KUALA LUMPUR: In contrast to consensus view that global interest rate hikes are imminent, The Edge Media Group executive chairman Datuk Tong Kooi Ong believes that the current low interest rate environment will be here to stay for the next 24 months.
“Despite all the liquidity that has been injected by the US government since 2008, OECD (Organization for Economic Cooperation and Development) growth remains stagnant and is not translating to GDP (gross domestic product) growth,” he said at The Edge 2015 Economy and Investment Outlook Forum on Saturday.
Given the slow growth in the advanced economy, Tong said it is unlikely that policymakers will raise interest rates, which will hurt growth.
Furthermore, he observed that most countries will tend to keep their interest rates low in order to boost export competitiveness with cheaper currencies.
The US government’s quantitative easing programme just ended last Friday. It has injected US$4.5 trillion (RM14.8 trillion) in the past seven years between 2008 and 2014.
Tong opined that in a prolonged low interest rate environment, equities will be the asset class of choice to counter what would be effectively negative interest rates.
He added that finding gems on Bursa Malaysia may be difficult because of high valuations among big-cap stocks, but there are undervalued small- and mid-sized companies that investors should look at.
Eastspring Investments Bhd chief investment officer and country head Chen Fan Fai echoed that the interest rate is unlikely to go up anytime soon.
“When you have a [global] economy that is not synchronised, we don’t go into a full-fledged recovery and the interest rate scenario is unlikely to rise very soon,” explained Chen, who was one of the three speakers at the forum.
In terms of equity investments, he said the United States will continue to do well, but Asia is “attractive”.
Chen said that Asia remains the sweet spot for growth, hence this will augur well for equity markets in the region.
He noted that growth in Asia has been relatively stable. “Asia will leverage on the global economy in terms of exports and will pick up quite quickly.”
“Investors will come rushing in simply because Asia has the highest growth in the world,” said Chen, who anticipates economic growth worldwide will be “slow and uneven”.
Manulife Asset Management Services Bhd chief investment officer Jason Chong expects the FBM KLCI on Bursa Malaysia will continue to climb at its modest pace next year.
He reckoned the benchmark index to go up by about 6% to 8% next year — the same quantum expected for corporate earnings growth by consensus view.
“How strongly the stock market will go up is a direct function of earnings growth,” Chong told the audience.
In the shorter term, he reckoned there will be more funds flowing out due to global uncertainties that cause people to pull out funds from developing markets.
Chong said the funds will eventually flow back to Asia when the dust settles given that economic growth in the region will remain stronger compared with elsewhere.
“In terms of absolute number, we (Asian countries) are still stronger than others with 5% to 6% [GDP] growth while developed markets are looking at 1% to 2% growth,” he added.
(From left) The Edge senior managing editor Azam Aris, Chen, Chong and Tong at The Edge 2015 Economy and Investment Outlook Forum in Kuala Lumpur on Saturday. Photo by Mohd Izwan Mohd Nazam
This article first appeared in The Edge Financial Daily, on November 3, 2014.