AdminMalaysia back on international investors’ radar with US rate-cut in view
KUALA LUMPUR: Malaysia’s economic potential has often been underestimated by international research firms, despite its good appeal to foreign investors, according to an economist.
Since the past few weeks, however, the country had gotten rave reviews from the likes of US investment banks JP Morgan and Golman Sachs, Singapore’s UOB and Fitch Ratings.
The latest notable economic upgrade came from Nomura Group, Japan’s largest investment bank and brokerage, on Monday.
Nomura, through its research unit, upgraded Malaysia to an “Overweight” rating given its strong fundamentals and robust second-quarter gross domestic product (GDP) growth.
Nomura’s economics team expects above-consensus full-year 2024 GDP growth of 5.2 per cent.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said such review is long overdue and Malaysia as a country has a lot to offer to the foreign investors.
He added that the undervaluation of ringgit and equities markets suggests there is a clear motivation from the foreign investors to go long on Malaysian financial assets.
“The political stability in the country has been established and this will pave the way for the implementation of economic reforms which essentially will raise the long term potential gross domestic product (GDP) growth.
“By extension, this will improve productivity which will translate into better earnings prospects in the future.
“So Malaysia has all what it takes to attract foreign funds given that it has been lacklustre since 2018 and the present administrations have demonstrated their resolve for economic reforms,” he told Business Times.
Afzanizam also noted that potential rate cuts in the US would certainly enhance the appeal of Malaysian assets, given the possible narrowing of the interest rate differential between the US and Malaysia.
Nevertheless, he said the slowdown in major economies such as the US and China, along with concerns over geopolitical risks that could disrupt global trade, remains a key risk.
“Such risks can be systemic. But at the end of the day, foreign investors will appraise the country individually in order to spot the market opportunities,” he said.
Meanwhile, economist Dr Geoffrey Williams believes that the country’s GDP growth for the second half of 2024 (2H24) will range from four per cent to 4.5 per cent.
“Inflation is expected to be around two per cent, with no change anticipated in the overnight policy rate (OPR) for this year. The fair value for the ringgit is estimated to be between RM4.20 and RM4.30,” he said.
Williams also noted that a rate cut by the Federal Reserve is likely, following similar actions by the Bank of England and the European Central Bank.
He said this could narrow the interest rate differential and benefit the ringgit.
“However, there is also uncertainty about the US election in November and the likely outcome is not very clear. This may worry international markets,” he added.
Last month, JP Morgan raised Malaysia’s rating from “Underweight” to “Neutral” for the first time in nearly six years, crediting the nation’s policy reforms, data centre investments and infrastructure development.
Its head of Asia-Pacific Rajiv Batra said Malaysia’s rapid pace of progress was impressive with a 4.2 per cent GDP growth in the first quarter of 2024 (1Q24).
He added that earnings growth, which was nearly 10-11 per cent, was an upside surprise and that the country deserved credit for this.
Meanwhile, UOB increased its 2024 GDP growth forecast to 5.4 per cent, up from the previous projection of 4.6 per cent.
The firm highlighted that several factors contribute to Malaysia’s optimistic economic outlook. This included the rising global technology cycle boosting electronics exports, a rebound in tourism enhancing the service sector and consumer spending, and ongoing targeted government cash aids.
Goldman Sachs also recently upgraded Malaysia’s stock market to an equal weight rating due to the defensive nature of the local market in response to external shocks.
According to its analysis, investor sentiment towards Malaysia has improved since Prime Minister Datuk Seri Anwar Ibrahim began his second year in office, bringing political stability.
It noted that the strengthening Malaysian economy and a more robust currency have also boosted confidence in local assets.
Last week, Fitch’s unit BMI Country Risk and Industry Research revised up its 2024 growth forecast for Malaysia to 4.7 per cent from 4.4 per cent.
The firm said it expected resilient domestic demand to support Malaysia’s growth.
It also expects investment across the private sector in the country to be supported by increased capital expenditure across machinery and equipment.
CGS International says downside risk to ringgit remain, targets 4.4 by year-end, 4.2 by end-2025
KUALA LUMPUR: CGS International said downside risks to the ringgit remain as it may have overextended itself due to its sharp movements.
It projects the ringgit to end the year at RM4.40 against the US dollar and rise to RM4.20 at end-2025.
The firm said there is still momentum for both consumption and investments to sustain the ringgit until 2025.
“Also, Bank Negara Malaysia is perhaps the only regional central bank which could turn hawkish, in our view. That said, current ringgit strength may have been overextended due to its sharp movements, which we think poses downside risks,” it said in a note.
The firm said the recent movements in Asean currencies were due to risks of a US-led economic recession, driven in part by what was perceived as overbought fears based on very few indicators.
The US Federal Reserve (Fed) has signalled a rate cut and the market expects it to be as soon as the next meeting on September 24.
“From then on, we think dovish calls will remain where we are pricing in the possibility that the US will reach a terminal rate of 3.0 per cent by the start of 2026, implying a 150 basis point (bp) cut next year on top of 75 bp cuts this year.”
It added the expectations of a narrowing interest rate differential with the US could favour the appreciation of Asean currencies, especially given that the latter were battered by the mighty US dollar from 2022.
“We also think there are few additional factors to support more appreciation of regional currencies ahead, including Asean to exhibit a relatively sustainable balance of payments position, Trump’s rhetoric for a weaker dollar and low foreign shareholding providing strong upside if domestic growth outlook improves,” it added.
Downside for regional currencies may stem from excessive appreciation due to central banks’ preferences to build back reserves that were lost since 2022, high Asean currency correlation with Chinese Yuan which ties currency movements China’s economic outlook; and distant but possible black swan events which include the US falling into deep recession or heightened trade wars.
Malaysia to achieve high-income status soon: OECD director
PUTRAJAYA: Malaysia has enjoyed five decades of rapid and inclusive economic growth, bringing the country within reach of high-income status, said a chief economist.
Organisation for Economic Cooperation and Development (OECD) Economics Department director Dr Luiz de Mello said the economy has achieved an impressive average yearly growth of over six per cent since the 1960s.
He added that Malaysia has been ahead of regional peers in terms of per capita incomes and has been able to consolidate this lead.
Luiz said while incomes were only one-third of the World Bank’s threshold for high-income countries in 1989, they are set to surpass that threshold by 2028.
“Significant policy reforms in the 1980s allowed Malaysia to attract large inflows of foreign direct investment, turning it into a global chips and electronics manufacturer.
“Growth and productivity could be strengthened further by easing restrictive regulations and creating a more level playing field between state-owned enterprises and private firms.
“This would bring particular benefits for services and for small and medium enterprises (SMEs),” he said in a presentation at the launch of the 2024 OECD Economic Survey of Malaysia today.
Luiz noted that with higher incomes, however, surging demands for better public services require different policies from those that were successful in the past.
He said the public sector will have to deliver more and become more effective, which calls for improved economic governance.
He also emphasised that filling the substantial gaps in the current social protection system requires increased expenditure.
On Malaysia’s growth, Luiz said the country’s growth is accelerating, mostly driven by expanding domestic demand.
He added that exports are set to rebound amid stronger external demand, and inflation has fallen below historical averages but is expected to rise as energy subsidies are withdrawn.
“The economy has shown resilience in the face of shocks, including the pandemic, supply chain bottlenecks, and the economic implications of Russia’s war of aggression against Ukraine.
“Growth is projected to reach 4.9 per cent in 2024 and then 4.7 per cent in 2025.
“Buoyant domestic demand and new opportunities in technology-intensive sectors and the expected rebound in exports will encourage private investment despite higher financing costs,” he said.
On monetary policy, Luiz said the monetary authorities started a tightening cycle in 2022 as inflation approached five per cent, driven by global energy prices and currency depreciation.
“With inflation near its two per cent long-term average, the current monetary policy stance seems adequate and provides room to accommodate a temporary increase in inflation as energy subsidies are withdrawn.
“At the same time, monetary authorities should stand ready to raise rates to counter possible second-round effects from higher energy prices,” he noted.
OECD’s Malaysia Economic Survey 2024 findings will be used to draft 13th Malaysia Plan – Rafizi
PUTRAJAYA: The findings of the Malaysia Economic Survey 2024 by the Organisation for Economic Co-operation and Development (OECD) will be used to draft the 13th Malaysia Plan (13MP), according to Economy Minister Rafizi Ramli.
He said it will also be used to formulate specific policies and programmes in sectors involving micro, small, and medium enterprises (MSMEs).
“During preliminary discussions with the OECD last year, the Economy Ministry indeed requested that the sector be studied in depth, including by comparing policies and practices in other countries, which is related to MSMEs.”
“These findings will certainly be used to draft, firstly, the 13th Malaysia Plan, which is currently being implemented, and secondly, to formulate specific policies and programmes in sectors involving MSMEs,” he told reporters after the launch of the OECD’s Malaysia Economic Survey 2024 here today.
Indonesia’s protest victory sparks debate over new era of civic activism, or a rare success story
JAKARTA – The success this month of protesters in Indonesia, who managed to block a controversial Bill in Parliament that was seen as a move to constrict democracy, has sparked discussions about the country entering a new era of civic activism – but not everyone is convinced.
The decision by political elites to yield to public pressure earlier in August is unlikely to set a precedent, given how such a victory following street protests is rare, and how the archipelago has had a controversial history with activists.
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