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PETALING JAYA: The unfolding movement control order 2.0 (MCO 2.0) introduced to address the surge in the number of Covid-19 positive cases in Malaysia will be a key factor for economic recovery, according to UOB Asset Management (Malaysia).

Its chief investment officer Francis Eng views the country as going through some uneven recovery with a possibility to bounce back to pre-pandemic levels in 2022 or later this year, depending on how MCO 2.0 unfolds, as the situation is very fluid and difficult to predict.

For Asia, he anticipated a recovery to pre Covid-19 levels to take place in 2021, led by China.

“Nonetheless, our base case is likely to be a pre-pandemic recovery in 2022 for Malaysia,” he told the media at UOB’s Market Outlook on Asia’s syariah and environmental, social and corporate governance (ESG) sectors today.

In addition, Eng pointed out that the development in the movement restriction measure could influence Bank Negara Malaysia’s (BNM) decision on the Overnight Policy Rate (OPR), contingent on the Covid-19 data, on how long the MCO 2.0 will last and whether more stricter measures will be introduced.

Should there be another cut key rate, the asset management firm believes the impact on Malaysia’s fixed-income market would be muted given the negative yield environment in some fixed-income markets.

“There is quite a lot of liquidity out there looking for a home, and even if the yield does come off, the yield pick up in Malaysia, it is still attractive enough.”

With MCO 2.0, the chief investment officer cautioned that it could translate into a risk of slippage for Malaysia’s gross domestic product (GDP), if there is an extension to the measure.

Currently, BNM has projected the country’s 2021 economic growth to be between 6.5% and 7.5%.

For third-quarter 2020 (Q3’20), Malaysia’s economy saw a 2.7% contraction following a 17.1% decline in GDP reported for Q2’20 due to the enforcement of the MCO between March and May to contain the pandemic. The asset management firm said the Covid-19 pandemic has resulted in an emphasis on ESG-compliant investments by regulators and fund managers.

Despite an expected economic recovery in the horizon, UOB Asset Management CEO Lim Suet Ling opined that the focus on ESG is here to stay as it is a structural trend.

She highlighted that the criteria have gained traction among regulators and funds managers from Europe, Japan and China, while one of the markets which has been resistant was the United States under Donald Trump’s administration but this is set to change with Joe Biden’s presidency who is more respective to the environmental aspects.

“It is not only whether the US embraces it but a reality from a fund manager perspective, it is an additional consideration to the traditional valuation methods,” Lim explained.

She said this would play out similar to when the Islamic banking was first introduced by the central bank, which resulted in the Employees Provident Fund reducing its position in the gaming sector over time.

Lim said fund managers might be interested in the sector from a valuation perspective but from a liquidity standpoint the counter is compromised which translates into a lower allocation to such stock by the fund manager.

“ESG could even have the same impact, the company might have good earnings but the allocation may be reduced due to the ESG consideration and this may affect the overall liquidity of the stock.”

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