KUALA LUMPUR (May 11): The nationwide movement control order (MCO) could take away 0.3 percentage point per month from Malaysia’s gross domestic product (GDP) growth this year, warned CGS-CIMB.

In a note today, the research house’s analysts Ivy Ng and Michelle Chia said the widened lockdown could erode economic growth, which they had projected to be at 5.7% this year.

“The return of a nationwide lockdown raises the estimated daily economic loss in Malaysia’s economy to RM300 million per day versus RM200 milion per day for a targeted MCO 3.0, and our baseline asumption of the CMCO (conditional MCO) (RM150 million per day)," they added.

Bank Negara Malaysia (BNM) is expected to announce the GDP growth rate for the first quarter of this year (1Q21) later today.

Meanwhile, Ng and Chia reckoned that the central bank will keep a cautious stance on monetary policy, holding the overnight policy rate (OPR) at 1.75% until year end.

“Potential extensions of the nationwide MCO 3.0 beyond June 7 may see the government contemplate further economic support despite its increasingly narrow fiscal space as a number of existing measures extended under the PEMERKASA stimulus package in March, such as wage subsidies and cash transfers, are due to lapse after June,” it said.

Ng and Chia called the sudden blanket MCO a slight surprise as it contrasted with the government’s earlier stance on using more targeted lockdowns to soften the economic blow.

The analysts also cautioned that earnings risks will go up as restrictions are tightened.

“[The] blanket MCO will be negative for the consumer, tourism-related (hotels, airlines, airports and casinos), REIT (real estate investment trust), auto, healthcare and property sectors as the stricter lockdown will cut consumer spending in these sectors.

“This could consequently dampen near-term sentiment and prompt investors to profit-take on recovery-play stocks (banks, auto, property, construction and tourism-related) that have done well on concerns over earnings risks in the near term, and switch to defensive plays (utilities, telcos and glove makers).

“REIT players with exposure to hotel and shopping mall portfolios (KLCCP [Stapled Group], IGB REIT, CMMT (CapitaLand Malaysia Mall Trust), Pavilion REIT and Sunway REIT) as well as Genting Malaysia [Bhd] and Genting [Bhd] will likely be negatively impacted by the MCO due to stricter travelling rules and the maximum cap of three pax per vehicle.

“Property, auto, hospitals, airlines and airports will be affected as consumers could defer spending in the short term due to the MCO and uncertain economic prospects. However, earnings risks are likely to be lower compared to the MCO 1.0 as more economic sectors are allowed to operate under the MCO 3.0,” the analysts added.

To recap, Prime Minister Tan Sri Muhyiddin announced the enhanced restrictions yesterday. Most of the restrictions, except for the bans on interstate and interdistrict travel, social and recreational activities which are already in place, will be imposed from tomorrow until June 7.

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