Highlight Economy to gather pace in 2H14

by **Cals** Fri 24 Jan 2014, 16:22

Highlight Economy to gather pace in 2H14

Business & Markets 2014

Written by Fatin Rasyiqah Mustaza of theedgemalaysia.com

Friday, 24 January 2014 08:35

KUALA LUMPUR: The local economy is expected to gather pace in the second half of this year (2H14) in line with improved economic growth of Malaysia’s major export markets such as the United States, China and Europe.

Economists and analysts at the forum on “Spotlight on Malaysia 2014”, organised by Bursa Malaysia yesterday, were of the view that the improved economic condition in 2H14 will help the benchmark FBM KLCI to reach at least 1,900 points by year-end.

The KLCI, which closed at 1,808.3 points yesterday, touched a historical high of 1,872.52 early this year.

Kenanga Investment Bank Bhd senior vice-president and economist Wan Suhaimie Wan Mohd Saidi said the open Malaysian economy will benefit from a more positive global outlook in 2014 and this could lead to increased demand for its exports.

“The US economy is improving, Europe is out of recession and the weakening ringgit will help our exports become more competitive,” he said.

Wan Suhaimie said external demand, coupled with sustained domestic growth, should be able to push the country’s gross domestic product growth to between 5% and 5.5% this year.

He expects the US economy to improve to about 3% this year, which will help Malaysia’s exports. Globally, the International Monetary Fund has estimated growth of about 3% from 2.5% last year.

“We think that China’s growth is very crucial for us as we export more than 10% to the republic. We expect China’s economic growth will continue to be sustainable,” said Wan Suhaimie.

On the domestic front, he said commitments made by the government on its recent fiscal reforms will help to be a catalyst for re-rating the Malaysian economy.

According to Wan Suhaimie, the rollout of projects under the Economic Transformation Programme with 182 projects worth RM122 billion awarded to date, will ensure a rerating for Malaysia by international rating agencies.

RHB Research Institute Sdn Bhd director Alexander Chia Hock Lon echoed Wan Suhaimie’s positive sentiment.

While Chia predicted that the equity markets in emerging economies in 1H14 will be volatile as a result of the announcement on the US Federal Reserve’s quantitative easing (QE) programme, he said this will not necessarily be a bad thing.

“QE tapering is actually good news because this signals that the US Fed is positive about the sustainability of the US economy’s recovery beyond the immediate term.

“In 2H14 and early 2015, we are looking at emerging markets and major economies getting onto a firmer footing. We do think that it is quite positive for equities, although in the short term developed markets have a better chance of doing better relative to emerging markets,” he said.

Chia believed that the longer term outlook for emerging markets is still positive, although certain countries including Malaysia are expected to see near-term challenges.

“I won’t say that Malaysia is free from challenges. There are issues that need to be resolved. But after the election overhang has passed, we are in the period where the government is in a stronger position to take the necessary decisions to correct the fiscal imbalances,” he said.

Chia projected the KLCI to hover around 1,940 points at the end of this year. His figure is based on a 15.5 times, one-year forward price to earnings ratio.

Jupiter Securities chief market strategist Benny Lee projected the composite index to hover around 1,900 points by year-end.

“If the market stays above 1,700 points, I believe the market will be able to go even higher this year. Our market is quite resilient and it’s a good thing because there is a big inflow of funds,” he said.

Sectors that panellists are in favour of this year are banking, oil and gas, plantation and rubber gloves. They see real estate investment trusts and telecommunications as non-attractive sectors.

This article first appeared in The Edge Financial Daily, on January 24, 2014.