KUALA LUMPUR – HSBC Group has projected Malaysia’s gross domestic product (GDP) growth for 2021 at 6.7% compared with an estimated 5.4% contraction last year.
Asian economics research co-head Frederic Neumann said the movement control order (MCO) currently in place was expected to pose economic challenges at the beginning of the year.
“But we are confident that the economic effects are going to dissipate quickly over the course of the year,” he said during the HSBC Asian Outlook 2021 virtual press conference here, today.
At the ASEAN level, he said 2020 was a tough year which saw a lot of challenges in Thailand, Malaysia and Indonesia amid the rise in Covid-19 infections.
“However, we expect strong growth across the region from the second quarter.
“The vaccine roll-out might take a little longer in Southeast Asia compared with other developed markets and that might retard the normalisation of domestic demand and tourism for countries like Thailand. Nevertheless Asean will remain on a fairly strong path,” he said.
He noted the downside risk for Asean’s growth would be the vaccination programme not being handled on time, but the risk of this is relatively low.
On another note, he said HSBC is forecasting one more rate cut by Bank Negara Malaysia this year due to the MCO and the economic impact at the beginning of the year.
On the ringgit’s performance, global head of FX research Paul Mackel said the local currency, in line with Asian currencies, is resilient and has room to strengthen further, and is forecast to strengthen to 3.96 versus the US dollar by year-end.
He said the headwinds facing Asian currencies including the ringgit are seen dissipating while the gradually rising commodity prices and portfolio flows especially in the fixed income space would help to underpin the performance of the currency.
Head of global EM rates research Andre de Silva shared that Malaysia is one of the favourable key markets in the fixed income space outside China.
He said the portfolio flows which started last year could accelerate further on a combination of real yield, prospect of further easing and indexation consideration, which is quite bullish for Malaysia.
On the equity market, head of equity strategy, Asia Pacific, Herald van der Linde said Bursa Malaysia is expected to see 8% upside to the 1,780 level this year.
“Typically, we would consider Malaysia to be a defensive market as there is always good demand domestically with no volatility in valuation. This is the market you want to have exposure from a defensive point of view,” he said.
He said this, however, has changed to a certain extent due to the glove makers’ phenomenal performance resulting in Malaysia emerging as the best performing Asean equity market.
“Valuation in Malaysia at the moment is very much in line with the five-year average of about 16.4 times price earnings (ratio). We expect a further upside of 8% for the FTSE Bursa Malaysia KLCI which is likely to go up to 1,780 by the end of this calender year,” said van der Linde.
He also highlighted the surprising massive retail participation throughout the Asian region in the equity market in 2020 which has continued into 2021.
“It was local retail participation that pushed the Asian market higher and not so much the foreign fund flow.”
Among the reasons were that Asians had started to seek higher returns for their retirement investments, an alternative to bank deposits which were lower, new easy access platforms for the equity market, as well as the set-up of working from home, he said. – Bernama, January 13, 2021
