The Malaysian equity market remains buoyant given the attractive valuations and an improved domestic picture such as better government stability, rising domestic liquidity and improving corporate earnings.
Principal Asset Management (Singapore) Pte Ltd Chief Executive Officer & Chief Investment Officer Chris Leow said: “Our base case is that Bank Negara Malaysia will maintain the Overnight Policy Rate (OPR) at 3.0% in 2024 in the event the US Federal Reserve cuts the Fed funds rate. The latest view from the US Fed is for 3 cuts, equivalent to 75bp in 2024. We believe that Malaysia’s GDP will recover with part of the impetus from stronger external trade.”
He added so far this year, the Malaysian Ringgit has depreciated along with other regional currencies partly due to external factors like US GDP growth and policy rate expectations.
“In effect, we think the Ringgit exchange rate has partly priced in the potential hawkish stance of Bank Negara given higher than expected inflation rate and resilient growth. In our view, Malaysian Ringgit would be range-bound in 2024.
A cut in US policy rates would allow more room for Bank Negara Malaysia (BNM) to use monetary policy to bolster the economy (and vice versa). Once visibility of a US rate cut nears, there should be more support for regional currencies, including the Ringgit.
Bank Negara’s policymaking stance is to promote sustainable economic growth. As such, the likely decision to keep OPR rates stable, repatriation of foreign investment income coupled with recent better capital market performance will help support flows and hopefully foreign investor confidence, Leow added.
Meanwhile, Principal Asset Management Pte Ltd Chief Global Strategist Seema Shah, said: “The Fed really wants its soft-landing ending. Stronger growth, lower unemployment, higher inflation – and yet still no change to the median dot.
“Powell has perhaps shown his cards: he needs a good reason not to cut rates, rather than a reason to cut rates. Markets perhaps couldn’t have asked for more from the Fed and equities will celebrate.
“However, there will be one question creating feelings of discomfort: how serious is the Fed about its 2% target? This Summary of Economic Projections suggests that the Fed is willing to risk cutting rates before inflation is close to target and while GDP growth is above-trend. History teaches us this is a risky path.”
Principal Asset Management (S) Pte Ltd, is a joint venture between Principal Financial Group®, a member of the FORTUNE 500® and a Nasdaq-listed global financial services and CIMB Group Holdings Berhad, one of Southeast Asia’s leading universal banking groups.
Established in 2006, the company has SGD3.71 billion in Assets Under Management as of 31 December 2018. We offer a wide variety of solutions to help people and companies in building, protecting and advancing their financial well-being with our unit trust, discretionary mandates and asset management expertise.
