KUALA LUMPUR: Weaker Malaysian exports amid lower crude oil prices may curb domestic corporate earnings growth, said Nomura International (Hong Kong) Ltd managing director and chief Asia equity strategist Michael Kurtz.

Kurtz said Nomura sees a 2%-3% earnings growth for the Malaysian market next year.

This was because Malaysia’s exports were “in the wrong kinds of goods, or to the wrong economies”, Kurtz told reporters yesterday during an equities and economic outlook briefing.

“We don’t see Malaysia as particularly leveraged to the particular areas of global demand growth that will drive earnings upside for other markets in the region, like Taiwan for example,” he said.

Kurtz said Malaysia’s market valuation is at a discount to certain Asean peers, and that Nomura has a neutral call on the market.

Bloomberg data showed the FBM KLCI was traded at a current price-earnings ratio (PER) of 15.8 times. For comparison, the Jakarta Stock Exchange Composite was transacted at a PER of 19.88 times. The Thailand Stock Exchange Index has a PER of 17.47 times.

“We, unfortunately, do not see a rerating catalyst. The benefit for Malaysia here in terms of its lower multiples is simply that it reduces downside risk in periods of volatility. It does not suggest substantial room for [PER] multiple expansion,” said Kurtz.

As for Malaysia taking the chairmanship of the Asean Economic Council (AEC), Kurtz said while the long-term benefits of trade liberalisation among the council member nations will be considerable, he does not see it as significant enough to change Nomura’s outlook for Malaysia in 2015.

In terms of stocks, Kurtz said he prefers government-linked companies such as IJM Bhd, Gamuda Bhd, Telekom Malaysia Bhd and Malayan Banking Bhd.

Meanwhile, on the outlook for crude oil prices, Kurtz said some stabilisation is expected as early as the second quarter of next year.

He added that US$60 (RM208.80) per barrel is a reasonable downside target, amid oversupply concerns.

“This [stabilisation] will be driven by the acceleration of the US economy and some curtailment of global [crude oil] supply as the decline in prices takes out certain production centres due to production costs.

“[So] avoid significant exposure to the upstream space and for investors who are more inclined to buy on value, we advise looking at downstream, either at refining or petrochemicals,” he said.

“Taking a big picture view, it’s difficult to say that Malaysia really benefits from lower oil prices, both in terms of fiscal revenues and overall economic prospects. In our view, lower commodity prices makes life more difficult for the regional economy and makes topline revenue forecasts more difficult for Malaysian companies to meet or exceed. And it keeps us more cautious about this market,” said Kurtz.

This article first appeared in The Edge Financial Daily, on December 11, 2014.