CGS-CIMB reverts to its earlier Malaysia 2020 GDP forecast

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KUALA LUMPUR (May 4): CGS-CIMB Securities Sdn Bhd said today it reverted to its earlier Malaysia 2020 gross domestic product (GDP) contraction forecast of 4.3% to reflect the latest government directives and the assumption of nationwide capacity utilisation of 70% during the conditional movement control order (CMCO) to curb the Covid-19 pandemic.

In a note today, CGS-CIMB analysts Ivy Ng Lee Fang, Michelle Chia and Nagulan Ravi said the surprise announcement on the reopening of most economic sectors from today led the firm to revise its baseline scenario of a 6% GDP contraction in 2020, for which it had imputed more conservative expectations of the MCO being extended until end-May and a protracted normalisation period thereafter. 

"Potential upside to the economic outlook could come from a faster-than-anticipated easing of the Covid-19 pandemic globally or the mass production of an effective vaccine. On the other hand, a resurgence in the number of Covid-19 cases domestically or the strict re-imposition of the MCO are downside risks. 

"Aside from the ongoing rollout of the RM260 billion fiscal stimulus, we expect BNM (Bank Negara Malaysia) to ease monetary policy again, with a 50bp (basis point) OPR (overnight policy rate) cut projected this week and a further 25bp cut in 2H20.

"The CMCO will have minimal impact on our 2020F KLCI earnings growth of -3.5% and KLCI target of 1,375 points (based on unchanged 14.5x forward P/E) as most of the KLCI constituents are operating. Positives are offset by US President Donald Trump reviving his attack on China, speculating that the country could have spread the coronavirus and threatening trade tariffs. Also, the recent 15% rise in KLCI from its YTD low on March 19 to 1,407 points suggests that the market has priced in the positive developments,” they said.

On Friday (May 1), news reports quoting Prime Minister Tan Sri Muhyiddin Yassin’s Labour Day address reported that almost all economic sectors and businesses would be allowed to reopen subject to strict conditions under the CMCO.

"Beginning May 4, almost all economic sectors and business activities would be allowed to operate, subject to rules and SOPs (standard operating procedures) set by the authorities,” Muhyiddin was quoted as saying.

Malaysia’s MCO, which was initially scheduled between March 18 and 31 this year, requires non-essential businesses to stop operations, while the public has been ordered to stay at home to curb the Covid-19 outbreak.

On March 25, Muhyiddin said the government decided to extend the MCO until April 14, because updates from the National Security Council and Health Ministry indicated an increase in Covid-19 cases.

On April 10, Muhyiddin said the government was extending the MCO until April 28.

On April 23, he said the MCO will be extended to May 12.