Friday 29 Mar 2024
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KUALA LUMPUR: Malaysian corporate earnings are likely to grow at a slower pace of 7% this year amid macroeconomic headwinds, said fund management firm Eastspring Investments Bhd.

Eastspring chief investment officer and country head Chen Fan Fai said these headwinds included a stronger US dollar against the ringgit, apart from lower crude oil and palm oil prices.

Chen also noted other headwinds like subsidy rationalisation, the upcoming imposition of the goods and services tax (GST) and uneven global growth. “The Malaysian market for the next several months is going to be very challenging. Our suspicion is that over the months, this number (7%) may see some downside risks because of these reasons,” he said at Eastspring’s “2015 Investment Outlook: Seizing Alpha” yesterday.

Hence, Chen said the forecast may even have to be reviewed later, given the headwinds mentioned. Comparatively, last year’s consensus earnings growth estimate was about 10% to 12%.

Further on the macroeconomic headwinds, Chen said the ringgit “is expected to be weak” and will range from RM3.40 to RM3.70 per US dollar based on current consensus due to Malaysia’s expected reduced current account surplus.

He said the forward market has indicated that the ringgit would be weaker at RM3.67 against the US dollar by year-end and will depreciate further to RM3.77 by the end of next year.

Chen also opined that crude oil prices will stay at US$40 (RM143) to US$50 per barrel; already the commodity has declined by more than half its value since mid last year. He said the price level is still profitable for Saudi Arabia, the top producer of the Organization of the Petroleum Exporting Countries (Opec), but enough to delay shale oil producers from their capital expenditure.

“Oil prices are still declining and to me it is a chess game between Opec and shale oil producers. The only issue now is how long will it stay at this level. We have to wait to see who blinks first,” he said, adding that crude oil prices may climb higher in the long run but remain capped at the US$60 per barrel range.

Despite the “choppy” short-term market outlook, Chen said several sectors could offer growth prospects.He said the construction and technology sectors might benefit from an upturn this year while utility stocks would be closely watched for its resilient and visible earnings growth.

 

This article first appeared in The Edge Financial Daily, on January 14, 2015.

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