Malaysia should not be placed in the same category of vulnerable countries such as India and Indonesia, says Hou Wey Fook, chief investment officer (CIO) of DBS Private Bank.
The CIO thinks the fiscal and debt concerns on fears of growth slowdown and ratings downgrades are overblown in Malaysia.
He said in this environment of escalating trade wars, rising US dollar and rising interest rates, there are no safe havens in Asia. Malaysia equities and currencies, for instance, have corrected more than the rest of Asia markets in this rout.
‘Malaysia is current account positive, is a net oil exporter, and has relatively high reserves ratio. Its government debts are largely denominated in MYR with only 3% denominated in foreign currency.
‘Although foreign holding of government debts amount to 27.5% of total debt as of end-Mar 2018, there is sufficient domestic liquidity to absorb any outflow of funds given Malaysia’s fairly well-developed asset management and insurance industries,’ Fook told Citywire Asia.
DBS has a non-consensus ‘overweight’ on Malaysian equities. The Singaporean lender expects consumer sentiment and private consumption growth to be given a further uplift in Malaysia, thanks to the new government’s decision to abolish GST and alleviate rising cost of living.
Fook said he expects business sentiment to improve going forward as well, which will translate into more private investments over the medium term.
Private consumption could expand faster at 9.0%, boosted by the three-month tax holiday before the re-introduction of the sales and services tax, added Joanne Goh, DBS' regional equity strategist.
She said the estimated RM17 billion ($4.2 billion) being relinquished from the government’s tax coffers will likely translate into higher disposable income for consumers, thus allowing them to consume more.
'This anticipated boost should benefit the banking, consumer, healthcare and gaming sectors. Our picks are PBK, MAY, HLBK, GENT, BAT, and KPJ.
‘Higher energy prices will continue to be a bright spot for the oil and gas sector too, as global capex is poised to rebound. Our picks for this theme are BAB, SAPE, HIBI and WSC,' Goh added.
DBS Group Research’s joint venture partner in Malaysia, AllianceDBS, has upgraded Malaysia’s 2018 GDP forecast to 5.6% from +5.4% previously.
Goh said Malaysia's fiscal and debt concerns could be better understood once a revised 2018-19 budget is out later in the year.
'Our estimates show additional savings can be derived from cost rationalisation from the Prime Minister Office which is a low hanging fruit in our view.'