KUCHING: The Malaysian stock market is expected to show resilience and could outperform relative to regional peers given its defensive trade and year-to-date laggard performance.
Amid the prevailing global uncertainties caused by ongoing trade spat between the US and China, listed companies are well-positioned to benefit from business relocations and trade diversions.
This is already happening, explained Manulife’s head Of retail wealth distribution Ng Chze How, with approved foreign direct investments (FDIs) into Malaysia surging from RM16.9 billion in 1Q18 to RM29.3 billion in 1Q19 – an increase of 73 per cent.
“Furthermore, the strengthening relationship with China is expected to pave the way for rising investment flows from China to Malaysia and higher Chinese tourist arrivals going forward,” he said in an interview with The Borneo Post.
“On the local front, the economic outlook will be better in the second half of 2019 and on the back of the government’s revival of major infrastructure projects such as the East Coast Rail Link (ECRL), Klang Valley Double Track railway and Penang Transport Master Plan.
“The domestic economy is also set to benefit from rising corporate and consumer spending arising from the progressive disbursements of tax refunds from the government, which the government has already paid back RM17.1 billion in January to April 2019 and has planned to reimburse a total of RM37 billion of outstanding refunds by the end of the year,” he added.
Meanwhile, investor sentiment is expected to pick up too when there is more clarity on various policy reforms as the government continues to embark on structural changes to overhaul the economy to be future proof.
Ng said from a bottom-up perspective, there are stocks currently trading below their historical mean valuation levels, which signal buying opportunities as investors focus on undervalued companies with earnings visibility and dividend yields appeals.
This falls back to Manulife Asset Management Services Bhd (MAMSB) which started off the year with a wham, launching three funds in the first half of 2019 – The Asia Total Return Bond Fund, Shariah Global REIT Fund, and Global Emerging Markets Multi-asset Income Fund.
Another area to look out for is Asian bonds, Ng said, as Asian bonds are in a ‘sweet spot’ due to high yields, potential capital gains from the unexpected strengthening of local Asian currencies vis-à-vis the US dollar, and expectations that US interest rates are peaking.
“We are constructive of Malaysia’s bond market, which boasts a high credit rating, provides relatively attractive real yields. Malaysian 10-year government bond yields currently hover around 3.70 per cent.
“Meanwhile, inflation levels were negative in early 2019, increasing to marginally positive territory in March – the lowest level in Asia.
“We believe that Malaysia also has room for further rate cuts after the central bank lowered the policy rate by 25 basis points in May. “
Investors should look within Malaysia as trade war beneficiaries, and beyond Malaysia for investment opportunities, as the intricacy of global economies have varying impact on different markets and asset classes.
They should also look beyond the headline numbers and understand the fundamental shifts that are happening on a local, regional, and global level, and try and see how these could positively or negatively impact the companies they invest in.
Overall, we believe shifting Fed policy and the potential easing of Sino-US trade tensions, coupled with room for further monetary easing, present a positive backdrop for Asian assets.
Despite macro challenges, we believe their combination of strong fundamentals and resilience make them well positioned in the current market environment.