We expect the Malaysian economy to grow +5.1% in 2021 after the 5.4% contraction in 2020. But there are speed bumps on the road to recovery as Malaysia is going through its third wave of COVID 19 infections, thus the re imposition of restrictions. This necessitates continued monetary and fiscal stimulus, including BNM keeping the record low OPR and Government maintaining large deficit spending in 2021.

Availability of COVID 19 vaccines starting 1Q 2021 is an extra stimulus for the economy, plus potential upside from relocation FDI amid the supply chain security, resilience and regionalization arising from US China tension, pandemic and Regional Comprehensive Economic Partnership (RCEP). Domestic political uncertainty and instability remains a major overhang as the Government’s thin Parliament majority makes a snap general election ahead of mid 2023 a possibility. We are also keeping an eye on the economic “scarring effect” of the pandemic which may well be currently masked or delayed as financial and fiscal relief measures are extended into 2021.

For Malaysia equities, the multiple COVID 19 vaccine breakthroughs announced from early Nov, and the expedited approvals and distribution in major economies from Dec, is a game changer. While pandemic accelerated structural shifts will continue to underpin tech led growth stocks, 2021’s “Goldilocks” combination of continuing fiscal and monetary stimulus, even as earnings growth recovers with accelerated economic re openings, is ideal for re rating global cyclical plays, especially value stocks heavy emerging markets which are enjoying the additional tailwind of a weakening USD. While Malaysia’s recovery story is shadowed by political uncertainties and fiscal stress, these are unlikely to derail equities favouring combination of sequential earnings recovery and the supporting factors of
i) a resilient banking sector set to deliver an earnings rebound vis à vis ample liquidity, capital;
ii) infrastructure stimulus per record gross development expenditure allocation;
iii) BNM’s ability to tap multiple policy levers to support economic recovery;
iv) rebounding commodities prices re the key exports and fiscal drivers of crude oil and CPO; and
v) asset reallocation flows out of fixed income per MKE’s mildly bearish outlook on MGS as demand supply dynamics weaken.

Re thematics, there are tentative signs of GLC restructuring; however, structurally, dividend yield and supply chain relocation are more cogent.


With the KLCI to see sharp earnings recovery in 2021 (2020E/2021F KLCI earnings forecast: -11.3%/+44.9% YoY) after three straight years of earnings contraction, we recommend a mix of value and growth picks, with a continuing yield focus. Our end 2021 KLCI target is 1,830 (16x forward earnings per historical trading mean for the KLCI). Pullbacks in growth stocks (gloves, tech) are an opportunity to re enter, while value stock picks are guided by cashflow visibility and strong balance sheets. Re sector positioning, we overweight Mid cap Financials (RHB, Allianz), Utilities (Tenaga, MFCB), Healthcare / Gloves (IHH, Hartalega), Construction (Gamuda), Plantations (KLK, BPlant), Tech/Semicon (Inari), Large cap Oil & Gas (Dialog, Yinson) and Auto (BAuto). We are selective re Telcos, Property, REITs and Consumer, and are Underweight Aviation.