CGS-CIMB Research estimates RM1b economic losses a day


KUALA LUMPUR: CGS-CIMB Equities Research estimates the two-week “total lockdown” Phase 1 will entail aggregate capacity cuts of 25% of GDP or economic losses of RM1bil a day, milder than MCO 1.0 (RM2.4bil a day) in March last year.

The research house said on Monday its estimation of the economic losses was based on the list of 17 approved economic activities during the two-week period from June 1 to 14.

“Thereafter, capacity cuts during the limited re-opening of economic sectors during phase 2 will narrow to 12% or RM500mil a day, in our view.

“Imputing these assumptions for the six-week phase 1 and phase 2 and the additional month of phase 3 (10% capacity cut or RM400mil a day) leads to downside risk to our GDP outlook but we do expect some degree of policy support as well as pent-up demand to materialise when these restrictions are eventually relaxed, ” it said.

CGS-CIMB Research revised down its 2021 GDP forecast from 5.7% to 4.4% to reflect the latest MCO developments.

In line with past instances when economic livelihoods were heavily restricted to rein in the pandemic, we expect the government to unveil stimulus – in the range of RM20bil to RM30bil or 1.5% of GDP.

The research house expected the stimulus to support vulnerable households and affected businesses, including extending programmes such as B40 cash transfers, wage subsidy and job retention schemes, discounts/deferments for taxes or utilities overheads in addition to existing facilities for credit, pension withdrawals and targeted repayment assistance.

CGS-CIMB Research said this total lockdown does not come as a total surprise given surging new Covid-19 cases and pressure from multiple parties.

“This decision raises the risk of corporate earnings disappointment for sectors affected and the severity will largely depend on how long the restrictions last.

“We expect the market impact from the latest restrictions to be more muted compared to MCO 1.0, when the KLCI plunged 5% on March 16,2020, given the availability of Covid-19 vaccines and plans to ramp up daily vaccination rates in 2H, strong export sales by tech, gloves and commodities sectors, robust market liquidity, and low interest rates, ” it said.

However, the research house said this news will dampen near-term sentiment for recovery play sectors (banking sector on concern of potential rate cuts or loan moratoriums), auto, property and retail (weak consumer sentiment), construction (delay in project rollout), REIT (rental rebates due to closure) and tourism-related plays (delay in reopening of borders) given concerns of earnings risks in the near term, prompting investors to switch to defensive names least affected by the current MCO (utilities, telco, glove makers and plantations) until Covid-19 cases subside or there is a significant pick-up in vaccination rate.

It kept it FBM KLCI target of 1,699 pending the end of the current results season.

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