Malaysian assets fall after government imposes full lockdown to curb Covid-19

Bloomberg

Malaysian stocks dropped and the ringgit weakened after the government imposed a two-week nationwide lockdown to curb a relentless surge in Covid-19 infections.
The FTSE Bursa Malaysia KLCI Index falls as much as 1.6% on Monday, before paring losses to 0.7% at the close in Kuala Lumpur. The ringgit slid as much as 0.4% to 4.1480 per dollar, while 10-year bond yields rose three basis points to 3.25%. The government said that most businesses will be shut from June 1 except for essential economic and service sectors.
“The government is finally biting the bullet,” said Alexander Chia, an analyst at RHB Investment Bank Bhd. “Clearly, there are downside risks to FY21 earnings growth, even if it is essentially a postponement of growth to FY22.”
Malaysia’s return to a hard lockdown comes in the wake of record daily infections that saw cases top 9,000. A resurgence in virus outbreaks in Asia has spurred some countries including Vietnam and Singapore to tighten restrictions. A similar lockdown in Malaysia last year cost the country an estimated 63 billion ringgit ($15 billion).
Vietnam tightened social distancing measures in Ho Chi Minh City for 15 days from May 31, while Singapore this month reissued some lockdown-like conditions that it put in place a year ago.
Malaysia’s lockdown will “drag on the country’s recovery, with a good chance that 2Q GDP growth will contract on a sequential basis,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. “We will likely see the ringgit continuing to underperform in the region, but its weakness is being put in check by a soft US dollar.”
Malaysia’s government may announce an aid package ahead of the lockdown as soon as today, NewsRise reported, citing Zakiah Jaafar, deputy secretary general at the finance ministry.
Still, Monday’s market drop pales in comparison with last year when the KLCI plunged as much as 5% a day after a nationwide lockdown was announced then.
Malaysia’s gross domestic product shrinks 0.5% in the first quarter from a year earlier, the central bank said earlier in May, adding that it expects growth to remain within the 6% to 7.5% forecast range for the full year.
Banks including Public Bank Bhd. and CIMB Group Holdings Bhd. dropped, while Maxis Bhd. and Supermax Corp. were among the biggest decliners in the benchmark gauge, falling more than 2%. Top Glove Corp. was the top gainer in the key stock gauge, up 1.8%.
The Malaysian stock benchmark is down 6% from a December high as investor concerns about the impact of stricter curbs on movement weigh on riskier assets.