CREDIT SUISSE UPBEAT ON BURSA

Local bourse upgraded to ‘overweight’ on back of lower key rate, cheap ringgit and improved valuations, among others

MALAYSIA’S stock exchange has received a boost from Swiss banking giant Credit Suisse, thanks to a slew of “feel good” factors.

Bursa Malaysia has been upgraded to “overweight” from “market weight” on the back of a cut in the Overnight Policy Rate (OPR) by Bank Negara Malaysia, a cheap ringgit, improved valuations and possible stimulus from infrastructure projects, among others.

In contrast, Malaysia’s peers in

Asia, such as Hong Kong, China and South Korea, have seen downgrades either from “neutral” to “underweight” or from “overweight” to “market weight”.

Credit Suisse has a less pronounced “underweight” on Thailand and the Philippines.

“The reasons for the shift are improved south (Asian) valuations, movements in our country scorecard, gains from global disinflation for the high-inflation countries of the south, a more benign United States rate outlook, the start of a rate-cutting cycle in key southern markets and US-China trade uncertainties.

“We now have a rough balance between north and south (Asia),” said its analysts Dan Fineman and Kin Nang Chik in a report.

Credit Suisse said as the worstperforming market in Asia year-todate, Malaysian valuations had improved.

It said the country’s price-earnings ratio relative to Asia ex-Japan had fallen from rich to slightly cheap territory.

Credit Suisse said the OPR cut by Bank Negara last week was not likely to be the last.

It expects another rate cut this year as the country’s real rates are high by regional standards.

Credit Suisse said agreements reached with China recently on Belt and Road Initiative projects could lead to renewed work on infrastructure projects that had been put on hold after the change in government last year.

The bank also said the ringgit was now the cheapest currency in Asia ex Japan, relative to its 10-year average real effective exchange rate.

“The ringgit typically moves in line with oil but has lagged this year, likely due to portfolio outflows. Those could reverse quickly,” said Fineman and Kin.

Credit Suisse also favours Malaysia due low foreign ownership of the country’s equities and bonds.

“Ownership of Malaysian Government Securities is at a post2011 low,” they said, adding that foreigners had sold Malaysian stocks year-to-date, in contrast to heavy buying elsewhere.

The selldown in government bonds seems to stem from a possible removal of Malaysia from the FTSE Russell’s bond index, but the Swiss bank sees chances that Bank Negara will find a solution to the FTSE Russell concerns over restrictions on offshore ringgit trading.

Credit Suisse expects continued downward pressures for Asian markets over the coming quarter, unless a resolution to the trade war is reached.

“Valuations remain on the high end. Our index of leading market indicators has yet to rebound to bullish ground and the period of China’s yuan strength could be ending. We remain optimistic about the second half,” it said.

Agreements reached with China recently on Belt and Road Initiative projects could lead to renewed work on infrastructure projects.’

CREDIT SUISSE ANALYSTS