KUALA LUMPUR: A resurgence in Covid-19 cases in the country could lead to a softening economy, prompting Hong Leong Investment Bank (HLIB) Research to leave its 2022 gross domestic product forecast at the lower end of the Finance Ministry's range at 5.5%.
"Despite a reasonable chance that another lockdown can be averted, we are cognisant that economic softening could still ensue from reduced mobility as people self-impose restrictions," it said in an economics and strategy report.
For the equities market, the research firm said the FBM KLCI had hit its 1,600 target, thus making the risk-to-reward profile less attractive.
The benchmark index has rebounded 6% from its year-to-date low of 1,509 on Jan 25, on the back of the government's proposed border reopening on March 1, alongside foreign inflows.
"We continue to advocate a trading oriented approach for 2022 –“sell on strength” at >1,600 and “buy on weakness” at <1,500," said HLIB.
Amid the rising cases, the research firm said there is comfort in the fact that the "severity indicators" remain at bay, and the government has repeatedly assured there will not be another lockdown.
"We believe this will be the case, so long as the severity indicators remain at bay – a plausible scenario considering Malaysia’s relatively high vaccination rate at 98% of adults (57.1% boosted), 88.8% of adolescence and commencement of child inoculation earlier this month," said HLIB.
Since the surge in cases at the start of 2022, the symptomatic cases, ICU admissions and mortality rates have remained under control due to the high vaccination rates.
This is despite an exponential increase in the number of daily Covid cases since the start of the year, which has seen a six-fold increase from the daily cases in end-2021.
"Recent daily cases of 20-23k (11-14 Feb) are close to last year’s high of 24.6k (on 26 Aug).
"The inevitable resurgence was due to the onslaught of Omicron (OWID estimates c.80% of cases in Malaysia are from the said variant) alongside reopening, which was also perhaps exacerbated by the recent Lunar New Year festivities," said HLIB.
The average daily symptomatic cases in the country have risen 75% month-on-month in February, but remains on a declining trend in proportion to overall cases.
"ICU cases recently saw a slight uptick – rising from a low of 81 to 94 between 8-14 Feb – but this is still way better than >1k during the Jul-Sep 2021 wave.
"In addition, the ratio of ICU-to-active cases remains at a low of 0.06% (peak: 1.45%, June 2021)," it added.
HLIB added that mortality has not increased as daily deaths in February were mostly in the single digits to the teens despite headline levels rising close to levels seen during the deadly July to September 2021 wave.