CGS-CIMB EXPECTS OPR TO INCREASE BY 75 BPS BY END-2022

KUALA LUMPUR, July 29 -- CGS-CIMB Securities Sdn Bhd expects the overnight policy rate (OPR) to increase by 75 basis points (bps) by the end of 2022.

In its Shariah Research Reports Scheme for the second half of 2021 released today, it said the expectations were driven by improvements in Malaysia’s economic outlook in 2021, with the first OPR hike to come as early as May next year.

“Bank Negara Malaysia has identified the factors behind the recent spike in headline inflation as ‘cost-push’ and ‘transitory’, which are unlikely to compel shifts in monetary policy this year, leading us to reiterate our end-2021 OPR forecast at 1.75 per cent,” it said.

The research firm also expects the government’s stimulus enhancements, such as the Supplementary Strategic Programme to Empower the People and Economy or PEMERKASA Plus and the National People's Well-Being and Economic Recovery Package (PEMULIH), to take Malaysia’s budget deficit to 7.0 per cent of gross domestic product (GDP) in 2021.

“We project (the budget deficit) to narrow to 4.5 per cent of GDP in 2022 and 3.5 per cent of GDP in 2023, keeping the government on track to meet the medium-term fiscal framework target of 4.5 per cent of GDP in 2021-2023,” it said.

Despite the elevated COVID-19 cases and implementation of the Movement Control Order (MCO) 3.0 since May and Full MCO (FMCO) since June, CGS-CIMB believes that the rapid acceleration in vaccinations and visibility over supply deliveries through October have increased the likelihood of relaxation of movement control measures and phased reopening of economic sectors after next month.

“Our base case scenario for 2022 assumes that Malaysia will be well into Phase 4 of the National Recovery Plan, which would allow all economic sectors to reopen, interstate travel to resume and with fewer curbs on social activities.

“We forecast Malaysia’s GDP to expand 4.7 per cent in 2022, with the rebound in household and business spending offsetting diminishing tailwinds from net exports and stimulus measures,” it said. 

Recently, CGS-CIMB lowered its 2021 GDP forecast from 4.4 to 3.9 per cent with estimates for private consumption and investments trimmed to reflect curbs placed on physical movement and operational capacity, as well as precautionary social distancing.

The research firm had lowered its 2021 GDP forecast based on its assumption of Phase 1 and 2 of MCO restrictions being in place until August, from end-July previously, 

For the first half of 2021 (1H21), the report said foreign investors continued to be net sellers of Malaysian equities, with cumulative net selling of RM4.2 billion.

However, it said this was lower than the RM16.2 billion net outflow experienced in the same period last year, which was the highest net foreign outflow experienced by the Malaysian equity market since 2010.

According to the report, the outflow was due to concerns over MCO 1.0, the change of government, the outbreak of COVID-19, as well as RM4.6 billion foreign net outflow registered in the first six months of 2019.

In terms of fund flows, CGS-CIMB said retail investors were the most significant net buyers in 1H21 with a net buy position of RM8.2 billion, while local nominees were the second-largest net buyers with a net buy of RM2.3 billion in 1H21.

According to the report, the FMCO imposed on all states in June 2021 and the Enhanced MCO (EMCO) in the Klang Valley from July 1-16, 2021, are expected to pose corporate earnings risks in the second and third quarterly results season.

“Analysts are likely to revise down their earnings projections during the second quarter (Q2) earnings season in August to reflect the prolonged lockdown and closure of businesses, following guidance from management.

“Sectors most affected by movement restrictions are tourism-related, gaming, property, automotive, banks, construction and consumer sectors, while utilities, telecommunications, and export-oriented industries are less impacted,” it said.

CGS-CIMB also expects more companies to report weaker-than-expected earnings in the Q2 results season, as analysts may not have reflected the impact of movement restrictions imposed since May, which was tightened nationwide in June, followed by the EMCO imposed in the Klang Valley in July.

As such, it said the positive earnings revision ratio that Malaysian companies posted may have peaked in the first quarter of this year for most sectors except plantation and petrochemical due to rising commodity prices.

“We expect the rubber glove sector, the star performer in 2021, to report massive earnings in Q2 due to peak average selling prices (ASPs),” it said.

-- BERNAMA