• With the Covid-19 vaccine programme being rolled out gradually in Malaysia, coupled with the subsiding daily confirmed cases over the past weeks, we think the recovery is in sight as more and more business activities are getting back on track.

• Hence, market players could position themselves for the recovery-theme stocks.

• We think the winner for 2Q will be broad based as most of the stocks were bashed down in 2020 amid the healthcare pandemic. We like sectors such as travel, gaming, construction, packaging, plantation, O&G and healthcare.

Covid-19 status and vaccine progress

• Covid-19 situation could be at the tail end with the vaccination plan. The global daily Covid-19 cases might have peaked out since early this year and we believe the inflection point was due to the vaccine rollout plan since last December. Also, with the SOP measures (wearing face mask, using sanitisers and social distancing) being imposed strictly, it is very likely for us to break-the-chain in the near future.

• Covid-19 vaccine efforts by Malaysia. According to our Deputy Science, Technology and Innovation Minister, Datuk Ahmad Amzad Hashim, Malaysia has secured vaccines for more than 108% of Malaysia’s population.

Mobility tracker - Malaysia

• Mobility changes in Malaysia should point to a recovery. Based on Apple mobility report (Fig #3), Malaysia’s modes of commuting based on driving and walking are - 3% and -20% from the baseline (13th Jan 2020) and we have seen the improvements from the range of -60-80% during March last year. We continue to drill down looking at data from Google mobility report (Fig #4), which suggested that the population are getting their feet back to the office, using the public transportation, heading to cafés, shopping centre, and cinemas, albeit gradually. These data points should suggest that we could expect the Covid-19 pandemic might be coming to an end in the near future, if the citizens are following the SOP regulations.

Economic review and outlook

• Shot in the arm… Our government has put in several efforts releasing stimulus packages since the start of the pandemic; which should cushion the downside risk of the economy. Besides, the citizens are getting the Covid-19 vaccination, where it should provide some form of protection for the population to move around and this should reboot the economy as more and more businesses manage to restart their operations. Hence, we can expect economic recovery to be seen this year.
• …and awaiting travel borders/ travel bubbles to be initiated. At this moment, we think the locals are supporting the economy. Should the travel borders or travel bubbles being uplifted or initiated, we anticipate that the international tourist may spur the economy in a more vibrant manner, where the focus will be the tourism and gaming sectors.
• Recovery in sight for Malaysian economy. In 2020, the Malaysia’s GDP contracted by -5.6% as compared to 2019. Meanwhile, based on Bloomberg consensus, Malaysia GDP is forecasted to grow at a rate of 5.5% and 5.0% for 2021-22. Do note that in Malaysia Budget 2021, MoF is projecting that the GDP to grow at 6.5-7.5% for 2021, underpinned by a broad based recovery in all sectors.

Market review and outlook

• Ample of liquidity and lofty valuations… The global stock markets have trended higher on the YTD basis, extending the rally since 2020 on the back of liquidity rush thanks to the (i) unlimited liquidity injection and (ii) dovish stance by the Feds until 2023 as well as the low interest rate environment across the globe. The MSCI World Index and S&P500 are trading at 34.4x and 32.0x vs. 10Y average PE of 19.0x and 18.9x, respectively, while the FBM KLCI is trading at 21.1x PE vs. 10Y average PE of 17.7x. Meanwhile, we observed the FBM Small Cap is rich in valuations as well, which its positive PE ratio is at 17.2x (vs. 10 year average PE of 14.4x).

• …resulted in the vibrant trading environment. With the emergence of new investors during the MCO or lockdown phase, it has contributed to record trading volume and value last year. Meanwhile, we have noticed the participation rate from the retailers has increased from 35.8% in 2020 to 39.2% on the YTD basis and the average daily trading value grew from RM4.21bn in 2020 to RM5.30bn (+25.8%) YTD.

• Broad market recovery despite flattish FBM KLCI. In 2020, the technology and healthcare sectors are the only outperformers on the local exchange. Meanwhile, year-to-date, we noticed the broader market has seen decent recovery. Still, technology sector is taking the lead, followed by telecommunication & media and energy sectors – the latter has been rising on the back of firmer Brent oil price.

• Fairly decent commodities trend. Being perceived as commodity-related nation, it is helpful when both the Brent oil and crude palm oil prices have risen firmly over the past few months; the Brent oil has gained % from the trough of USD16.01, while CPO has hit multi-year high recently around RM4,192 (+16.5%).

Source: Mplus Research - 29 Mar 2021