KUALA LUMPUR: Malaysia is poised to post a growth of 4.5 per cent this year supported by the nascent recovery of the global electronic cycle and resumption of global tourism.
HSBC Global private banking and wealth Southeast Asia and India chief investment officer James Cheo said Malaysia should benefit from the green shoots of recovery from the global electronic cycle.
"External environment looks better and there is also improvement in the global electronic cycle. If that starts to pick up in earnest, it would benefit Malaysia especially in terms of electronic exports," he said at a briefing on HSBC wealth and investment outlook for the first half of 2024 (1H24) here today.
The tourism sector also plays a promising role in contributing to Malaysia's growth, said Cheo, as the country captures a lion's share of tourists from China.
Although the recovery in numbers of Chinese tourists may not return to pre-pandemic level yet, Cheo said higher figures are expected than last year.
"Malaysia's economy should remain healthy this year powered by resilient consumer and investment spending. We expect Malaysia's economy to grow by 4.5 per cent in 2024, slightly faster than last year's growth which is expected to be around 3.8 per cent," said Cheo.
On the equity market, he said the consensus earnings for Malaysia are expected to be healthy as the valuation of the equity market is trading below its historical average.
Global risk sentiment and international investor positioning could be headwinds for the market.
"At this juncture, we want to be prudent and very selective with our Malaysia equity strategy," he said.
Inflation is also expected to remain subdued this year.
However, Cheo said there could be inflationary impact from the increase in service tax and reduction in fuel subsidies.
On the local currency, Cheo said there is a possibility for the US dollar to strengthen in the coming months if the US Federal Reserve (Fed) does not proceed with rate cuts, which is expected to take place in March.
He said the markets' expectations of multiple rate cuts have led to the depreciation of the ringgit at the end of last year.
"We think there will not be so many rate cuts by the Fed. If the Fed does not cut rates in March, the market will view that the assumption was wrong and the dollar will start to pare back gains.
"Therefore in the next few months we might see dollar strengthening and a weaker ringgit.
"We think Bank Negara Malaysia will continue to remain hold and keep policy rates at three per cent for the rest of this year. We forecast the ringgit to stay stable at 4.55 against the US dollar by the end of 2024," added Cheo.
Meanwhile, he said there are four top investment themes to capture attractive growth and income opportunities in Asia this year.
This includes the rise of India and Asean, riding on the structural tailwinds from strong foreign and domestic private investments, young demographics, the technology boom and green transformation.
"India has consistently delivered stronger-than-expected growth in manufacturing and service activities throughout 2023, with strong foreign direct investment inflows and booming services exports powering employment, private consumption and productivity gains.
"About 40 per cent of the world's global capability centres are in India, offering a strong boost to the country's service exports and the job market," Cheo said.
Other trends that will rise in the region to capture income opportunities are the reshaping of Asia's supply chain which cropped up due to geopolitical risks, trade fragmentation and technology restrictions.
"To mitigate geopolitical risks and alleviate the impact of trade tariffs, western multinational corporations implement the China+1 strategy by building new production facilities in India and Asean to supplement their supply chain in China," he said.
Asia's consumer discretionary sector is projected to deliver 16.4 per cent earnings growth in 2024, which is also among the investment themes highlighted by HSBC, along with the peak in Asian yields.
"We believe Asian yields are peaking and expect policy rate cuts in Australia, mainland China, Hong Kong, India, Indonesia, South Korea, the Philippines and SIngapore in 2024 to bring policy tailwinds for the Asian bond markets in the coming year," said Cheo.