Stanchart remains cautious on Malaysia’s second half of 2017 growth momentum

KUALA LUMPUR: Standard Chartered Bank remains cautious over Malaysia’s growth momentum in the second half (2H) of 2017 as Gross Domestic Growth (GDP) growth eased to 4.2 per cent in 2016 from 5.0 per cent in 2015.

This was also despite the 4.5 per cent growth posted in the last quarter of 2016, the highest for the year from 4.3 per cent in the third.

Stanchart said households provided the most support in 2016 but other segments largely eased against 2015.

“As for the rates outlook, we remain neutral for Malaysia, as we believe supply risk to long-end ringgit debt is higher in 2017, but local demand is constructive.

“In addition, foreign sentiment towards the ringgit debt has turned less negative.

“We continue to recommend that investors be tactically long on 10-Year (10Y) Malaysian Government Securities (MGS) on attractive total returns,” it added.

The bank said this in its Global Research Report: “Malaysia: A fine finish to Q42016”.

The bank said total returns on the ringgit debt could improve further because the yield spreads of 5Y/10Y MGS were still wide, which would be positive for the duration once the curve starts to flatten.

It also believed the ringgit is undervalued given the 80 per cent increase in crude oil price since February 2016.

This is amid a seven per cent loss in the ringgit during the period.

It said divergence between the crude oil price and ringgit’s performance is likely to consolidate on better risk sentiment.

From a real-yield perspective in Asia, the bank expects only the Indonesian rupiah bonds and MGS to offer real-yields higher than their past-three-year averages.

“We therefore believe the ringgit debt valuation is attractive to foreign investors from a total-returns perspective, and onshore investors, from a real-yield perspective,” Stanchart said. — Bernama