No Reprieve for Stocks in Malaysia as Virus Ravages Economy

Things have gone from bad to worse for Malaysian stocks in the new year as the nation’s struggle to stem a surge in Covid infections deepens concerns about its economic revival.

While optimism over vaccine rollouts and a post-pandemic recovery powered global equities to fresh records this month, the FTSE Bursa Malaysia KLCI Index, which lagged behind several Asian peers last year, is among the world’s worst performers in 2021.

Malaysia’s economic growth this year will likely be at the lower end of its forecast range of 6.5% to 7.5% due to renewed movement restrictions aimed at curbing new virus cases, Finance Minister Tengku Zafrul Abdul Aziz said in an interview last week. The country has widened its lockdowns, which last until Feb. 4, to all but one state to contain the outbreak that has stretched the health system to the breaking point.

No Reprieve for Stocks in Malaysia as Virus Ravages Economy

“Renewed acceleration in cases risks an uneven recovery that may cause more companies and individuals to pass the critical tipping point financially,” said Muzhafar Mukhtar, head of equities - Malaysia, at Aberdeen Standard Investments. “These economic lockdowns cause cumulative financial damage, and time is needed to repair household/corporate balance sheets.”

Stocks tied to the local economy -- including those in financial, consumer discretionary and industrial sectors -- have dragged down Malaysia’s benchmark by about 3% since the start of the year, with the gauge set for its fifth weekly drop in six. The MSCI Asia Pacific Index, in comparison, is up 3.5% since Jan. 1.

Malayan Banking Bhd. and CIMB Group Holdings Bhd. have been the biggest drags on the KLCI Index, with each tumbling more than 6% this year.

“Ongoing political uncertainty locally continues to pose a risk to crisis-handling and policy-making,” said Mukhtar. “All these factors mean corporate earnings generally still have an unusual level of uncertainty around them, at least in the near term.”

Malaysian equities are also getting little support from the local glove producers, Asia’s hottest pandemic trade in 2020. Companies including Hartalega Holdings Bhd. and Top Glove Corp. have seen their appeal fade amid vaccine rollouts and concerns about environmental, social and governance policies.

The country’s renewed movement control order -- the nation’s strictest form of lockdown -- will have some ramifications on the recovery momentum, Chief Statistician Mohd Uzir Mahidin said in a statement Wednesday.

“If Malaysia can quickly address the pandemic with its current MCO, then the market can start to perform,” said Alan Richardson, a portfolio manager at Samsung Asset Management in Hong Kong.

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