Keep tabs on inflation risks, investors advised

> Any spike may adversely affect value of equity and fixed-income securities, says UOB Asset Management

PETALING JAYA: UOB Asset Management (Malaysia) Bhd cautioned investors to stay alert to any possible rise in inflation, which may adversely affect the value of both equity and fixed income securities, despite the current stock market rally.

“For example, in the near-term, a sudden rise in inflation may heighten uncertainty about the economy, leading to lower earnings forecast for companies and lower equity prices. This is why it is important that investors remain vigilant, even in an equity bull market such as the one we are experiencing now,” said its CEO Lim Suet Ling in a statement yesterday.

She said inflation surprises is among the top risks in 2018, along with a slowdown in China’s growth and geopolitical tensions.

Lim highlighted that greater deceleration in the Chinese economy could trigger concerns of a stronger downturn for global growth given the country’s position as an important export market for many countries.

“Though a slower growth rate in China will not be destabilising the world, geopolitical risks including the conflict over North Korea, tensions in the Middle East and upcoming elections across six European countries this year should be the events to watch in the year ahead.

“As such, we advise investors to exercise caution in 2018 and not get carried away by the market’s strong investment performance in 2017.”

Lim noted that the Malaysian stock market tends to be flat leading up to the general elections, which is expected to happen in March this year.

“However, we think that much of the uncertainty has already played out with Malaysian equities lagging behind their regional peers in the last quarter of 2017. As such, we believe that any overhang from the upcoming general elections should be limited. Historical trends also show that investor confidence tends to rebound after the general elections.”

As interest rates around the world rise, she said fixed income assets will face some headwinds, but in the current global environment of low inflation and modest growth, fixed income securities can still achieve steady positive returns.

UOB favours the Asian stock market, in particular China and South Korea. Sectorwise, it prefers the technology sector including areas such as cloud computing.

“The increasing consumption of technology products and services such as streaming video services and augmented reality will lead to a greater demand for cloud infrastructure and related services. With technology being an increasingly integral part of life, we believe this sector would able to achieve growth even against the wider macroeconomic backdrop.”

UOB remains optimistic about Malaysia’s economic performance over the next 12 months given the positive earnings momentum, recovery in oil prices and expectations for a stronger ringgit against the US dollar.