RBS: Interest to return to Malaysia post-election
Business & Markets 2013
Written by Janice Melissa Thean of theedgemalaysia.com
Wednesday, 20 February 2013 09:14
KUALA LUMPUR: Malaysia has become an attractive investment destination spurred by healthy domestic demand. It will only see growing interest after the 13th general election (GE13), according to Sanjay Mathur, the Royal Bank of Scotland (RBS) economics research head.
“Let’s get the uncertainties out of the way, and I think we will see more interest coming into this market,” he said at a briefing on Malaysia Outlook 2013 yesterday.
“The legacy of the March 2008 elections when the super majority was lost by Barisan Nasional is an overhang in terms of the sentiment of the marketplace,” said Drew Brick, RBS market strategy head for the Asia-Pacific region.
According to Brick, until the elections are over, to some extent, equity investors are probably going to be relatively cautious in their approach to Malaysia. “But it doesn’t make Malaysia’s macroeconomic story any less attractive.”
“The problem for Malaysia, which is the problem for a lot of other countries in the region, is the economies are basically robust and healthy, but the chase for yield has driven the price of products up, but the yield down,” said Brick.
In fact, on an absolute and nominal basis, yields across the region and globally are now lower than the prevailing hurdle rates of so many hold-to-maturity accounts, he said.
Malaysia’s economy benefits from its strong Islamic finance and tourism sectors which currently contribute to about 7% of GDP.
The broader infrastructure that allows for these activities to flourish in Malaysia is “significantly superior than most other developing countries,” Sanjay said.
Brick says economies
of many countries in
the region are basically
robust and healthy.
Malaysia’s GDP for the fourth quarter last year is expected to be 5.5%, a rate that should not change for the full year in 2013, according to RBS.
Southeast Asia (SEA) has been outperforming most of the Asian region, posting a GDP growth of 18% year-on-year (y-o-y) in 2012.
According to Sanjay, what has changed in the SEA economies, including Malaysia, in the last three to four years is that growth has become increasingly powered by domestic demand.
“What it tells you is that we are becoming relatively independent of the developed countries. Growth is starting to rebalance itself away from exports towards domestic demand,” Sanjay said.
“We were worried for Malaysia six months ago because we felt that growth has disproportionately been driven by an expansionary fiscal policy from Economic Transformation Programme projects, among other things.
“Growth in government spending is now roughly in line with nominal GDP, asharp correction from the pace between February and July 2012. The improvement in growth has not been accompanied by high inflation, with headline inflation remaining below 1.5% y-o-y,” he said.
On Bank Negara Malaysia’s policy rate, RBS believes the central bank will retain 3% for the first half and possibly raise it by 25 basis points in the last quarter.
Sanjay: The ringgit
will probably end the
year at 3.05 to the
dollar.
The uncertainty over GE13 may also cause some weakness in the ringgit. “But thereafter improving fundamentals should prevail, so we think that the ringgit will probably end the year at 3.05 to the dollar, Sanjay said.
On the possibility of a currency war and Japan’s weakening yen, he said Asia is now more resilient to the weakness of the yen than prior to the global financial crisis.
“Asia has done phenomenally well in terms of productivity and it can withstand a weaker yen better than it did in the past,” Sanjay said, adding that other factors also come into play such as a country’s competitiveness.
“Japan has been losing competitiveness and its market share even earlier, so it wasn’t just about the exchange rate but because Asia was catching up. That is a trend that is going to continue,” he added.
This article first appeared in The Edge Financial Daily, on February 20, 201