KUALA LUMPUR, May 17 — Credit Suisse Research Institute’s upgrade of the Malaysian economy underlines the country’s favourable factors, including improved valuations, more infrastructure projects and the cheap ringgit.
However, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid warned of issues which should be of concern.
“It includes the FTSE Russell review on Malaysian government bonds in the Word Government Bond Index, whereby the next review is in September 2019,” he told Bernama.
The global index provider is expected to make a final decision then on whether to withdraw local government bonds from the FTSE World Government Bond Index.
Credit Suisse Research recently upgraded the Malaysian market to “overweight” from “weight,” driven mainly by several factors including the country’s improved valuations.
On other factors, Mohd Afzanizam said the external sector, especially the US-China trade tensions, which is very fluid at this juncture, would weigh on the country’s market performance.
“There are also geopolitical risks in the middle east, which could result in a risk-off mode among foreign investors,’ he added.
Credit Suisse research analyst Dan Fineman said the agreement reached recently by Malaysia with China on the stalled Belt and Road Initiative projects could lead to renewed work on infrastructure ventures.
He also said the ringgit which looks oversold and typically moves in line with oil prices, has lagged this year, likely due to portfolio outflows.
Commenting on this, Mohd Afzanizam said it does make sense as the local ringgit is currently trading at 4.1700/1730 to the greenback and was undervalued, as the prevailing exchange rate is above the historical average since the currency peg was removed in July 2005.
“Apart from this, the government is expected to play an active role in generating economic growth at a time when business and consumer sentiments are very weak.
“In this regard, implementing more infrastructure projects is the right thing to do, as it would create spillover effects to the economy,” he added.
He said additionally, the possibility of further cuts in the overnight policy rate could entice foreign fixed income investors, as bond prices and interest rates are inversely related.
Bank Negara Malaysia’s Monetary Policy Committee last week reduced the OPR to three per cent from 3.25 per cent . It was the first cut since July 2016. — Bernama