Corporate profits seen picking up

Companies expected to benefit from rising demand

PETALING JAYA: Corporate profits are expected to pick up in Malaysia as companies benefit from demand recovery amid strong global growth.

Manulife Asset Management Malaysia head of total solutions and equity investments Tock Chin Hui said Malaysian corporate earnings growth momentum is expected to pick up this year as corporates, several of which have undergone capacity expansion, are now well positioned to benefit from the anticipated demand recovery amid synchronized global growth.

“In addition, we can expect to see more capital flows into Asia in the next few years, as global investors realise the region’s higher growth and cheaper equities valuation versus the US.

“Malaysia will stand to benefit from this trend, as the country’s strong exports and benign inflation provide a conducive environment for investment.”

In a statement, he said the country’s electrical and electronics sector, which accounted for 36% of Malaysia’s total exports in 2016, is expected to continue growing as the country plays an integral supply chain role in fulfill- ing the world’s increasing demand for digital products and services.

Tock said the revival in commodity prices is also going to benefit the country as commodities account for 20% of total exports in 2016.

“Part of our strategy is to focus on Malaysian companies that will benefit from cyclical opportunities such as robust economic backdrop, against which corporate earnings are set to catch up with GDP growth, and strong commodity prices.

“Longer term, we look to invest in innovative companies that owned niches in the global supply chains as well as those that focus on serving the needs of millennials and the ageing populations,” he added.

On the bond market, Manulife Asset Management said despite expectations of overnight policy rate (OPR) hikes following Bank Negara’s hawkish tone towards the end of 2017, yields ended lower last year, particularly short-term yields, supported by foreign investor amid firmer ringgit.

“We expect the Malaysian corporate bonds sector to perform well this year.

“Firstly, stable economic growth is benefi- cial for corporate bond issuers in general, which translates into a conducive credit environment,”, Manulife Asset Management Malaysia head of fixed income Andy Luk said.

He said corporate bond yields were less vulnerable to external shock and market volatility and believed demand for corporate bonds will continue to hold up, supported by ample liquidity in the local market and local investors demand for yield pickup.

“After a bumper issuance of about RM123bil in 2017, supply in 2018 is expected to consolidate around RM100bil,” he said.

“In the medium term we expect a flatter yield curve. Short term yields should rise following the recent hike, but long-term yields may not rise significantly given the still benign inflation outlook.

“The recent 25 bps hike in OPR is viewed as normalisation of rate.

“The probability of further rate hikes in 2018 is very much data-dependent. Until a clearer picture emerges, yields should stay range-bound, driven by external market uncertainties,” he said.