KUALA LUMPUR: Malaysia may become the second fastest growing economy in the region, behind only the Philippines, next year with a projected growth rate of 5.2 per cent, Public Investment Bank said.
As the global economic upswing that started in 2017 is expected to continue into 2018, PublicInvest said the local bourse stands to benefit with earnings growth expected to accelerate from 3.6 per cent this year to 6.3 per cent next year.
“The earnings growth will be underpinned by the country's stronger economic performances cascading into corporate and consumer Malaysia,” the research house said in a note.
PublicInvest is positive on the local bourse for 2018, though not overly-enthusiastic as the FBM KLCI is cheap from a regional standpoint, at 15.6 times one-year forward price-to-earnings ratio compared to Thailand's 17.7 times, Malaysia’s most direct comparable.
PublicInvest said Malaysia’s economic conditions will continue to remain healthy with GDP growth to remain above five per cent, and with crude oil prices remaining strongly above USD50/barrel a boon to national coffers and investor sentiment.
“Run-up to forthcoming General Elections could provide a near-term trading-oriented lift,” it added.
On ringgit, PublicInvest said there is still some room to improve, albeit muted and not in the manner seen in 2017.
“In essence, conditions are Still Good Enough to warrant continued investments in the local bourse. Foreign investors may be less of a factor in the coming year, but that may be inconsequential given the ample domestic liquidity,” it said.
The country has emerged relatively unscathed from several debilitating headwinds, thanks to its resilient fundamentals, the research house said.
“Although the downside risks to growth are muted but we remain cautious as the external environment is still sensitive to variety of factors, amongst which are geopolitical negativities. Being an open economy, Malaysia will be at risk.”
On global economic outlook, PublicInvest sees efforts to ensure sustainable global growth and this will be the impetus that could lift growth higher this year.
The normalization of global capital flow suggests that global financial markets will continue to be up and running, emerging as the lynchpin of global growth, it added.
“A host of fiscal and monetary interventions by the advance and emerging economies will finally produce the expected results.”
PublicInvest remains “overweight” on the Oil and Gas and Construction sectors for the on-going positive news flows and probable earnings uplifts, and the broad-based Manufacturing sector for demand growth on account of strong global trade.