KUALA LUMPUR: Malaysian equities are expensive but their recent underperformance could open up opportunities for investors, said HSBC Bank Malaysia Bhd retail banking and wealth management head Lim Eng Seong.
He said they were expensive because the domestic market was dominated by institutional investors, particularly government-affiliated funds and corporate pension funds.
“As the market moves to an environment of rising interest rates as a result of the normalisation of United States monetary policy, i.e. withdrawing liquidity from the market in the long term, we expect a repricing of assets as risk premiums will inevitably change,” said Lim in the fourth quarter 2014 investment outlook report by HSBC Global Asset Management yesterday.
Malaysia’s sound macro fundamentals, particularly current account surplus and low inflation, would help weather potential fallouts arising from the increasing interest rates in the US, he added.
Lim said Malaysia was one of the fast-growing countries on the back of improving exports and increasing spending on infrastructure.
“The reform of fuel subsidy and implementation of the Goods and Services Tax next year are positive policies for the economy.”
HSBC believes the global economic recovery is still on track and equity valuations are not yet stretched.
US equities are likely to deliver better returns than holding developed market (DM) cash or government bonds over the long term.
However, tighter-than-expected US monetary policy and an escalation of geopolitical tensions could pose risks to equity markets globally, added Lim.
HSBC is “overweight” on Asia ex-Japan equities, which now trade on valuations below DM, suggesting the potential for attractive returns over the long term.