KUALA LUMPUR (July 13): Standard Chartered Bank (StanChart) Malaysia said on Wednesday (July 13, 2022) that Malaysian corporate earnings are set to grow by 6% to 7% in 2023 from a year earlier, supported by the oil palm plantation and banking sectors.
StanChart head of managed investments and product management Danny Chang said StanChart expects 2023 Malaysian corporate earnings disappointments to come from sectors such as the real estate and construction industries, which could pull back some of the profitability of the nation's overall corporate earnings.
"Looking at the consensus forecast for Malaysia, the overall earnings outlook is roughly at about 6% to 7% earnings growth for Malaysia, depending [on] how the economic landscape plays out in the next 12 months or so.
"Some people might [say] this may seem like a realistic number given the fact that palm oil prices are one of the key drivers [and] given that the banking [or] financial sector is a key component of the local stock exchange, [of which] close to 40% of the earnings come from the financial sector.
"So these two core sectors alone should drive a fair bit of the earnings coming through," Chang said at a virtual press conference in conjunction with StanChart's global market outlook briefing.
Also present at the press conference was StanChart head of asset allocation and thematic strategy Audrey Goh.
Goh said StanChart has advised clients to trim global equity allocation while adding exposure to bond markets.
She said StanChart has recommended cutting exposure in global equities in view of strong inflation prints across the globe forcing many central banks to tighten monetary policies or raise interest rates.
According to her, such sentiment is likely to lead to slower global economic growth, which is expected to undermine world corporate earnings outlook.
Besides bonds, a range of income asset classes, including high dividend yielding equities and non-traditional income assets, now provides good value, according to Goh.
"The yield on our multi-asset income strategy is now above 6.4%, the highest since 2020. We see this as an attractive level given [that] it is sourced across a well-diversified range of income assets.
"The [multi-asset] income basket has proven more resilient than equities or bonds so far this year," she said.
Chang and Goh also fieded questions about the 30-stock FBM KLCI, which settled down 8.54 points or 0.6% to 1,417.54 during Bursa Malaysia's 12.30pm break on Wednesday (July 13, 2022).
The KLCI has fallen to the current level from its March 3, 2022 close of 1,618.54 as investors weigh factors including the impact of Covid-19-driven movement restrictions besides the Russia-Ukraine war-driven rise in commodity prices.
On Wednesday, Goh said the KLCI is similar to other Asian equity benchmarks which have declined significantly.
"Compared to six months ago, we do see more value in the equity market today because of the downturn we have seen so far," she said.
Globally, Chang said China has policy tailwinds and its equity valuations are at a discounted level compared to those in the Malaysian equity market.
"The Chinese [equity market] is already at a more attractive valuation and supported by better earnings growth. Whereas, Malaysia has slightly lower earnings growth and higher PE (price-earnings) valuations, so it just makes sense to divert some attention to China," he said.
According to Goh, StanChart is mindful of Malaysia's inflation, hence, StanChart does not foresee Bank Negara Malaysia cutting interest rates or the government undertaking more fiscal spending to support economic growth.
"Unlike [in] China, those are actually happening," she said.
"China has been adopting a much more stringent [Covid-19-driven] lockdown which has impacted [economic] growth recently. But again, lockdown should not be viewed as something which is permanent. Eventually they will have to, I will say, remove some of the restrictions when it comes to lockdown and thereby allowing economic activities to recover.
"So, on the back of that, we see more catalysts supporting our views on China and India given this against Malaysia," Goh said.