KUALA LUMPUR: The Malaysian equity market is expected to outperform the emerging Asian markets as price-to-book valuations are relatively low despite the sterling economic growth the country has seen last year, says an economist and investment strategist Herve Lievore (pic)
"We expect Malaysia to outperform other emerging Asian countries and that would probably take place in an environment where inflation could possibly accelerate given the fact that we have seen consumer price inflation extremely stable over the past four to five months," he told reporters at the HSBC 2013 Market Outlook briefing yesterday.
"We are expecting a moderate acceleration of inflation going forward but this is unlikely to derail the equity market," he added.
Lievore said it is also constructive on Malaysian equities due to massive undervaluation of the currency.
HSBC Global Asset Management (HK) Ltd senior economist and investment strategist said emerging Asian markets excluding Singapore had grown by 20%-30% last year but the Malaysian equity market only grew by 10%.
“This is abnormal despite the fact the gross domestic product (GDP) growth in 2012 was strong but that should be temporary.
"The economic performance has been very good last year, we saw very positive developments especially on the structure of the economy," he said.
He said Malaysian equities are more attractive since prices have not risen that much last year when the economy actually performed very well.
Malaysian equities are undervalued given the prospect for earnings growth going forward. "What we have seen in 2012 is probably abnormal and temporary by nature," he said.
"The market has been obscured by uncertainties on when the general election will take place, but there is no reason why it underperforms that much."
HSBC favours cyclical sectors such as energy, basic materials, commodities, consumer discretionary and by extension, financials, which are dependent on the economic cycle.
Lievre also does not expect Bank Negara Malaysia to alter its key policy rates, which will remain at 3%.
Another factor for the central bank to maintain the Overnight Policy Rate is the expectation of ringgit appreciation going forward.
“In 2013, it is expected to perform better than other emerging Asian countries especially in the Asean region,” he told reporters at a media briefing.
He said increasing domestic demand would bode well for future growth.
He also said that the economic structure was strong but the equity market did not respond to that “evolution”.
“I would say that the market has probably been obscure on when the general election would take place but there is no reason why Malaysia underperformed that much.”
He was in favour of pure cyclical plays like commodities, utilities and financials and expected them to outperform defensive stocks.
He noted the timing for financial stocks to be different as banks responded to monetary cycle rather that economic cycle.
He was also positive about the number of companies listed on the local bourse.
“As the market becomes more liquid, it becomes more efficient and hence its attractiveness is increased,” he added.
Last year there were 17 new listings amounting to RM23bil on Bursa Malaysia.
He expected the inflation rate to be at a “benign” level although it might “accelerate moderately” as the consumer price index had stabilised in the past four to five months.
On the ringgit, he expected the currency to appreciate further as long as there was a trade surplus.
“Investors could take profit from stronger growth in the country and appreciation of currency, so, we are positive,” he said.
As for bonds, he expected growth to stabilise at the yield curve of slightly above 3%.
The only concern he had was the declining savings surplus if it were to fall below 8% of GDP.
On the global market, he expected growth to remain subdued with three key risks from the eurozone crisis, China's recovery and the “fiscal cliff” in the United States.
He said the Russian and China markets offered value for investors.
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