KUALA LUMPUR: Malaysia and emerging markets (EMs) are expected to record a modest growth this year if there is no escalation of the US-China trade war, OCBC Bank said.
The Singapore-based bank also expects the ringgit to reach around 4.04 level versus the US dollar by the year-end.
OCBC Bank chief economist Selena Ling said geopolitical tension and volatility would continue to haunt the global economy although the market gradually adapted to the external development.
“If the economy and geopolitical landscape are stable, liquidity will be abundant as it searches for homes. Thus, higher yield environment like Malaysia will see investments coming in.
“The Malaysian Government Securities (MGS) is now at a multi year high since mid 2016. This is fairly a conducive environment,” she said at a press conference here today.
Ling expects Malaysia’s gross domestic product (GDP) to grow between 4.2 per cent and 4.5 per cent this year, lower than 4.8 per cent forecast by the government.
OCBC Bank is cautious that the US-China trade tension could escalate, pushing China to counter US pressure.
She said if the global headwinds started to subside, foreign capital would return to the regional market, making the bond and equity markets stronger.
“Foreign investors are looking for improvement in the market regionally. If domestic sentiment picks up, the equity market could do better,” she added.
Hence, she said the overall supportive environment would contribute a stronger ringgit against the dollar.
Ling said stronger currency typically improves domestic confidence, and the stabilisation of manufacturing and trade performance would attract foreign investors to shift their investments away from China-centred platform.
“Malaysia will be hosting the Asia-Pacific Economic Cooperation (APEC) forum later this year. If we see strong direction on how Asia Pacific and Asean are going to continue liberalising their markets to integrate regionally, that would be a good catalyst to offset a lot of the protectionist that we have seen in the last three years,” she said.
Ling said the improvement in the local manufacturing and services segments indicated the growth drivers would probably be more diversified.
“After months of languishing in contractionary territory, Malaysia’s manufacturing sector Purchasing Managers' Index (PMI) has finally resurfaced at the key 50 handle that separates contraction from expansion territory in December 2019.
“If the improvement is sustained, this should bode well for exports sector. Foreign direct investments (FDIs) in manufacturing have also picked up in recent quarters, especially into the electronics manufacturing sector,” she said.
Citing an example, she said Penang’s manufacturing sector had benefited from the recalibration of regional supply chains due to the US-China trade war.
She said Malaysia’s exports growth would likely recover to between 4.0 per cent and 5.0 per cent this year on the back of greater hope of global trade flows picking up.
She said Bank Negara Malaysia was expected to reduce interest rate about 25 basis points in the second half of 2020, should the global economy fail to be more supportive to exports sector.
Previously, Bank Negara kept its overnight policy rate at 3.0 per cent since May last year.
“Inflation in Malaysia is well within the comfort zone. It may be a bit higher than last year. But we do not think that will be a key determinant on whether the central bank will change its monetary policy.
“We believe there is no urgency for the central bank to hike the interest rate but rather in ‘wait and see’ mode. There is room to be more accommodative to cut the rate if growth starts to soften, and also depends on the development of US-China tradewar,” she said.
Ling expects crude palm oil prices to stabilise towards the year end, averaging from RM2,800 to RM3,000 per tonne.
“The demand is still fairly modest and supply could be disrupted. Hence, we are not expecting a big upside for most commodity prices.
“We expect some price consolidation as the spread between palm oil prices against gas, oil and soy oil starts to narrow,” she said.