HLIB revises Malaysia 2020 GDP forecast to -5%

TheEdge Thu, Jul 02, 2020 11:26am - 3 years View Original


KUALA LUMPUR (July 2): Hong Leong Investment Bank (HLIB) Research has revised its 2020 gross domestic product (GDP) forecast for Malaysia from -6% to -5% but maintained expectations for another 25-basis-point overnight policy rate cut in the second half of 2020 (2H20).

In an Economics & Strategy note today, the research house said although the KLCI has staged an unprecedented V-shaped recovery, a pullback could ensue triggered by rising Covid-19 count globally, souring US-China relations, domestic political uncertainty and deteriorating second-quarter (2Q) corporate results.

However, it said the pullback should not be as severe (unlike 1Q) as liquidity factors (rejuvenated retail participation and US Federal Reserve's "unlimited QE [quantitative easing]" arsenal) would help cushion it.

"Our KLCI target of 1,460 is based on 2021 EPS tagged to 16.6x PE (mean during QE3)," it said.

HLIB said its slight upward GDP revision takes into account sooner-than-expected domestic reopening and some government support in softening Covid-19's impact.

"We anticipate 2Q20 (2Q of 2020) GDP to be the trough (-12% to -15%) before registering a shallower contraction in 2H20 (avg: -4.2%) to reach full year of -5%.

"Despite the negative headline inflation, the share of consumer items recording price declines on a month-on-month basis is at 29.5%, indicating that deflation is not across the board," it said.

Meanwhile, HLIB said valuation readings for the KLCI are mixed (versus long-term mean) but tilt to the pricier side, considering the recessionary climate.

"Our KLCI target of 1,460 is based on 2021 EPS tagged to 16.6x PE (mean during QE3 to reflect the liquidity flush).

"Our top picks are a mixture of those that have relatively more resilient business nature (Tenaga Nasional Bhd, Telekom Malaysia Bhd, Sunway Bhd, Axis Incorporation Bhd), potential recovery plays (Genting Bhd, DRB-Hicom Bhd, MBM Resources Bhd, Lii Hen Industries Bhd) and Covid-19 beneficiaries, both direct (Top Glove Corp Bhd) and circumstantial (Bursa Malaysia Bhd)," it said.

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