing-gaming-tourism