RHB Merge Malaysia

There’s a lot of hope pinned on the success of the Covid-19 vaccines. The Pfizer-BioNTech vaccine has been cleared for administration across North America, Europe and the Middle East after it was found to reduce infection rates by 95% in trials of tens of thousands of volunteers, and Moderna’s version has been proven to be just as effective. To add to our artillery of vaccines, AstraZeneca-University of Oxford’s developed vaccine was cleared for use by the UK government in December.

Eager to get a head start, other countries have jumped the gun on the vaccination process before the vaccines were fully tested. China and Russia authorised their own vaccines in July and August, respectively, administering millions of doses since then.

Source: Ourworldindata.org

As the world plans and rolls out the vaccine, stock markets are rallying on the expectation that corporate earnings will bounce back this year.

For now, the equities market offers a lot of potential upside as fund managers take an underweight view on bonds. Given the two opposing developments, adopting the right approach is key in getting the most of a unique situation and riding on the wave of global growth.

It takes a global effort to fight a global pandemic. A study commissioned by the International Chamber of Commerce (ICC) Research Foundation has found that the global economy stands to lose as much as US$9.2 trillion¹ if more advanced governments fail to ensure developing economies access to COVID-19 vaccines.

The biggest vaccination campaign in history has begun. In the US, the number of administered vaccinations has outpaced the number of positive cases. So far, 24.3 doses have been given per 100 people². China has planned a production capacity of 1 billion doses this year, with herd immunity to be achieved by 2022. As at February 9, the country is second behind the US in the number of administered doses, at 40.5 million. The Malaysian government has confirmed 12.8 million pre-orders of the vaccine, with the first phase of vaccinations already started in February. By 2022 80% of the population will be immunised, achieving the level required for herd immunity³.

Overall, since the start of the pandemic, North Asian economies have shown a faster recovery rate than their advanced counterparts. This is partly because developed countries have, in general, experienced more Covid-19 cases and deaths relative to their populations compared to the developing economies of the Global South. In addition, developing economies producing goods lower down the value chain don’t tend to get hit as hard by downturns compared to their developed peers.

China, whose economy relies heavily on manufacturing, reported its strongest GDP growth in the two years since the pandemic began. It surged to close in on 70% of the US at US$14.73 trillion, or a growth of 3%, signaling the nation is well on its way to overtaking the US as a global economic superpower.

That said, here’s a quick look at the sectors that will continue to drive growth in 2021, especially on this side of the world.

Covid-19 has acted as an accelerator of disruptive technologies and valuations of tech stocks have soared. Google’s share price has soared 45% over the last 12 months, closing at USD2,011.41 on 3 March 2021.

Asia is fast catching up with the developed world. According to McKinsey Global Institute, China hosts 26% of the world's unicorns or startups valued at a billion U.S. dollars or more. Other emerging Asian economies invest relatively little in innovation but have huge market potential, driven by increasing automation, cloud computing, digital payments, Artificial Intelligence (AI) and big data. As a result, tech companies providing products and services supporting work-from-anywhere operations will continue to see growth in 2021⁴.

We’ve all adapted to using live webinar platforms over the last year. According to research firm Absolute Market Insights, the live webinar software market is estimated to grow to US$789.86 million by 2027, at a compounded annual growth rate (CAGR) of 6.43%, due to the increasing adoption of the platform as a promotional tool.

An exciting prospect in technology is the development in Electric Vehicles (EV). As production is ramped up, costs go down and these green cars are more accessible than they have ever been. Shares of the largest EV makers are still going up. China’s NIO Inc has seen its share price increase more than tenfold over the last year, and the company is speeding up its global expansion⁵ plans. EV sales in China almost tripled by 281.4% year-on-year to 158,000 units. 

The common denominator of all the above tech developments is the humble semiconductor. Semiconductor producers will see an increase in demand as technology develops more rapidly.

The adoption of e-commerce in developing economies will play a significant role in their recovery. According to GlobalData’s E-Commerce Analytics, Malaysia’s e-commerce market is estimated to register a 24.7% growth in 2020. The market is expected to reach RM51.6 billion (US$12.6 billion) by 2024, increasing at a CAGR of 14.3% between 2020 and 2024.

Tying in with the rapid growth in e-commerce is fintech. Utilising fintech has become almost second nature to most and the lockdown only increased the penetration rate. From mobile wallets, electronic payments and payment gateways, to crowdfunding and “insurtech” (the combination of insurance and technology), businesses and consumers are fast adapting to electronic transactions.

The healthcare and pharmaceuticals sectors are expected to thrive in the post-pandemic economy as people become more aware of the importance of health. Beyond just rubber gloves, the pandemic is accelerating innovation in healthcare technology. On top of that, producers of supplementary health products and fitness equipment have benefited from the change in habit as more people look into taking care of their health for the long term and this is unlikely to change much post-pandemic.

Green has become gold. Throughout 2020, demand for sustainable investments grew, buoyed by the demand in investments that were more holistic in terms of risk mitigation. ESG (environmental, social and governance) stocks performed well as investors looked for sustainable and socially-conscious options. ESG builds on the ideas put forward by the socially responsible investment movement but applies financial, rather than moral, relevance to the model.

This is a previously niche area that an increasing number of investors are participating in, and it looks set to keep growing. BlackRock recently announced that almost all of its US$7 trillion assets under management would be governed by ESG considerations. Supportive policies from governments will continue to spur growth in ESG investing, placing the onus on businesses to change their game and take on a more sustainable approach to business.

US President Joe Biden has pledged US$2 trillion to help the US meet sustainable targets and improve infrastructure to be more environmentally sound. He also plans to expand government research and create a cross-agency Advanced Research Projects Agency on Climate (ARPA-C), which would invest in research on decarbonization, hydrogen technologies and other environmental innovations. 

At home, since the start of the Movement Control order, Bursa Malaysia’s FTSE4Good Index has seen an increase of 34% to 835.99 points on Feb 11, just before the Chinese New Year break. To invest in ESG stocks, ask your Relationship Manager about the RHB Global Sustainable Disruptor Fund.

Source: Bursa Malaysia

How fast and how soon the world’s economies will recover depends on the efficiency and effectiveness of the vaccination process and neutering the threat of more transmissible variants of the virus. Amid exceptional uncertainty, the International Monetary Fund (IMF) has projected a global GDP growth of 5.5% in 2021 and 4.2% in 2022⁶. The IMF raised its US growth estimate for 2021 to 5.1% from its prior estimate of 3.1%. Meanwhile it cut its growth estimate for China by a tenth, to 8.1%.

The world’s recovery will depend on the growth of emerging economies in the east. According to Goldman Sachs chief Asia-Pacific economist Andrew Tilton in his recent podcast, recovery is underway. “We’re optimistic about growth in Asia-Pacific next (this) year,” Tilton says. “We think the region could grow more than 7% in 2021. We’re optimistic about the world also – we think the world can grow about 6%—but especially optimistic about Asia-Pacific.”

Supporting regional economic growth is the positive outlook on trade. China, the world’s largest trade nation, seems to be on the road to a full recovery, with US President Joe Biden expected to take a less confrontational trading stance compared with his predecessor Donald Trump.

From a wider perspective, the Covid-19 pandemic and the US-China trade war have had little impact on overall trade growth in China. Total China trade – a combination of exports and imports – rose to US$4.65 trillion last year, the highest level since records began in 1950, according to the data released by the General Administration of Customs.

Exports surged 18.1% year-on-year to a new record of US$281.9 billion in December 2020, the seventh consecutive month of growth, bolstered by an increase in global demand for medical supplies and work-from-home electronics as businesses look to alternative work arrangements on a long-term basis.

While still in its infancy, China is taking the lead in adoption of 5G technology, spurred by the country’s infrastructure development plans. Alibaba is investing RMB200 billion (US$30.9 billion) over the next three years and Tencent RMB500 billion (US$77.3 billion) over the next five years, according to the China Academy of Information and Communications Technology (CAICT). China’s three telcos, China Mobile, China Telecom, and China Unicom have invested a total of 210 billion yuan (US$32.5 billion) on development in 2020.

China is still a hotspot and Malaysian investors have an opportunity to ride on its strong performance via the RHB Shariah China Focus Fund. Investors can also access the Chinese equity market through A shares – those that trade in mainland China on domestic exchanges. MSCI started to partially include China large-cap A shares in the MSCI Emerging Markets Index on May 31st, 2018 and FTSE Russell will add Chinese government bonds to its flagship World Government Bond Index (WGBI) pending confirmation in March. Chinese government bonds, a US$1.5 trillion market, are already a part of the JPMorgan and Bloomberg Barclays index suites. Goldman Sachs estimates there is US$2.5 trillion of global cash following the WGBI, and China's inclusion could drive US$140 billion into mainland bonds over the inclusion period.

Southeast Asia will benefit significantly from the Regional Comprehensive Economic Partnership (RCEP) free trade agreement (US$19 billion annually by 2030). The RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds by strengthening transport, energy, and communications links, making the region more attractive to foreign investment. New agreements under the RCEP should strengthen the economies of North and Southeast Asia, as their strengths in technology, manufacturing, agriculture and natural resources are linked and supply chains are incentivised.

The World Bank expects Malaysia’s economy to grow by 6.7% in 2021, after a contraction of 5.8% in 2020, bolstered by fairly resilient electrical and electronics, manufacturing and agricultural sectors and the boom in e-commerce and its supporting logistics sectors.

Government stimulus packages to the tune of some RM148 billion and a continued low interest rate environment will pump cash into the economy and encourage domestic spending. The National Economic Recovery Plan (PENJANA), which was unveiled last year, focuses on the recovery and development of SMEs and microenterprises, which make up 98.5% of the business population. As at  February 2021, the government has approved 6,731 applications for funding, amounting to RM1.26 billion. A total of RM1 billion has also been allocated for SMEs in the tourism sector.

Malaysia’s economy is largely dependent on the world’s most popular commodity – oil. Oil prices are expected to slow their downward trend in 2021. President Biden has already suspended new oil and gas leasing and drilling permits on U.S. lands and waters for 60 days. He has also canceled the permit for the Keystone XL pipeline. OPEC said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year over year to average 95.9 million bpd as producers try to find equilibrium. With these factors in consideration, the IMF has forecast a 21% rebound in crude oil prices for 2021, to just above US$50 per barrel, which could bode well for the Malaysian economy.

For now, we’re all safe at home, getting used to the New Normal after a long period of upheaval and changes. Over the last year, we’ve changed how we work and socialise, learning new skills to adapt to a world where almost everything is done online. These changes are more likely to become more permanent as more companies fast-track their digitalisation efforts and change how they do business. The New Normal may extend further than anticipated, given the lasting impact the pandemic has had on economies. Nonetheless, with change comes opportunity. Your Relationship Manager will help you go through your options to capitalise on new opportunities.