Limited downside risk to earnings

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Rakuten Trade head of equity sales Vincent Lau said the downside risk to corporate earnings in the second half are limited as “the (labour shortage) issue has been ongoing for some time now.” “There may be some impact (on earnings) but should not be that significant."

KUALA LUMPUR: There may be very limited fallout to corporate earnings in the second half of this year, following the reinstatement of a temporary freeze on the recruitment of Indonesian workers, according to fund managers.

Rakuten Trade head of equity sales Vincent Lau said the downside risk to corporate earnings in the second half are limited as “the (labour shortage) issue has been ongoing for some time now.”

“There may be some impact (on earnings) but should not be that significant.

“Most companies have already look for alternative solutions such as recruiting workers from other countries, and the manufacturing sector has increased automation in production processes, especially since the Covid-19 pandemic to reduce reliance on foreign workers,” Lau told StarBiz.

He noted that plantations have faced a shortage of foreign workers for some time now, while the construction sector will continue to be impacted as Indonesian workers are generally preferred.

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Lau is also confident that the government is working quickly to resolve and find an amicable solution to address the issue, particularly as the economy reopens.

Meanwhile, Tradeview Capital chief investment officer Nixon Wong said the impact will be mainly felt in the plantation sector, followed by construction and manufacturing.

On Wednesday, Indonesia’s ambassador to Malaysia Hermono said the freeze was imposed after Malaysia’s immigration authorities continued using the Maid Online System (MOS) for recruiting domestic workers, instead of the One Channel System as agreed upon under the memorandum of understanding between both countries on the placement and protection of Indonesian maids.

“The downside risk to earnings will be there in the second half, depending on the duration of the freeze on getting new workers from Indonesia,” Wong noted.

He pointed out that plantations are currently entering the harvesting season and they will need to hire more foreign workers.

“The shortage of foreign workers is limiting the output of crude palm oil (CPO) and this will cap the earnings growth of the plantation sector.