Equity market outlook

Exchange.

Another one is the potential fallout in trade talks between America and China, even though it may seem like progressing well at the moment.

The escalation in trade war between the two largest economies last year is already taking a toll on both nations and dampening economic growth expectation.

Leading economic indicators, such as the purchasing managers’ indices (PMIs) in China has begun to show sign of contraction in fourth quarter of 2018.

If the US eventually fails to come to terms with China by the end of the 90-day trade truce, a re-escalation of trade war will ensue.

Judging by the sharp recovery seen in the markets early of this year, investors are not prepared for such outcome.

However, we opine that the trade war will very likely be contained or resolved as both the US and China have sufficient motivations to avoid the pain of a full-blown conflict.

Against such backdrop, we are optimistic about the market outlook this year and will seize the opportunity to invest in stocks deemed as oversold and cheap relative to their fundamental value, while being mindful of the potential rough patches ahead, and adjust portfolio asset allocation level accordingly. The case for Malaysia

It is very rare to see a developing country undergo deleveraging and institutional reforms without any trigger event such as recession, nor pressure from the creditors, but that is bitter pill our country is taking.

Such courage should be commended and will strengthen our nation’s economic foundation and vibrancy significantly once it is accomplished.

Therefore, we are very optimistic about the prospect of Malaysia’s economy and it shall translate into stock market performance over time.

In the near term, investors might have to bear with the heightened volatility as and when new policies are announced, replacing the old ones.

We might also have to contend with a slower pace of economic growth during our nation’s deleveraging process, in pursuit of the hope that Malaysia will one day regain its Asian Tiger reputation.

Foreign investors have basically fled from Malaysian market last year with total outflow of RM11.9 billion, more than offsetting the inflow of RM10.6 billion in the prior year.

If the confidence in Malaysia in revived, the foreign funds will return.

The relatively competitive level of the Malaysian Ringgit at around RM4.10 per US dollar, and its status as an Asean nation with current account surplus stands Malaysia in good stead to attract foreign investment flows relative to other developing nations among the region, who are mired in twin deficits.

The stock market correction last year offers investors with a long- term view a great opportunity to invest at attractive prices.

As the dust settles, fund flows could return to this part of the world – Malaysia could benefit with its current account surplus, still ample foreign reserves and defensive status.

In terms of investment strategy, we are investing into stocks deemed as oversold and cheap relative to their fundamental value, while being mindful of the potential rough patches ahead and adjust portfolio asset allocation level accordingly.

We continue to like exporters in the glove sector, E&E sector, selected companies within the oil and gas space or other companies with surplus in their foreign-denominated accounts.