Short-term pain for long-term gain. We believe 2014/2015 is about administering the bad medicine and tightening the belt. Cutting subsidies is a main theme. The 6% GST will kick start in April 2015, thus corporate margins could get squeezed. The high bond foreign ownership is a worry, as the ringgit is vulnerable to fund flow shocks. All this short-term pain is necessary to harness the long-term gain which stems from an improving budget deficit and trade surplus, thus stabilising the ringgit and avoiding the rating downgrade.
■ Macro looks healthy. CS is projecting for 2014 GDP to be 5.0%, improving from 4.2% in 2013, driven primarily by strong private investments and a recovery in the global economy. 9M 2013 private investments grew at 13% YoY. Corporate balance sheets remain robust, evident from corporate net gearing steadily falling from 67% in 1998 to 24% at present, but high household debt remains a concern in Malaysia.
■ Malaysia is a stock-picking market. Malaysia has always been a stockpicking market and our key OUTPERFORM ideas for 2014 include the following themes: tourism (Air Asia X, Genting), subsidy rationalisation (Tenaga), construction (Gamuda and IJM Corp), banks (RHB Cap), oil & gas (Bumi Armada) and telcos (Maxis and DiGi).
Our short ideas include MAS, MISC, KL Kepong, YTL Power and IGB REIT.
