RAM expects domestic economy to expand 5.1 per cent in 2014

KUCHING: RAM Ratings (RAM) expects the domestic economy to expand 5.1 per cent in 2014 despite the headwinds in the wake of the US Federal Reserve’s quantitativeeasing (QE) programme and the constraint on household spending brought on by cost hikes.

This will be anchored by resilient domestic demand and rebound in exports, on the back of a more convincing recovery momentum of developed economies, RAM said.

At RAM Ratings’ recent investor briefing held in Kuala Lumpur, its analytical experts shared their outlook on the Malaysian economy and the banking as well as property sectors, along with the credit trends in our rated portfolio.

Other topics of discussion included the oil and gas (O&G) support-services sector and the toll-roads sector.

“Against a stable economic backdrop, we expect the credit quality of our rated portfolio to remain largely stable. Defaults are likely to stay benign,” it said.

Despite the QE-induced spike in yields, and based on the pipeline of rated bonds, RAM believes that the domestic market will welcome about RM90 billion-RM95 billion of bond issues in 2014.

It further added that solid capitalisation and sound provision coverage augur well for Malaysian banks’ credit standing this year, as the sector is envisaged to experience some decline in asset quality while loan growth moderates.

“Heightened inflation, property price corrections and possible interest-rate hikes could exert pressure on the quality of our muchdiscussed household loans.

“That said, we do not expect any system-wide deterioration as a stable employment market mitigates this risk,” it stated.

Regarding the slew of cooling measures announced under Budget 2014, RAM expects this to pose fresh challenges to property developers.

“We expect property sales to soften, notably in 1H 2014, as homebuilders and buyers adopt a wait-and-see approach. However, we expect sales to pick up in the second half as genuine purchasers and first-home buyers lock in purchases ahead of the implementation of the goods and services tax (GST) in April 2015, when further price hikes are widely anticipated,” it said.

All in all, RAM expects a singledigit slip in transaction volume but it does not foresee widespread price corrections. Major property developers will also benefit from strong unbilled sales chalked up during the last one to two years.

“Despite the still-respectable occupancy and rental rates in 2013, we expect oversupply to cloud the outlook on the commercial property market in Kuala Lumpur and Selangor in the medium term,” it added.

Meanwhile, RAM reiterated its positive outlook on the O&G support- services sector, which benefits from Petroliam Nasional Bhd’s (Petronas) sizeable capex commitments.

In line with the Asian counterparts, an overwhelming 84 per cent of Malaysians are optimistic about reaching their financial goals, with the average rate of optimism by the Asia Pacific respondents stood at 80 per cent.

When it comes to confidence of investment returns by asset class, Malaysian investors have similar view as the rest of the Asians as well in terms of their top two choices, which are stocks and real estate.

Specific to the Malaysian respondents, 15 per cent of them expect stocks to be the best performer this year and 38 per cent ranked real estate.

This is consistent with respondents in China, India and Australia who all ranked stocks after real estate to be the best performer in 2014.

“There was a rise in confidence in stocks as an asset class compared to last year’s GISS survey.

“Nearly half or 46 per cent of the local investors believe stocks will be the top performer this year versus 39 per cent when same question was asked in 2013.

“This shift could be due to the positive global economic outlook that is on a recovery path primarily driven by the US.

“Many believe this recovery will eventually have a spillover effect to the exporting nations in Asia as well as Malaysia,” Sandeep opined.