This article first appeared in The Edge Financial Daily on October 15, 2018
KUALA LUMPUR: The Malaysian economy is strong enough to weather the “perfect storm” brewing in the form of rising US Treasury yields, a stronger US dollar and the full-on effects of a US-China trade war, said a global asset management firm.
Principal International Inc said the country’s economy had proven to be more resilient than other emerging markets.
“We have to take it back to the time when people were predicting the end of the super commodity cycle for emerging markets, and it was not,” said the firm’s president and chief executive officer Luis Valdes. “There were hiccups [but it was not the end].
“Many analysts had predicted that emerging countries were going to be in a very difficult position, but this was not the case.
“For many countries, including Malaysia, their economies are much more healthier now than what they used to be, and governments are much more aware of fiscal discipline,” Valdes told The Edge Financial Daily in a recent interview.
Speaking specifically about Malaysia, he said the recent change in government had not prompted Principal International to change its investment stance on the country.
“Malaysia is a democratic country, so a change in government is something we have respect for and it is part of the rule of the game. We are not concerned about the change in government, as Malaysians have the right to decide on [their leaders].
“We are extremely optimistic about Malaysia and the Southeast Asian region; that is our take,” he said.
On whether issues surrounding 1Malaysia Development Bhd have spooked foreign investors, Valdes said the group had not changed its perception of Malaysia as the country’s fundamentals were still intact.
“What we look at are the fundamentals of any given economy, and for us the big fundamentals that are making Malaysia attractive are its people, its economy, its demographics and the business environment that is very much market-driven.
“We have a very long-term view on countries, and our long-term view on Malaysia is very positive and will continue to be. We have not changed our view on the country,” he said.
As for the stock market, Valdes opined that Malaysian equities would seem undervalued if oil prices were to stay at US$85 (RM352.75) per barrel.
“Let’s say that oil prices continue to stay at US$85 per barrel. In that case, you may have a view that Malaysian equities are undervalued because [with those kinds of oil prices] in the next five to seven years, the economic growth of Malaysia [will accelerate],” he said.
However, Valdes said Malaysia would need a thorough review of its pension and long-term savings system as it deals with an ageing population and a declining fertility rate. He pointed out that Malaysia’s replacement rate, which is the ratio of the retirement income of its people to their income before retirement, is low at below 40%.
“The replacement rate of Malaysia is below the Organisation for Economic Co-operation and Development’s advice of at least 70%. I think a serious look is needed on how money is being saved and used, and how the private retirement scheme programme can be boosted, in order to incentivise the people [to save for their retirement],” he said.
Principal International is part of the Principal Financial Group, a Fortune 500 company. In Malaysia, the group’s unit Principal International (Asia) Ltd has a 60% stake in CIMB-Principal Asset Management Bhd, with CIMB Group Sdn Bhd owning the remaining 40%.
As at Sept 30, CIMB-Principal was responsible for managing more than RM54.02 billion on behalf of individuals and corporations in Malaysia, managing 55 conventional unit trust funds, 21 syariah-compliant unit trust funds and 10 private retirement funds.