Question

Suppose you are an investment analyst, your supervisor, a portfolio manager asked you to write a brief report on how will the COVID-19 outbreak affect the stock market and economy in the world and Malaysia, and the report must include detailed analysis from part (1) to part (3) below.

1. Perform a fundamental analysis of the overall market and economy in Malaysia. How will COVID-19 outbreaks across the world affect the Malaysian economy in terms of economic growth rate in 2021?

2. Select one (1) industry or sector in Malaysia which you believe will be the most positively or negatively affected by COVID-19 in year 2021? Justify the industry or sector selection with detail analysis.

3. Based on the most positively (or negatively) affected industry that you have chosen from part (2) above, recommend one (1) Malaysian common stock within this industry that you think will have the best (or the worst) investment performance in 2021. Justify the company selection with detailed analysis.

Answer 1

Impact of Covid 19 in Malaysian economy

The spread of Covid 19 has a wide implications in the economy worldwide , not only to a particular country but also to the whole world economy as well. In the most unprecedented times , with the failure of major financial systems due to the ongoing pandemic the impact can be seen in each and every sectors of the economy and as such the whole regional and global economy shatter as a after warmth of Covid -19

In this report we will explain the Worst hit sector of the Malaysian economy , the Banking and the financial sector.

FUNDAMENTAL ANALYSIS

· GDP The GDP forecasts for Malaysia in 2020 is lower than the previous years . The impact of covid 19 coud be seen in the GDP and production index of the company as well

· Inflation – The inflation rate forecast for 2020-2021 is at 2.21% which is almost 15x times higher than that of previous years ,

2021*	2.79%
2020*	0.11%
2019	0.66%

The rise in inflation is detrimental for the economy of the country as it imbalances its forex exposure , detreating the domestic currency purchasing power further

· Industry Growth Index – As per the Asian Dev Bank (ADB )s forecast the growth rate for the industry stood at around 6.5% which is lower than that of previous years .

· Future Outlook - The Malaysian government has taken steps to ensure stability in the financial as well as in the commodity market. The impact of the disruption was soon reflected in the trading prices of the commodity market which was stabilized by changes in the structure.

·

An accommodative stance in the outlook of economy can be projected from the above factors

Industry selected – Banking Industry (WORST Affected )

In order to justify the negative effects of the covid impact on the banking industry , let us take of prominent Malaysian bank in order to analyse the situation in detail

Malayan Banking Berhad

Category – Banks and Financials

Listed Exchange - Bursa Malaysia

The following data on monthly basis has been extracted

Date	Price	Volume
01-11-2019	3.880558	59900
01-12-2019	3.937485	75400
01-01-2020	3.795167	84500
01-02-2020	3.776191	10800
01-03-2020	3.434626	133500
01-04-2020	3.282819	265400
01-05-2020	3.44	110500
01-06-2020	4.96	850800
01-07-2020	4.25	27800
01-08-2020	5.27	75400
01-09-2020	3.97	56500
01-10-2020	3.72	8500
12-10-2020	3.72	529

If we look into the trends in the price we find that -

There has been a drop in the price of the stock post covid period.

The Trading volume has also declined sharply showing market confidence in the sector is low

· The NPA profile of the banks have increased significantly

· Majority of the banks in Malaysia has huge exposure to real estate and the contraction sector .

· Due to the impact of Covid on those sectors as well , the Asset slippage of the bank has increased converting a lot of the Balance sheet assets into Non performing one

· Earnings quality of the bank have declined which is reflected in the sharp drop in the EPS figures of the bank

Hence the banking and the financial sector in Malaysia do have a challenging period however , with the gradual recovery in the economy the exposure is going to stabilize over. But the performance is expected to be ‘Under-performing; in the year 2021 from the forecasts in figures.

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