PETALING JAYA: Malaysia remains a sweet spot for equity investments in Asia despite the likelihood of the US slipping into recession due to the subprime loan crisis and the anticipated drop in private investments, according to JPMorgan.
“There is risk of recession in the US. We are cautious on risky assets and have turned bearish on US equities.
“However, we don't believe Malaysia's (economic) growth will be affected severely,” JPMorgan Emerging Asia Research managing director David Fernandez told a media briefing yesterday.
He said domestic consumption and private investments would be a key driver for Malaysia's economy.
He anticipates gross domestic product growth of 5.7% this year and 5.6% next year, which are lower than the official forecast of between 6% and 6.5%.
David Fernandez
“We are concerned over the impact of a slowdown in the US economy, given that Malaysia is an extremely open economy. “For Malaysia to achieve a high growth rate of 5.6%, we anticipate one-third of the growth to be driven by private investments,” Fernandez said.
Amid worries over a recession in the world's largest economy, JPMorgan has downgraded Taiwan, South Korea and India, and recommended that their clients stay away from these highly export-oriented markets.
The financial services group, however, remains bullish on the Malaysian equity market.
“Malaysia (equity market) will outperform,” said JPMorgan Securities (M) Sdn Bhd head of Malaysia Research, Chris Oh.
The bullishness is underpinned by domestic factors such as robust domestic consumption, rising capital expenditure in the oil and gas sector, and “virtually zero” exposure to the US subprime market.
Oh said the strengthening ringgit was another attraction for foreign investors.
JPMorgan head of Asia Foreign Exchange Research, Claudio Piron, anticipates the ringgit strengthening to 3.30 against the dollar by year-end and RM3.20 by June next year.
Oh sees the share price weakness caused by the recent regional and global turmoil as a “good entry point to start accumulating again”.
He anticipates the KL Composite Index reaching 1,500 points by June next year on a forecast earnings growth of 21% this year and 10% next year.
“We acknowledge that Malaysia may not be the first port of call for foreign investors looking for significant upside on stocks as better opportunities may prevail elsewhere.
“However, we would like to reiterate that given the relative underperformance of Malaysia against the MSCI Asia ex-Japan since May this year, the forward price/earnings premiums have once again narrowed to 5% from the recent peak of 18%,” said Oh.
He favours stocks closely linked to local consumption such as fashion goods makers Bonia Corp Bhd and Padini Holdings Bhd, property developers and gaming companies.
For latest Bursa Malaysia indices, charts and other information click here
RSS