KUALA LUMPUR (June 7): The Malaysian equities market outlook in the second half of this year (2H22) is likely to depend heavily on global appetite for risk assets, with selective investment opportunities in beneficiaries of economic reopening and commodities sectors.
“Currently we are neutral on Malaysia equities, [which are] really tied in a lot to the general risk sentiment in the global economy, and at this stage the risk appetite in the world economy is still very fragile,” said HSBC global private banking and wealth Southeast Asia chief investment officer James Cheo.
During HSBC's 2H22 Investment Outlook virtual briefing on Tuesday (June 7), Cheo said the market may reassess the Malaysian market again when there is “a more concrete kind of improvement in the global dynamics, particularly on how the recovery is in the picture of inflation”.
Nevertheless, Cheo acknowledged that Malaysia is on a “fairly solid” growth path given the Southeast Asian nation’s well-diversified export base from crude oil, palm oil as well as playing a prominent role in the global semiconductor supply chain.
Malaysia's economy grew 5% in the first quarter of this year thanks to improvements in labour market, domestic and external demand amid easing pandemic restrictions. This came after a 3.1% gross domestic product (GDP) growth last year.
Cheo is expecting Malaysia's GDP to grow 5.5% this year thanks to tailwinds from improving manufacturing activities and favourable commodities prices.
This has taken into account an expectation for another 50 basis points overnight policy rate hikes this year, with Bank Negara Malaysia potentially ending 2022 with a benchmark interest rate of 2.5%, he said.
In terms of foreign exchange outlook, Cheo said while the ringgit has endured high volatility in 1H, the domestic currency will likely stabilise in 2H22 and trade around 4.2800 against the US dollar by end of this year.
“With the impact of pandemic restrictions receding [and] reopening of the economy, private consumption is going to bounce back, investments are likely to also be quite robust,” Cheo said.
Therefore, he pointed out several selective investment opportunities, particularly sectors associated with reopening, consumption, banking, commodities and semiconductor.
“Although we are neutral on Malaysian equities, there are selective opportunities, because various parts of the economy are actually doing very well,” Cheo noted.