The changing political landscape in Malaysia and what it means to investors - 26 February 2020.
We’re in a unique situation in Malaysia. Our markets have been impacted in recent weeks by the Coronavirus outbreak and the US-China trade war. And, now the changes in our political landscape are causing a spike in short-term market volatility in Malaysia. However, for the right investor, we believe there is an opportunity to invest in Malaysian equities and fixed income products because of the value.
Over the next several weeks, markets will likely be unpredictable as we navigate our new reality of an having an interim Prime Minister and his appointment of a new Cabinet. This volatility will likely continue until the next parliamentary session re-convenes on 9 Mar or there is a call for a snap general election.
Prior to our uncertainties in market, Malaysia was on a path towards announcing a stimulus package to help cushion the domestic economy affected by the US-China trade war and the Coronavirus (Covid-19) outbreak. Both have disrupted the global supply chain ecosystem, of which Malaysia is an important participant.
We think there will be a delay in announcing the stimulus package. Assuming this delay occurs, it could set the stage for further rate cuts by BNM. We do not discount the possibility of a sequential reduction in OPR, should the economy conditions deteriorate further as BNM has signalled that they have “ample room to ease”.
Our investing strategy
- Malaysian equity valuation is already cheap. We are taking a defensive stance and focusing on stocks which are resilient to the expected slowdown in the domestic economy and/or not exposed to domestic political and regulatory uncertainty.
- We prefer sectors that benefit from interest rate cuts and are USD earners. This would include stocks in the consumer staples, healthcare, energy, plantation and the REITS sectors.
- The impact of the Coronavirus outbreak and the recent political uncertainties may result in growth in 1Q2020 softening to below 4.0%. The development is likely to push BNM to further ease monetary policy as early as March 2020 or latest in May 2020.
- As a conservative move, our fixed income funds are taking a neutral view on benchmark duration. If government bond yields start to rise, we may take advantage of it to extend duration at an opportunistic level.
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