by Theleaders-Online | July 19, 2019 7:17 am
KUALA LUMPUR: As the market is expecting another rate cut by US Federal Reserve (Fed), this could be a boon for emerging equity markets, including Malaysia.
“(In the event of) US rates cut, where it doesn’t lead to (economy) recession, which is what we expected, 100% is good for equities market, including emerging markets such as Malaysia,” said Standard Chartered head of managed investments and products management, Danny Chang during a briefing on the global market outlook for 2H19, reported The Edge.
Chang noted that market consensus’ estimated that there is a 100% probability for at least one rate cut from the US Fed, while there is a 93% probability of two rates cut from US Fed by end-2019.
In June, The Fed signaled it was prepared to cut rates as soon as July if the U.S. and China don’t reach a détente in their escalating trade war and other risks continue to grow.
The Fed currently pegs the overnight funds rate in a range between 2.25% and 2.5% — above zero, but still well below normal levels that prevailed during past economic expansions.
The upcoming US Federal Open Market Committee (FOMC) meeting will be held at July 30 and 31, 2019.
In the event of US rates cut, Chang said Northeast Asia equity markets are among the foremost countries to benefit from foreign inflows, including China, South Korea and Hong Kong due to cheaper valuations and anticipation of higher corporate earnings growth.
The funds will also flow into southeast markets such as Malaysia, albeit at much slower pace, Chang added.
However, Chang sees Malaysia’s equity continuing to under perform against its peers, due to expensive valuation and lower corporate earnings growth.
“The price-earnings (PE) ratio for FBM KLCI is trading about 16 to 17 times, (while) Asia peers is trading at low teen between 10 to 11 times,”
“The consensus estimated that Malaysia corporate earnings growth is below 10% (in 2019), lower compared to Asia peers which growing at a rate of 11-12%,” said Chang.
On the ringgit front, Standard Chartered has projected the ringgit to trade against the green back at RM4.15 level by year-end.
As of writing, Ringgit was traded at RM4.1095 against the US dollar.
One of the important factors to watch out, including Malaysia’s government bonds will potentially be withdrawn from the FTSE World Government Bond Index (WGBI), said Chang.
The global index provider has placed Malaysian bonds on the watch list for six months due to concern about market liquidity, which simultaneously raises some concerns that an exclusion could trigger a rating downgrade.
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