UOB Malaysia has urged investors to remain cautiously optimistic about corporate earnings growth this year. The bank stated that a full global economic recovery will likely require widespread vaccinations worldwide, continued government stimulus as well as stronger business and consumer sentiments.
Managing Director and Country Head of Personal Financial Services, UOB Malaysia, Ronnie Lim says central banks will continue to keep monetary policy loose to support economic recovery. However, the bank expects the recovery chart to show diverging paths because some regions and sectors will emerge from the recession sooner and in better shape, while others that have been harder will recover more slowly.
With low interest rates and higher economic growth, Lim expects corporate earnings to recover 2020 levels this year.
“We initially forecast 6% expansion in Malaysia’s GDP this year. However, we revised our estimate after the reinstatement of the MCO in all states except Sarawak to curb the rise in Covid-19 cases. Malaysia may suffer an estimated economic loss of RM12 billion in 2021 and with that in mind, we now expect the country’s GDP to grow by 5 percent this year and we likely have to wait until at least 2022 to see a return to pre-pandemic levels,” he says.
Commenting on the declaration of the state of emergency until Aug 1, Lim says as no major political events including events can take place, this should result in greater government focus on containing the pandemic and implementing policies to sustain the economic recovery.
Investment opportunities amid uncertainties
“There are certain deep-rooted, transformative trends and structural shifts that either emerged or accelerated during the pandemic. By recognising and participating in these irreversible transformations, investors can benefit as the global economy adapts and adjust to them in the future,” he says.
UOB has identified five mega investment trends that investors can look out for, namely China’s growth story, optimism on US’ recovery, global healthcare, artificial intelligence (AI) and innovation, and sustainability.
Lim also comments that investors should be selective about Malaysian equities because the impact and recovery from Covid-19 is set to be uneven across different sectors.
Value stocks in the financial and healthcare sectors deserve more attention because they have been far outpaced by growth equities within the technology sector in the past several years, particularly in 2020.
Lim points out that if the outbreak persists, travel-related stocks will continue facing headwinds.
On the side of risks, UOB says hiccups in vaccine distribution, concerns over the long-term side effects of the vaccines and anti-vaccine sentiment, as well as additional lockdowns in countries that are unable to contain new waves of infections will likely stretch the global recession.
Another key risk is if companies continue to fold as a result of the pandemic. This will lead to a deterioration of the global economy due to rising unemployment and shrinking demand.
UOB further highlights that recovery may be dampened if governments are no longer able to inject stimulus into the economy and contain the virus.
What should investors do to grow and preserve wealth?
In addition to investing regularly over a longer time horizon, UOB is encouraging investors to maintain a well-diversified portfolio by choosing quality and income-yielding assets to help optimise their investment returns.
In doing so, the bank believes that investors can also manage their overall portfolio risk as financial markets will likely remain volatile in the first half of 2021 due to the uncertainty around the duration and full impact of the global pandemic.
“At UOB Malaysia, we adopt a Risk-First approach to help our customers manage their wealth portfolio in accordance with their risk appetite. By applying this approach, we help our customers to understand the potential risks of any investment ahead of returns, as they seek to achieve their long-term financial goals,” Lim says.
He also shares that investors with a lower risk tolerance should focus on assets that are less volatile and which do not require active rebalancing. With risk-free rates so low, it will be prudent to invest in assets that can offer enhanced yields.
“Investors may want to consider Asian investment-grade bonds as they offer a more reasonable balance between defensiveness and attractive yields (2.0% to 2.5%), compared with the Bloomberg Barclays Global Aggregate Index (0.9%). These bonds will also benefit from the region’s earlier resumption of economic activity during the pandemic,” Lim shares.