What to expect in 2018?

With the new year approaching, now is a good time as any to identify what industry experts predict will happen in 2018.

For Malaysia, 2018 is shaping up to be the year for Malaysia to shine as one of the fastest growing economies in the Asean region.

In its 2018 outlook report by the research arm of Public Investment Bank Bhd ( PublicInvest Research), Malaysia might be right on track to become the second fastest growing economy in Asean – trailing right behind the Philippines.

The report guided that in 2018, Malaysia would be growing from a position of strength with ample growth potential given its average growth of 6.3 per cent in the last 36 years.

“Not only is its growth rate enviable, but its ability to maintain the speed of growth is another factor that deserves credit,” it said.

This growth trajectory would likely be driven by domestic demand as the research arm projected domestic demand and private consumption to grow at 5.4 and 6.4 per cent respectively.

Based on this, PublicInvest Research expected Malaysia’s gross domestic product (GDP) to grow at 5.2 per cent – conservatively within the Ministry of Finance’s ( MoF) projection of 5.0 to 5.5 per cent.

Similarly, AmInvestment Bank Bhd (AmInvestment Bank) has also announced that they expect Malaysia’s 2018 GDP to fall in line with MoF’s project at 5.5 per cent.

“With our 2018 GDP outlook at 5.5 per cent, we believe that the quarterly GDP growth should bottom around 1Q2019 before it starts picking up as the base effect fizzles out while the overall economic activity continued to be supported by domestic demand and exports,” concluded the bank.

While both forecasts are lower than the forecast GDP growth 5.8 per cent for 2017, PublicInvest Research opined that 2018 conditions would still be good enough to warrant continued investment in the Bursa Malaysia.

“Foreign investors may be less of a factor in the coming year, but that may be inconsequential given the ample domestic liquidity present,” said the research arm.

For specific industries, PublicInvest Research retained its overweight view on the oil and gas (O&G) and constructions sectors due to the on-going positive news flow of upcoming ventures and projects, and probable earnings uplifts.

Additionally, it pegged an ‘ overweight’ call on the manufacturing sector as it is expected to see a surge in demand within the industry on the account of the strong global trade.

“We also suggest selective exposure into the banking sector as we see valuation to remain attractive at current levels.

“We think the sector is primed for long- overdue run post- MFRS9 clarity come January 1, 2018,” added the research arm. Ringgit watch

Meanwhile, the ringgit is expected to continue on with its steady growth, forecasted to be one of the fastest growing currency in the Asean region next year as Malaysia continues to gain support from advancement and stability in oil prices, steady current account surpluses and the receding political risks that will emerge after the 14th General Elections (GE14) has concluded.

Earlier in the year, the ringgit saw rapid recovery from its historic low of 4.48 against the US dollar to its present circa 4.10 levels.

“Based on our analysis, we think that the ringgit should be valued at RM3.75 to RM4.00 per US dollar – which is our longterm target.

“In the short-term, however, in 2018, we expect the Ringgit to average at RM4.00 to RM4.10 per US dollar against the 2017 average of RM4.33 per dollar,” guided PublicInvest Research.

On the other hand, AmInvestment Bank stated in a separate Global Currency Outlook report that their analysis showed the ringgit with a fair value of 3.95 against the US dollar while the real effective exchange rate presented a fair value of 3.76.

“There is still plenty of room for this laggard currency to gain momentum,” it said.

Expecting the ringgit to trade at 3.98 by the end-2018, the bank’s forecasted average for the ringgit against the US dollar is 4.12 – a substantial improvement from its forecasted average of 4.30 in 2017.

Additionally, volatility of the ringgit has also been receding noticeably to 0.17 per cent daily in 2017 from 0.59 per cent daily in 2016.

PublicInvest Research expects this trend to continue on in 2018 – diminishing the need for Bank Negara Malaysia (BNM) to intervene.

Nevertheless, if the need arises, the research arm opined that the central bank would have no trouble to combat swings in the ringgit due to their ample arsenal of foreign reserves.