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February 2021
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Malaysia’s new Covid-19 lockdown, emergency may attract foreign funds, some say

The declaration of emergency, the first since racial riots in 1969, was issued on January 12 by King Al-Sultan Abdullah, who acted on the advice of Prime Minister Muhyiddin Yassin. On the same day, the Malaysian health ministry reported 3,309 new coronavi
By Goh Thean Eu   
January 15, 2021

Malaysia’s nationwide emergency announced this week to curb escalating coronavirus cases may temporarily halt political uncertainty and attract foreign funds to the Southeast Asian country, according to some fund managers.

The declaration of emergency, the first since racial riots in 1969, was issued on January 12 by King Al-Sultan Abdullah, who acted on the advice of Prime Minister Muhyiddin Yassin. On the same day, the Malaysian health ministry reported 3,309 new coronavirus cases, a new record.

The emergency, which will last until August 1, came a day after Muhyiddin announced a new lockdown and reintroduced a nationwide prohibition on inter-state travel to control the spread of Covid-19, the disease caused by the coronavirus.

“There is still value in the Malaysian market and I do expect foreign fund managers to take advantage of these, albeit in a more cautious approach,” Kenanga Investors Chief Executive Officer Ismitz Matthew De Alwis tells Asia Asset Management.

Malaysia had succeeded in taming the spread of Covid-19 after the first lockdown on March 18, which lasted until May 4. Limits were relaxed in stages subsequently.

But cases began to surge again in recent months with regular record-setting numbers. Malaysia had 144,518 confirmed cases, including 563 deaths, as at January 13, the third-highest in Southeast Asia after Indonesia and the Philippines.

The new lockdown isn’t as strict as the first, which was nationwide. It covers five states and three federal territories, including the capital Kuala Lumpur, where cases are the highest.

Residents in these locations are barred from travelling more than 10 kilometres from their homes, social gatherings are prohibited, and only certain industries and businesses deemed essential are allowed to operate.

Unlike in March, there is no curfew. But parliament cannot sit and general and by-elections cannot be held under the emergency, allaying immediate threat to Muhyiddin’s coalition government, which has seen declining support from its own members.

“Ultimately, we think it is positive as it temporarily removes the political overhang. The focus should shift towards containing the spread of Covid-19. There will no doubt be concerns raised from various government parties, which was eyeing a breakdown of the weak coalition as a route to power,”Kuala Lumpur-based Affin Hwang Asset Management says.

Not everyone is as optimistic. According to Ivy Ng, head of research for Malaysia at CIMB Investment Bank, the emergency and political uncertainty could in fact delay foreign funds from returning to the Malaysian market.

In a report on January 13, she notes that the government only has the backing of 109 members of parliament out of a total 220 after two of them recently withdrew support. That means Muhyiddin’s coalition has lost majority support, which usually leads to the dissolution of Parliament to pave the way for a new general election.

Most agree that the lockdown and emergency will hurt the economy in 2021, De Alwis predicts the government will likely have to raise the debt limit once again and borrow even more money to finance stimulus to support the economy. The government debt limit is now at 60% of gross domestic product after it was increased in October.

The new lockdown is slated to last until January 26 but De Alwis believes it will be extended.

“The [coronavirus] situation is likely to get worse for the next two weeks before the lockdown starts to have an effect on the daily caseloads. This means the lockdown will very likely be extended,” he says.