Nomura: Malaysia may miss 2014 growth target

Nomura: Malaysia may miss 2014 growth target
Posted on 13 December 2013 - 05:36am
Ee Ann Nee
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KUALA LUMPUR (Dec 13, 2013): Malaysia is expected to miss its economic growth target of 5%-5.5% next year, going by estimates given by Nomura Global Economics, which is forecasting a gross domestic product (GDP) growth of 4.5% in 2014 and 4% in 2015.

Nomura expects the country to expand by 4.3% this year, lower than the official growth estimate of between 4.5% and 5%.

Nomura Southeast Asia economist Euben Paracuelles said the headwinds which will hurt the country's GDP growth include China's slowdown that will affect commodity exports of Malaysia, as well as the effects of fiscal consolidation from the government that will put a drag on growth and impact domestic consumption and investments.

"It (4.5% GDP growth for 2014) is not a poor number though, considering the amount of fiscal consolidation the government is going to do. It is actually a decent number. There's a need to focus on reforms momentum and fiscal consolidation to improve the current account surplus," he told a media briefing here yesterday.

Paracuelles said it is optimistic on the government carrying out its reforms, contrary to skeptics on the government's ability to push reforms.

He opines that political risks have subsided and a rejuvenation of fiscal reforms will result in a positive sovereign rating action.

Fitch Ratings, which has an "A-" and "A" rating on Malaysia's foreign and local currency respectively, has the country on negative watch, while Standard & Poor's, despite having a stable outlook on the country's long term sovereign recently downgraded the ratings of the country's four major banking groups, citing rising economic imbalances such as rising household debt as a key threat.

"We're optimistic that the Malaysian government will execute its plans. We've seen them raising electricity prices, cutting fuel and sugar subsidies, which is the right direction. It gives a clear indication that the country is serious in getting its fiscal act together.

"Hence, we're most positive on Malaysia and the Philippines and cautious on Indonesia and Thailand and we're neutral on Singapore," said Paracuelles, who is based in Singapore.

Nomura expects Bank Negara Malaysia to hike rates by a cumulative 50 basis points in the second half of 2014.

It also estimates the ringgit to strengthen against the greenback to 3.15 in 2013, but to depreciate to 3.21 in 2014 and 3.28 in 2015.

Nomura chief equity strategist for Asia and global head of equity strategy Michael Kurtz said it is neutral on Malaysia from an equity perspective due to its expensive valuation and vulnerability to a stronger US dollar and high treasury yield environment.

"Malaysia is still trading at a 10% to 12% premium to its long term average. This is still an equity market that is still being priced at premium levels, while Singapore, in comparison, is trading at a modest discount to long term averages on a price-earnings basis," said Kurtz, who is based in Hong Kong.

He added that Malaysia, as well as Indonesia, India and Thailand, appear most vulnerable to the quantitative easing tapering scenario, while Taiwan and South Korea appear least vulnerable to a strong US dollar and rapid capital outflow scenario.

Nomura has also identified CIMB Group Holdings Bhd as the only stock in Malaysia among a basket of 21 Asia Pacific ex-Japan stocks, that offers a compelling growth angle.