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Standard Chartered (StanChart), whose investment strategy is to stay bullish and diversified, said foreign inflows into Malaysia should be coming through in the second half of the year assuming the US dollar weakens.
Its head investment strategist Manpreet Gill said outflows in the first half of the year had more to do with the US dollar strengthening, adding that the outflows are not unique to Malaysia.
“We’ve seen it happening across Asia and emerging markets outside Malaysia and not because of the election in Malaysia. It’s a global picture where equity and bond flows have gone out of emerging markets to developed markets. That’s why we’re emphasising the US dollar so much because we think that’s what turning investment flows.
“If we’re right about the US dollar weakening, foreign investments should come back to Malaysia in the second half of the year,” he said.
Manpreet, who is based in Singapore, said a big part of this global context is particularly important for the Malaysian market, more so than in the past.
StanChart has a bullish view on equities, given that global equities typically outperform in the late stages of an economic cycle, and this also translates to the Malaysian equity market. This period of late stage of the economic cycle is usually characterised by a gradual heating up of inflationary pressures, increase in policy rates and strong equity performance.
“In the stage of economic cycle we’re in, it can be very expensive not to be invested in global equities. It will also be unusual for Malaysian equities not to do well when most regional equity and global markets are doing well,” said Manpreet.
Within equities, the US remains its most preferred region, supported by strong earnings growth, though it expects most markets to perform well.
Manpreet said late-cycle investing is one of the hardest points of the cycle to invest, hence a diverse approach makes the most sense, which is to have a counterbalance in one’s investment allocation. He said bonds remain a core holding, preferring emerging market US dollar bonds because of attractive yields.
As it expects the dollar to weaken on US trade deficits and narrowing real interest rate differentials, Manpreet said, the ringgit can be a support, estimating it to come in at RM3.90 against the dollar over a 12-month period.
On the implications of a US-China trade war, StanChart’s Global Market Brief said both bonds (at least initially) and equities would likely be hit. Given the heavy weight of equities and bonds in most portfolios, investors can allocate to areas that will do well in this scenario (such as gold), and ensuring sufficient “dry powder” to take advantage of market weakness. However, it believes a full-blown trade war is unlikely.
